Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Add Definitions to Chapter I, Section 1, Titled General Provisions and Also Amend Chapter VI, Section 18, Titled Risk Protections, 55765-55768 [2018-24308]

Download as PDF Federal Register / Vol. 83, No. 216 / Wednesday, November 7, 2018 / Notices amozie on DSK3GDR082PROD with NOTICES1 duration for such a prohibition would be preferable? If so, what duration and why? 3. What are commenters’ views on the significance of the proposed change from the current prohibition against certain transactions that would set a new high or low price on the Exchange for the day to the proposed prohibition against certain transactions that would result in a new consolidated high or low price for the day? Do commenters believe that this change would have additional consequences for the operation of Rule 104? 4. What are commenters’ views on how the obligations imposed on DMMs by proposed NYSE Rule 104 during the rest of the trading day would compare with the obligations imposed by current NYSE Rule 104? 5. What are commenters’ views on the Exchange’s argument that changes to NYSE Rule 104 would promote aggressive DMM quoting in their assigned securities? What are commenters’ views on the Exchange’s argument that DMMs are currently at a competitive disadvantage because of NYSE Rule 104 and that the current rule ‘‘thwarts the ability of the DMM to meet their affirmative obligations to quote aggressively in assigned securities’’? 6. What are commenters’ views on whether the ‘‘Price Participation Points’’ that the Exchange provides to its DMMs would be sufficient under the proposed changes to NYSE Rule 104 to prevent DMMs from aggressively taking liquidity and moving prices on the Exchange immediately before the closing auction? 7. Existing Rules 104(g) and (h) refer to ‘‘DMMs,’’ and proposed Rule 104(g) would refer instead to ‘‘DMM units.’’ What are commenters’ views of the significance, if any, of this change in wording? What are commenters’ views on whether the amended rule should apply to the activities of individuals trading as DMMs on the Exchange floor? 8. Generally, would the Exchange’s proposal maintain an appropriate balance between the benefits and obligations of being a DMM on the Exchange? 25 In light of DMMs’ special 25 Current NYSE Rule 104 was originally approved as part of the NYSE pilot program called the ‘‘New Market Model.’’ See Securities Exchange Act Release No. 58845 (Oct. 24, 2008), 73 FR 64379 (Oct. 29, 2008). As the Commission stated when approving the NYSE’s proposal to conduct the New Market Model pilot, ‘‘[w]e carefully review trading rule proposals that seek to offer special advantages to market makers. Although an exchange may reward such participants for the benefits they provide to the exchange’s market, such reward must not be disproportionate to the services provided.’’ See id. In 2015, the Commission permanently approved the New Market Model pilot and noted VerDate Sep<11>2014 17:46 Nov 06, 2018 Jkt 247001 responsibility for closing auctions under NYSE rules, would the obligations of DMMs under NYSE rules be reasonably designed to prevent DMMs from inappropriately influencing or manipulating the close if the proposed rule change were approved? Comments may be submitted by any of the following methods: 55765 2018. Rebuttal comments should be submitted by December 12, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–24303 Filed 11–6–18; 8:45 am] BILLING CODE 8011–01–P 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– NYSE–2018–34 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2018–34. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet 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–NYSE–2018–34 and should be submitted on or before November 28, that the pilot had been conducted to seek ‘‘further evidence that the benefits proposed for DMMs are not disproportionate to their obligations.’’ See Securities Exchange Act Release No. 75578 (July 31, 2015), 80 FR 47008 (Aug. 6, 2015). PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–84520; File No. SR–BX– 2018–050] Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Add Definitions to Chapter I, Section 1, Titled General Provisions and Also Amend Chapter VI, Section 18, Titled Risk Protections November 1, 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 October 18, 2018, Nasdaq BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to add definitions to Chapter I, Section 1, titled ‘‘General Provisions’’ and also amend Chapter VI, Section 18, titled, ‘‘Risk Protections.’’ The text of the proposed rule change is available on the Exchange’s website at https://nasdaqbx.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 26 17 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\07NON1.SGM 07NON1 55766 Federal Register / Vol. 83, No. 216 / Wednesday, November 7, 2018 / Notices statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this rule change is to adopt certain definitions within Chapter I, Section 1, titled ‘‘General Provisions’’ and also amend Chapter VI, Section 18, titled, ‘‘Risk Protections.’’ Each change is described in more detail below. Definitions The Exchange proposes to amend Chapter I, Section 1 to add three new definitions into its Rulebook. These definitions are utilized in technical documents issued by the Exchange and will provide an ease of reference for understanding these terms. Specifically, Chapter I, Section 1(a)(70) would define an account number as a number assigned to a Participant. Participants may have more than one account number. Chapter I, Section 1(a)(71) would define a badge as an account number, which may contain letters and/ or numbers, assigned to BX Market Makers. A BX Market Maker account may be associated with multiple badges. Finally, Chapter I, Section 1(a)(72) would define a mnemonic as an acronym comprised of letters and/or numbers assigned to Participants. A Participant account may be associated with multiple mnemonics. amozie on DSK3GDR082PROD with NOTICES1 Risk Protections Order Price Protection The Exchange proposes a minor amendment to Chapter VI, Section 18(1) to add punctuation and ‘‘OPP’’ at the beginning of that sentence to conform the text to the remainder of the rule. The Exchange proposes to remove the example within Rule Chapter VI, Section 18(1)(B)(i) which states, ‘‘For example, if the Reference BBO on the offer side is $1.10, an order to buy options for more than $1.65 would be rejected. Similarly, if the Reference BBO on the bid side is $1.10, an order to sell options for less than $0.55 will be rejected.’’ The Exchange also proposes to remove the example within Chapter VI, Section 18(1)(B)(ii) which states, ‘‘For example, if the Reference BBO on the offer side is $1.00, an order to buy options for more than $2.00 would be rejected. However, if the Reference BBO of the bid side of an incoming order to VerDate Sep<11>2014 17:46 Nov 06, 2018 Jkt 247001 sell is less than or equal to $1.00, the OPP limits set forth above will result in all incoming sell orders being accepted regardless of their limit.’’ The Exchange notes that while the examples remain accurate, the Exchange proposes to remove the text to conform the rule text to other risk protections. The Exchange does not believe it is necessary to have these examples within the rule text. Market Order Spread Protection The Exchange proposes to amend the Market Order Spread Protection Rule in Chapter VI, Section 18(a)(2) to permit BX to establish different thresholds for one or more series or classes of options similar to Phlx.3 The Exchange desires, similar to Phlx, to be permitted the flexibility to allow it to determine a threshold suitable for each series or class of option. The Exchange’s current rule provides no discretion to permit different thresholds for one or more series or classes of options. By adding this rule text, the Exchange proposes to permit one or more series or classes of options to set a different threshold, which the Exchange would announce via an Options Trader Alert, similar to Phlx. The Exchange desires to conform this protection to Phlx so that it could set the same threshold across affiliated markets. The Phlx Rule Change provided that the $5 threshold is appropriate because it seeks to ensure that the displayed bid and offer are within reasonable ranges and do not represent erroneous prices. Further the Exchange noted that this protection will bolster the normal resilience and market behavior that persistently produces robust reference prices. This feature should create a level of protection that prevents Market Orders from entering the Order Book outside of an acceptable range for the Market Order to execute. The Exchange notes that those goals remain consistent with the Exchange’s goals today for this risk feature. The Exchange would establish different thresholds for one or more series or classes of options if it believed that the threshold should differ to retain these goals. Anti-Internalization The Exchange proposes to add a new sentence to Anti-Internalization Rule at Chapter VI, Section 18(c)(1) to provide that Anti-Internalization functionality shall not apply in any auction. This is the current practice today. With respect 3 Securities Exchange Act Release No. 83141 (May 1, 2018), 83 FR 20123 (May 7, 2018) (SR–Phlx– 2018–32). Footnote 11 of this filing provides that Exchange may establish differences other than the referenced threshold for one or more series or classes of options. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 to an auction,4 the Exchange notes that Anti-Internalization functionality is difficult to apply during auctions, and there is limited benefit in doing so. There is limited benefit because, generally speaking, auctions do not raise the same policy concerns for wash sales and ERISA 5 due to the semi-random manner in which trades are matched. Also, the Exchange notes that with respect to entering quotes in an auction, a Market Maker could not start an auction in symbols in which they are assigned. With respect to orders, Market Makers can only commence a PRISM in a non-assigned symbol.6 It is not common for a Market Maker to commence such an auction. Finally, the Exchange notes that Nasdaq ISE, LLC Rule 714(b)(3)(A) contains the same constraint in that it does not apply the Anti-Internalization protection in any auction. Automated Removal of Quotes Finally, the Exchange proposes to amend the title of Chapter VI, Section 18(c)(2) from ‘‘Automated Removal of Quotes’’ to ‘‘Quotation Adjustments’’ to conform the title across Nasdaq markets. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,7 in general, and furthers the objectives of Section 6(b)(5) of the Act,8 in particular, in that it is designed to promote just and equitable principles of trade and to protect investors and the public interest by adding greater transparency to the Exchange’s rules. The Exchange’s proposal to add definitions to Chapter I, Section 1 will bring greater clarity to the AntiInternalization functionality and to the Rulebook. Amendments to remove examples from the OPP rule text will conform the rule text to other rules. The Exchange believes that it is unnecessary to have examples in the rule text. Adding the word ‘‘trading’’ before the word ‘‘halt’’ within the Market Order 4 PRISM is the Exchange’s Price Improvement Auction. See BX Rules at Chapter VI, Section 9. 5 AIQ is designed to assist market participants in complying with certain rules and regulations of the Employee Retirement Income Security Act (‘‘ERISA’’) that preclude and/or limit managing broker-dealers of such accounts from trading as principal with orders generated for those accounts. It can also assist Market Makers in reducing trading costs from unwanted executions potentially resulting from the interaction of executable buy and sell trading interest from the same firm when performing the same market making function. 6 Specialists and ROTs can only quote in symbols in which they are assigned. 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). E:\FR\FM\07NON1.SGM 07NON1 amozie on DSK3GDR082PROD with NOTICES1 Federal Register / Vol. 83, No. 216 / Wednesday, November 7, 2018 / Notices Spread Protection rule text will bring conformity to Chapter VI, Section 18. The Exchange’s proposal to expand the Market Order Spread Protection permits the Exchange to establish different thresholds for one or more series or classes of options similar to Phlx. The Exchange desires this flexibility to allow it, similar to Phlx,9 to determine a threshold suitable for each series or class of option. The Exchange believes that expanding this capability is consistent with the Act because it would allow the Exchange to consider thresholds for Market Order Spread Protection at a more granular level, per series or class, to ensure that the displayed bid and offer are within reasonable ranges and do not represent erroneous prices. The Exchange intends that this risk protection would bolster the normal resilience and market behavior that persistently produces robust reference prices, while creating a level of protection that prevents Market Orders from entering the Order Book outside of an acceptable range for the Market Order to execute. The Exchange’s proposal to make clear that the Anti-Internalization functionality will not apply in any auction will also bring greater transparency to the rules and the limitation of this functionality. With respect to an auction,10 the Exchange notes that Anti-Internalization functionality is difficult to apply during auctions, and there is limited benefit in doing so. There is limited benefit because, generally speaking, auctions do not raise the same policy concerns for wash sales and ERISA 11 due to the semi-random manner in which trades are matched. Also, the Exchange notes that with respect to entering quotes in an auction, a Market Maker could not start an auction in symbols in which they are assigned. With respect to orders, Market Makers can only commence a PRISM in a non-assigned symbol. It is not common for a Market Maker to commence such an auction. Finally, the Exchange’s proposal to amend the title of Chapter VI, Section 18(c)(2) from ‘‘Automated Removal of Quotes’’ to ‘‘Quotation Adjustments’’ should better describe the rule and conform the title to other Nasdaq affiliate markets. The proposals noted herein are consistent with the Act because they provide more detail and transparency to the Exchange’s rules noted herein to the benefit of market participants. 9 See note 4 above. is the Exchange’s Price Improvement XL auction. See Phlx Rule 1087. 11 See note 6 above. 10 PIXL VerDate Sep<11>2014 17:46 Nov 06, 2018 Jkt 247001 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 believes that the proposed amendments do not impose an undue burden on competition because the definitions and amendments to conform the rule text will provide greater clarity as to the meaning of those terms. Removing examples from the OPP rule text does not impose an undue burden on competition because this text is not necessary within the rule text. Adding the word ‘‘trading’’ before the word ‘‘halt’’ within the Market Order Spread Protection rule text will bring conformity to Chapter VI, Section 18. The Exchange’s proposal to expand the Market Order Spread Protection to permit the Exchange to establish different thresholds for one or more series or classes of options, similar to Phlx, would apply uniformly to all market participants. The Exchange’s proposal to make clear that the Anti-Internalization functionality will not apply in any auction will also bring greater transparency to the rules and the limitation of this functionality. With respect to an auction, the Exchange notes that Anti-Internalization functionality is difficult to apply during auctions, and there is limited benefit in doing so. There is limited benefit because, generally speaking, auctions do not raise the same policy concerns for wash sales and ERISA 12 due to the semi-random manner in which trades are matched. Finally, the Exchange’s proposal to amend the title of Rule Chapter VI, Section 18(c)(2) is nonsubstantive. 