Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend BX Rules at Chapter VI, Section 6, 55631-55638 [2019-22588]

Download as PDF Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices equates to 5,000 hours per year when annualized over three years. Commission staff estimates that a total of 21 regulators or other authorities (that otherwise are not identified by statute or the rules as being eligible for access) may request that the Commission determine that they be able to access such security-based swap data. On average, each of those entities is expected to expend 40 hours in connection with such requests, for a one-time aggregate burden of 840 hours, with no associated ongoing burdens. This equates to 280 hours per year when annualized over three years. Commission staff also estimates that a total of 10 SDRs may be expected to incur systems-related costs associated with setting up access to security-based swap data for regulators and other authorities. On average, each of those entities is expected to expend 7,800 hours in connection with providing such connectivity, for a one-time aggregate burden of 78,000 hours, with no associated no ongoing burdens associated with this requirement. This equates to 26,000 hours when annualized over three years. In addition, Commission staff estimates that a total of 10 SDRs may incur costs associated with notifying the Commission when the SDR receives the first request for security-based swap data from a particular entity. On average, each of those SDRs is expected to expend 150 hours in connection with this notice requirement (based on each SDR providing 300 notices, at half-hour per notice), for a one-time aggregate burden of 1,500 hours, with no associated ongoing burdens. This equates to 500 hours per year when annualized over three years. Commission staff estimates that a total of 10 SDRs may incur costs associated with the requirement that they maintain records of all information related to initial and subsequent requests for data access. On average, compliance with this provision is expected to require 360 hours initially and 280 hours annually per SDR, for a total burden of 3,600 hours initially and 2,800 hours annually across ten SDRs. This equates to 4,000 hours per year when annualized over three years. Commission staff further estimates that those SDRs each will require $40,000 annually in connection with that requirement, for a total cost of $400,000 annually across ten SDRs. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. The public may view background documentation for this information VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 collection at the following website: www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Lindsay.M.Abate@omb.eop.gov; and (ii) Charles Riddle, Acting Director/Chief Information Officer, Securities and Exchange Commission, c/o Candace Kenner, 100 F Street NE, Washington, DC 20549, or by sending an email to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: October 10, 2019. Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–22579 Filed 10–16–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87270; File No. SR–BX– 2019–033] Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend BX Rules at Chapter VI, Section 6 October 10, 2019. 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 8, 2019, 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 amend BX Rules at Chapter VI, Section 6, ‘‘Acceptance of Quotes and Orders,’’ Chapter VI, Section 7, ‘‘Entry and Display Orders,’’ Chapter VI, Section 10, ‘‘Book Processing,’’ Chapter VI, Section 21, ‘‘Order and Quote Protocols,’’ Chapter VII, Section 5, ‘‘Obligations of Market Makers,’’ and Chapter VII, Section 12, ‘‘Order Exposure 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00092 Fmt 4703 Sfmt 4703 55631 Requirements.’’ The Exchange proposes to relocate certain current rules to new Rules Chapter VI, Section 22, titled ‘‘Kill Switch’’ and 23, titled ‘‘Detection of Loss of Communication.’’ 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 statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Chapter VI, Section 6, ‘‘Acceptance of Quotes and Orders,’’ Chapter VI, Section 7, ‘‘Entry and Display Orders,’’ Chapter VI, Section 10, ‘‘Book Processing,’’ Chapter VI, Section 21, ‘‘Order and Quote Protocols,’’ Chapter VII, Section 5, ‘‘Obligations of Market Makers,’’ and Chapter VII, Section 12, ‘‘Order Exposure Requirements.’’ The Exchange proposes to relocate certain current rules to new Rules Chapter VI, Section 22, titled ‘‘Kill Switch’’ and 23, titled ‘‘Detection of Loss of Communication.’’ Each rule change will be discussed in greater detail below. Chapter VI, Section 6, Acceptance of Quotes and Orders Currently, Chapter VI, Section 6 is titled ‘‘Acceptance of Quotes and Orders.’’ The Exchange proposes to retitle Chapter VI, Section 6 as ‘‘Entry and Display of Quotes.’’ The Exchange proposes to add an (a) before the first paragraph. The Exchange is removing references to orders in this Rule because it also proposes to adopt a new Chapter VI, Section 7, titled ‘‘Entry and Display of Orders’’ to describe requirements for order entry. The Exchange proposes to add a new section (b) to Chapter VI, Section 6 to describe the current requirements and E:\FR\FM\17OCN1.SGM 17OCN1 55632 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices conditions for submitting quotes. These requirements reflect the current System operation today. The Exchange proposes to memorialize the various requirements for the submission of quotes into the System for greater transparency. The Exchange proposes to provide at proposed Chapter VI, Section 6(b), ‘‘Quotes are subject to the following requirements and conditions:’’. The Exchange proposes to add at Chapter VI, Section 6(b)(1) that ‘‘Market Makers may generate and submit option quotations.’’ Current Chapter VII, Section 6 makes clear that Market Makers may submit quotes,3 however the Exchange proposes to create a list of rules related to quote submission within this rule for ease of reference. The Exchange proposes to provide at proposed Chapter VI, Section 6(b)(2) that ‘‘The System shall time-stamp a quote which shall determine the time ranking of the quote for purposes of processing the quote.’’ The Exchange notes that all quotes today are time-stamped for purposes of processing quotes. Proposed Rule Chapter VI, Section 6(b)(3) states that ‘‘Market Makers may enter bids and/or offers in the form of a two-sided quote. Only one quote may be submitted at a time for an option series.’’ The Exchange believes that this information will provide Market Makers with information on submitting a quote. The Exchange notes that bid or offer may be a ‘‘0,’’ however a price is required to be entered for both the bid and offer to be entered into the System. Further, the Exchange proposes at Chapter VI, Section 6(b)(4) to provide clarity for entering quotes and proposes to specify, ‘‘The System accepts quotes beginning at a time specified by the Exchange and communicated on the Exchange’s website.’’ 4 The Exchange believes that this information will bring greater transparency to the Rulebook with respect to limitations for submitting quotations into the System. The Exchange proposes a provision regarding firm quote within proposed Rule Chapter VI, Section 6(b)(5): Firm Quote. When quotes in options on another market or markets are subject to relief from the firm quote requirement set forth in the SEC Quote Rule, orders and quotes will receive an automatic execution at or better than the NBBO based on the best bid or offer in markets whose quotes are not subject to such relief. Such determination may be made 3 Chapter VII, Section 6(b) provides, ‘‘A Market Maker that enters a bid (offer) in a series of an option in which he is registered on BX Options must enter an offer (bid).’’ 4 The system settings page is located: https:// www.nasdaqtrader.com/content/technicalsupport/ BXOptions_SystemSettings.pdf. VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 by way of notification from another market that its quotes are not firm or are unreliable; administrative message from the Option Price Reporting Authority (‘‘OPRA’’); quotes received from another market designated as ‘‘not firm’’ using the appropriate indicator; and/or telephonic or electronic inquiry to, and verification from, another market that its quotes are not firm. The Exchange shall maintain a record of each instance in which another exchange’s quotes are excluded from the Exchange’s calculation of NBBO, and shall notify such other exchange that its quotes have been so excluded. Where quotes in options on another market or markets previously subject to relief from the firm quote requirement set forth in the Quote Rule are no longer subject to such relief, such quotations will be included in the calculation of NBBO for such options. Such determination may be made by way of notification from another market that its quotes are firm; administrative message from OPRA; and/or telephonic or electronic inquiry to, and verification from, another market that its quotes are firm. BX Chapter VI, Section 6(b)(5) describes Firm Quote for purposes of quote submission. The Exchange proposes to memorialize within its Rules the requirement for the dissemination of quotations pursuant to Reg NMS.5 The Exchange is proposing to add the above rule text to provide context as to this restriction for submitting quotes. The Exchange proposes to make clear the manner in which quote relief will occur. Specifically, this proposed rule text indicates the manner in which a determination for quote relief is made. Further, the rule notes the Exchange shall maintain a record of each instance in which another exchange’s quotes are excluded from the Exchange’s calculation of NBBO, and shall notify such other exchange that its quotes have been so excluded. Also, when relief is no longer available, such quotations will be included in the calculation of NBBO for such options. The Exchange notes how the determination is made that relief is no longer available. The proposed rule text adds greater context to the manner in which Firm Quote relief is applied. This rule text represents the current practice. Similarly, the Exchange proposes to provide the following proposed new Chapter VI, Section 6(b)(6): Trade-Through Compliance and Locked or Crossed Markets. A quote will not be executed at a price that trades through another market or displayed at 5 17 PO 00000 CFR 242.602. Frm 00093 Fmt 4703 Sfmt 4703 a price that would lock or cross another market. If, at the time of entry, a quote would cause a locked or crossed market violation or would cause a tradethrough, violation, it will be re-priced to the current national best offer (for bids) or the current national best bid (for offers) and displayed at one minimum price variance above (for offers) or below (for bids) the national best