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 12 See PO 00000 note 6 above. Frm 00080 Fmt 4703 Sfmt 4703 55767 19(b)(3)(A) of the Act 13 and Rule 19b– 4(f)(6) thereunder.14 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 15 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 16 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposed rule change may become operative upon filing. The Exchange believes that waiver of the operative delay would allow the Exchange to update its rules without delay to remove inconsistent rule language, make clarifying changes to reflect current and accurate information, and bring greater transparency to the Exchange’s risk protections and Anti-Internalization rule. Additionally, the Commission notes that the changes relating to the Anti-Internalization functionality and Market Order Spread Protection are based on the operation of similar functionality on Nasdaq ISE and Phlx, respectively. Therefore, the Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.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 necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved. 13 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 15 17 CFR 240.19b–4(f)(6). 16 17 CFR 240.19b–4(f)(6)(iii). 17 For purposes only of waiving the 30-day operative delay, the Commission also has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 14 17 E:\FR\FM\07NON1.SGM 07NON1 55768 Federal Register / Vol. 83, No. 216 / Wednesday, November 7, 2018 / Notices 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: • 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– BX–2018–050 on the subject line. Paper Comments amozie on DSK3GDR082PROD with NOTICES1 • 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–BX–2018–050. 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–BX–2018–050, and should be submitted on or before November 28, 2018. 17:46 Nov 06, 2018 [FR Doc. 2018–24308 Filed 11–6–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments VerDate Sep<11>2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Eduardo A. Aleman, Assistant Secretary. Jkt 247001 [Release No. 34–84521; File No. SR–OCC– 2018–013] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Extend Term Limits for Member Directors Serving on The Options Clearing Corporation’s Board of Directors November 1, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 26, 2018, The Options Clearing Corporation (‘‘OCC’’) 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 primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change by OCC would extend the term limits for Member Directors serving on the Board of Directors from two consecutive threeyear terms to three consecutive threeyear terms. The proposed changes to OCC’s By-Laws and Board of Directors Charter and Corporate Governance Principles are included as Exhibits 5A and 5B, respectively. Material proposed to be added is underlined and material proposed to be deleted is marked in strikethrough text. The proposed rule change, including Exhibits 5A and 5B, is available on OCC’s website at https:// www.theocc.com/about/publications/ bylaws.jsp. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the OCC By-Laws and Rules.3 18 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 OCC’s By-Laws and Rules can be found on OCC’s public website: https://optionsclearing.com/ 1 15 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (1) Purpose Background OCC is proposing changes to Article III, Section 2 of its By-Laws and to its Board of Directors Charter and Corporate Governance Principles (‘‘Board Charter’’) that would extend the term limits for Member Directors from two consecutive three-year terms to three consecutive three-year terms. The purpose of the proposed rule change is to address issues associated with frequent Member Director turnover by providing the potential for longer consecutive service by Member Directors who, among other considerations, may have developed considerable knowledge about OCC’s business and the interests of Clearing Members. Board Composition and Member Director Considerations OCC’s Certificate of Incorporation and By-Laws establish the composition of its Board of Directors (‘‘Board’’) and the procedures for director selection. When at its full capacity, the Board consists of twenty directors: (i) Nine directors representing OCC Clearing Members (‘‘Member Directors’’); (ii) five directors designated by and representing each of OCC’s five Equity Exchanges (‘‘Exchange Directors’’); (iii) five directors who are not affiliated with any national securities exchange, national securities association or with any broker or dealer in securities (‘‘Public Directors’’); and (iv) one management director, who serves as the Executive Chairman (‘‘Management Director’’).4 about/publications/bylaws.jsp. OCC’s Board of Directors Charter and Corporate Governance Principles is also available on OCC’s public website: https://www.theocc.com/about/corporateinformation/board-charter.jsp. 4 OCC By-Laws, Article III, Sections 1, 2, 6, 6A and 7 (addressing the number of directors and required qualifications of Member Directors, Exchange Directors, Public Directors and the E:\FR\FM\07NON1.SGM 07NON1

Agencies

[Federal Register Volume 83, Number 216 (Wednesday, November 7, 2018)]
[Notices]
[Pages 55765-55768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24308]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84520; File No. SR-BX-2018-050]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Add Definitions 
to Chapter I, Section 1, Titled General Provisions and Also Amend 
Chapter VI, Section 18, Titled Risk Protections

November 1, 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 October 18, 2018, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to add definitions to Chapter I, Section 1, 
titled ``General Provisions'' and also amend Chapter VI, Section 18, 
titled, ``Risk Protections.''
    The text of the proposed rule change is available on the Exchange's 
website at https://nasdaqbx.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

[[Page 55766]]

statements may be examined at the places specified in Item IV below. 
The Exchange has prepared summaries, set forth in sections A, B, and C 
below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule change is to adopt certain definitions 
within Chapter I, Section 1, titled ``General Provisions'' and also 
amend Chapter VI, Section 18, titled, ``Risk Protections.'' Each change 
is described in more detail below.
Definitions
    The Exchange proposes to amend Chapter I, Section 1 to add three 
new definitions into its Rulebook. These definitions are utilized in 
technical documents issued by the Exchange and will provide an ease of 
reference for understanding these terms. Specifically, Chapter I, 
Section 1(a)(70) would define an account number as a number assigned to 
a Participant. Participants may have more than one account number. 
Chapter I, Section 1(a)(71) would define a badge as an account number, 
which may contain letters and/or numbers, assigned to BX Market Makers. 
A BX Market Maker account may be associated with multiple badges. 
Finally, Chapter I, Section 1(a)(72) would define a mnemonic as an 
acronym comprised of letters and/or numbers assigned to Participants. A 
Participant account may be associated with multiple mnemonics.
Risk Protections
Order Price Protection
    The Exchange proposes a minor amendment to Chapter VI, Section 
18(1) to add punctuation and ``OPP'' at the beginning of that sentence 
to conform the text to the remainder of the rule. The Exchange proposes 
to remove the example within Rule Chapter VI, Section 18(1)(B)(i) which 
states, ``For example, if the Reference BBO on the offer side is $1.10, 
an order to buy options for more than $1.65 would be rejected. 
Similarly, if the Reference BBO on the bid side is $1.10, an order to 
sell options for less than $0.55 will be rejected.'' The Exchange also 
proposes to remove the example within Chapter VI, Section 18(1)(B)(ii) 
which states, ``For example, if the Reference BBO on the offer side is 
$1.00, an order to buy options for more than $2.00 would be rejected. 
However, if the Reference BBO of the bid side of an incoming order to 
sell is less than or equal to $1.00, the OPP limits set forth above 
will result in all incoming sell orders being accepted regardless of 
their limit.'' The Exchange notes that while the examples remain 
accurate, the Exchange proposes to remove the text to conform the rule 
text to other risk protections. The Exchange does not believe it is 
necessary to have these examples within the rule text.
Market Order Spread Protection
    The Exchange proposes to amend the Market Order Spread Protection 
Rule in Chapter VI, Section 18(a)(2) to permit BX to establish 
different thresholds for one or more series or classes of options 
similar to Phlx.\3\ The Exchange desires, similar to Phlx, to be 
permitted the flexibility to allow it to determine a threshold suitable 
for each series or class of option. The Exchange's current rule 
provides no discretion to permit different thresholds for one or more 
series or classes of options. By adding this rule text, the Exchange 
proposes to permit one or more series or classes of options to set a 
different threshold, which the Exchange would announce via an Options 
Trader Alert, similar to Phlx. The Exchange desires to conform this 
protection to Phlx so that it could set the same threshold across 
affiliated markets. The Phlx Rule Change provided that the $5 threshold 
is appropriate because it seeks to ensure that the displayed bid and 
offer are within reasonable ranges and do not represent erroneous 
prices. Further the Exchange noted that this protection will bolster 
the normal resilience and market behavior that persistently produces 
robust reference prices. This feature should create a level of 
protection that prevents Market Orders from entering the Order Book 
outside of an acceptable range for the Market Order to execute. The 
Exchange notes that those goals remain consistent with the Exchange's 
goals today for this risk feature. The Exchange would establish 
different thresholds for one or more series or classes of options if it 
believed that the threshold should differ to retain these goals.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 83141 (May 1, 2018), 83 
FR 20123 (May 7, 2018) (SR-Phlx-2018-32). Footnote 11 of this filing 
provides that Exchange may establish differences other than the 
referenced threshold for one or more series or classes of options.
---------------------------------------------------------------------------

Anti-Internalization
    The Exchange proposes to add a new sentence to Anti-Internalization 
Rule at Chapter VI, Section 18(c)(1) to provide that Anti-
Internalization functionality shall not apply in any auction. This is 
the current practice today. With respect to an auction,\4\ the Exchange 
notes that Anti-Internalization functionality is difficult to apply 
during auctions, and there is limited benefit in doing so. There is 
limited benefit because, generally speaking, auctions do not raise the 
same policy concerns for wash sales and ERISA \5\ due to the semi-
random manner in which trades are matched. Also, the Exchange notes 
that with respect to entering quotes in an auction, a Market Maker 
could not start an auction in symbols in which they are assigned. With 
respect to orders, Market Makers can only commence a PRISM in a non-
assigned symbol.\6\ It is not common for a Market Maker to commence 
such an auction. Finally, the Exchange notes that Nasdaq ISE, LLC Rule 
714(b)(3)(A) contains the same constraint in that it does not apply the 
Anti-Internalization protection in any auction.
---------------------------------------------------------------------------

    \4\ PRISM is the Exchange's Price Improvement Auction. See BX 
Rules at Chapter VI, Section 9.
    \5\ AIQ is designed to assist market participants in complying 
with certain rules and regulations of the Employee Retirement Income 
Security Act (``ERISA'') that preclude and/or limit managing broker-
dealers of such accounts from trading as principal with orders 
generated for those accounts. It can also assist Market Makers in 
reducing trading costs from unwanted executions potentially 
resulting from the interaction of executable buy and sell trading 
interest from the same firm when performing the same market making 
function.
    \6\ Specialists and ROTs can only quote in symbols in which they 
are assigned.
---------------------------------------------------------------------------

Automated Removal of Quotes
    Finally, the Exchange proposes to amend the title of Chapter VI, 
Section 18(c)(2) from ``Automated Removal of Quotes'' to ``Quotation 
Adjustments'' to conform the title across Nasdaq markets.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest by adding greater transparency to the Exchange's rules. 
The Exchange's proposal to add definitions to Chapter I, Section 1 will 
bring greater clarity to the Anti-Internalization functionality and to 
the Rulebook. Amendments to remove examples from the OPP rule text will 
conform the rule text to other rules. The Exchange believes that it is 
unnecessary to have examples in the rule text. Adding the word 
``trading'' before the word ``halt'' within the Market Order

[[Page 55767]]

Spread Protection rule text will bring conformity to Chapter VI, 
Section 18.
---------------------------------------------------------------------------

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

    The Exchange's proposal to expand the Market Order Spread 
Protection permits the Exchange to establish different thresholds for 
one or more series or classes of options similar to Phlx. The Exchange 
desires this flexibility to allow it, similar to Phlx,\9\ to determine 
a threshold suitable for each series or class of option. The Exchange 
believes that expanding this capability is consistent with the Act 
because it would allow the Exchange to consider thresholds for Market 
Order Spread Protection at a more granular level, per series or class, 
to ensure that the displayed bid and offer are within reasonable ranges 
and do not represent erroneous prices. The Exchange intends that this 
risk protection would bolster the normal resilience and market behavior 
that persistently produces robust reference prices, while creating a 
level of protection that prevents Market Orders from entering the Order 
Book outside of an acceptable range for the Market Order to execute.
---------------------------------------------------------------------------

    \9\ See note 4 above.
---------------------------------------------------------------------------

    The Exchange's proposal to make clear that the Anti-Internalization 
functionality will not apply in any auction will also bring greater 
transparency to the rules and the limitation of this functionality. 
With respect to an auction,\10\ the Exchange notes that Anti-
Internalization functionality is difficult to apply during auctions, 
and there is limited benefit in doing so. There is limited benefit 
because, generally speaking, auctions do not raise the same policy 
concerns for wash sales and ERISA \11\ due to the semi-random manner in 
which trades are matched. Also, the Exchange notes that with respect to 
entering quotes in an auction, a Market Maker could not start an 
auction in symbols in which they are assigned. With respect to orders, 
Market Makers can only commence a PRISM in a non-assigned symbol. It is 
not common for a Market Maker to commence such an auction.
---------------------------------------------------------------------------

    \10\ PIXL is the Exchange's Price Improvement XL auction. See 
Phlx Rule 1087.
    \11\ See note 6 above.
---------------------------------------------------------------------------

    Finally, the Exchange's proposal to amend the title of Chapter VI, 
Section 18(c)(2) from ``Automated Removal of Quotes'' to ``Quotation 
Adjustments'' should better describe the rule and conform the title to 
other Nasdaq affiliate markets. The proposals noted herein are 
consistent with the Act because they provide more detail and 
transparency to the Exchange's rules noted herein to the benefit of 
market participants.

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 believes that the 
proposed amendments do not impose an undue burden on competition 
because the definitions and amendments to conform the rule text will 
provide greater clarity as to the meaning of those terms. Removing 
examples from the OPP rule text does not impose an undue burden on 
competition because this text is not necessary within the rule text. 
Adding the word ``trading'' before the word ``halt'' within the Market 
Order Spread Protection rule text will bring conformity to Chapter VI, 
Section 18. The Exchange's proposal to expand the Market Order Spread 
Protection to permit the Exchange to establish different thresholds for 
one or more series or classes of options, similar to Phlx, would apply 
uniformly to all market participants.
    The Exchange's proposal to make clear that the Anti-Internalization 
functionality will not apply in any auction will also bring greater 
transparency to the rules and the limitation of this functionality. 
With respect to an auction, the Exchange notes that Anti-
Internalization functionality is difficult to apply during auctions, 
and there is limited benefit in doing so. There is limited benefit 
because, generally speaking, auctions do not raise the same policy 
concerns for wash sales and ERISA \12\ due to the semi-random manner in 
which trades are matched. Finally, the Exchange's proposal to amend the 
title of Rule Chapter VI, Section 18(c)(2) is non-substantive.
---------------------------------------------------------------------------

    \12\ See note 6 above.
---------------------------------------------------------------------------

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) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \15\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange believes that waiver of the operative delay would allow the 
Exchange to update its rules without delay to remove inconsistent rule 
language, make clarifying changes to reflect current and accurate 
information, and bring greater transparency to the Exchange's risk 
protections and Anti-Internalization rule. Additionally, the Commission 
notes that the changes relating to the Anti-Internalization 
functionality and Market Order Spread Protection are based on the 
operation of similar functionality on Nasdaq ISE and Phlx, 
respectively. Therefore, the Commission believes that waiver of the 30-
day operative delay is consistent with the protection of investors and 
the public interest. Accordingly, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\17\
---------------------------------------------------------------------------

    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

[[Page 55768]]

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-BX-2018-050 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-BX-2018-050. 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-BX-2018-050, and should be submitted on 
or before November 28, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24308 Filed 11-6-18; 8:45 am]
 BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.