price. Today, quotations may not be executed against prices that tradethrough an away market as provided for in the Options Order Protection and Locked/Crossed Market Plan which is also described within Chapter XII, Options Order Protection and Locked and Crossed Market Rules. Also, quotations may not lock or cross an away market. The repricing is provided for today within BX Chapter VI, Section 7(b)(3)(C).6 By stating this limitation in the rule, Market Makers will have greater clarity as to this limitation. Further, the Exchange is making clear that a quote that would cause a locked or crossed market violation or would cause a trade-through violation will be re-priced. The Exchange would display the quote at one minimum price variation (‘‘MPV’’) above (for offers) or below (for bids) the national best price. Repricing quotes is consistent with the Act because the Exchange is not permitted to lock or cross an away market’s quote or order. The Exchange reprices the quotes one MPV inferior to cause the displayed price to reflect the available market on BX. Finally, the Exchange proposes at Chapter VI, Section 6(b)(7) to provide, ‘‘Quotes submitted to the System are subject to the following: Minimum increments provided for in Chapter VI, Section 5 and risk protections provided for in Chapter VI, Section 18.’’ The Exchange is noting herein the manner in which a quote may be rejected by the System to provide market participants with expectations as to the interplay among the various BX Rules. Specifically, if the Market Maker does not submit a quotation compliant with Chapter VI, Section 5, the quote will not be accepted by the System because market participants are required to abide by Chapter VI, Section 5 which describes the increments with which options series are to be quoted. Chapter VI, Section 18 provides a list of all protections applicable to quotes that may be rejected. The Exchange believes that this rule will provide Options Participants with requirements and 6 An order that is designated by a member as nonroutable will be re-priced in order to comply with applicable Trade-Through and Locked and Crossed Markets restrictions. E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices conditions for submitting quotations and provide transparency as to limitations that cause a quote to be rejected. The Exchange proposes to provide at Chapter VI, Section 6(c), ‘‘Quotes will be displayed in the System as described in Chapter VI, Section 19.’’ Chapter VI, Section 19, titled ‘‘Data Fees and Trade Information’’ provides for the available feeds that Options Participants may access on the Exchange. This list represents the available data feeds and the content of those data feeds which are offered today by BX. The amendments to BX Chapter VI, Section 6 create a list of all the requirements and conditions for submitting quotes on BX within one rule is consistent with the Act because it will provide greater transparency to market participants of the applicable requirements. Further, this proposal will make the current rule clear and understandable for market participants thereby protecting investors and the general public. The Exchange notes that while some of these requirements appear in other rules, for ease of reference the requirements are located within a single rule with this proposal. The proposal reflects the Exchange’s current practice with respect to quoting requirements. This proposal will conform this Rule to other Nasdaq affiliated markets filing similar rules.7 The Exchange’s proposal is intended to provide greater information with respect to Firm Quote within new BX Chapter VI, Section 6(b)(5) and regarding tradethrough and locked and crossed markets Section 6(b)(6). The addition of this rule text is consistent with the Act because the Exchange is adding detail regarding the method in which quotes which are firm or locked and crossed will be handled in the System. The notifications for Firm Quote are made clear with the proposed rule text. The Exchange believes that it is consistent with the Act to specify when quotes are firm and the handling of such quotes by the System for the protection of investors and the general public. The clarity is designed to promote just and equitable principles of trade by notifying all participants engaged in market making of potential outcomes. Today, quotations may not be executed against at prices that trade-through an 7 Nasdaq Phlx, Nasdaq ISE, LLC, Nasdaq GEMX, LLC and Nasdaq MRX, LLC have similar rules. See Securities Exchange Act Release Nos. 86286 (July 2, 2019), 84 FR 32794 (July 9, 2019) (SR–Phlx–2019– 25); 86947 (September 12, 2019), 84 FR 49165 (September 18, 2019) (SR–ISE–2019–23); 87180 (October 1, 2019), 84 FR 53497 (October 7, 2019) (SR–GEMX–2019–13) and 87182 (October 1, 2019), 84 FR 53534 (October 7, 2019) (SR–MRX–2019–20). VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 away market. Also, quotations may not lock or cross an away market. The repricing of quotations is consistent with the Act because repricing prevents the Exchange from disseminating a price which locks or crosses another market. BX is required to avoid displaying a quotation that would lock or cross a quotation of another market center at the time it is displayed. Preventing inferior prices from displaying perfects the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. The Exchange proposes to delete the rule text at Chapter VI, Section 6(a)(1) and (2), which states: (a) General—A System order is an order that is entered into the System for display and/or execution as appropriate. Such orders are executable against marketable contra-side orders in the System. (1) All System Orders shall indicate whether they are a call or put and buy or sell and a price, if any. Systems Orders can be designated as Immediate or Cancel (‘‘IOC’’), Good-till-Cancelled (‘‘GTC’’), Day (‘‘DAY’’) or WAIT. Any of the foregoing may also be designated as a Directed Order. (2) A System order may also be designated as a Limit Order, a Minimum Quantity Order, a Market Order, or an All-or-None Order. Any of the foregoing may also be designated as a Directed Order. The Exchange notes that all order types listed in Chapter VI, Section 1(e) may be entered on BX. All order types are executable against marketable contra-side orders in the System. The System will not permit an order to execute that is not marketable. BX has described in this proposal that it would not trade-through an away market. All Time in Force designations noted in Chapter VI, Section 1(g) are available to market participants entering orders on BX. The Exchange believes that the information provided in Chapter VI, Section 6(a)(1) and (2) is also covered within Chapter VI, Section 1 and therefore proposes to delete this rule text. The Exchange proposes to relocate Chapter VI, Section 6(a)(3), relating to zero-bid, and 6(b), relating to routing, into Chapter VI, Section 10(5) and (6). The Exchange believes that this information should be described within the rule describing allocation. Chapter VI, Section 6(c), which is reserved, is being deleted. The Exchange proposes to relocate Chapter VI, Section 6(d), related to the BX Options Kill Switch, to new Chapter VI, Section 22. The Exchange proposes to relocate Chapter PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 55633 VI, Section 6(e), related to Detection of Loss of Communication, to new Chapter VI, Section 23. The Exchange believes that these two topics should be in separate rules for ease of locating those rules. The Exchange is not proposing to amend the Kill Switch or Detection of Loss of Communication rules; this rule change is non-substantive. The Exchange proposes to update internal cross-references. Chapter VI, Section 7, Entry and Display Orders The Exchange proposes to amend Chapter VI, Section 7 titled ‘‘Entry and Display Orders.’’ The Exchange proposes to retitle this rule, ‘‘Entry and Display of Orders.’’ Similar to Chapter VI, Section 6 for quotes, the Exchange proposes this new rule to describe the current requirements and conditions for entering orders. The Exchange notes that the requirements provided for within this rule represent the current practice. The purpose of Chapter VI, Section 7 is to memorialize this information within a single rule. The Exchange proposes to amend Chapter VI, Section 7(a) to remove the title, ‘‘Entry of Orders- ’’. The Exchange proposes to memorialize the manner in which orders may be submitted to the System to add more detail to its rules. The Exchange proposes to amend Chapter VI, Section 7(a)(1) to remove and unnecessary ‘‘a’’ and also to remove the sentence which provides, ‘‘Each order shall indicate the amount of Reserve Size (if applicable).’’ No order type on BX has a Reserve Size.8 BX no longer has any order types with nondisplayed interest; previously, BX offered Discretionary Orders and Reserve Orders on BX, but both have been eliminated. The Exchange proposes to adopt a new Chapter VI, Section 7(a)(2) which provides, ‘‘The System accepts orders beginning at a time specified by the Exchange and communicated on the Exchange’s website.’’ 9 The Exchange proposes to renumber current Chapter VI, Section 7(a)(2) as (a)(3). The Exchange proposes to renumber current Chapter VI, Section 7(a)(3) as (a)(4) and amend the rule which provides, ‘‘Orders can be entered into the System (or previously entered orders cancelled) from the time prior to market open specified by the Exchange on its website until market close’’ to ‘‘Orders submitted to the System are subject to minimum increments 8 See Securities Exchange Act Release No. 65873 (December 2, 2011), 76 FR 76786 (December 8, 2011) (SR–NASDAQ–2011–164). 9 See note 4 above. E:\FR\FM\17OCN1.SGM 17OCN1 55634 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices provided for in Chapter VI, Section 5, risk protections within Chapter VI, Section 18 and the restrictions of order types within Chapter VI, Section 21(b). Orders may execute at multiple prices.’’ The Exchange is proposing to conform order entry rules across its Nasdaq Affiliated markets, where applicable. The Exchange proposed the time during which the System accepts orders within Chapter VI, Section 7(a)(2) and therefore this rule text is not necessary as the proposed rule describes time for accepting orders elsewhere. All orders must adhere to other rule requirements such as minimum increments, risk protection rules and order types. Similar to the rule text for quotes, orders are currently subject to the minimum increment requirements in Chapter VI, Section 5, the risk protections for orders which are listed within current Chapter VI, Section 18 as well as the restrictions of order types within Chapter VI, Section 21(b). This rule provides a list of other requirements which may impact the execution of an order. Finally, orders may execute at multiple prices. This rule provides a list of other requirements which may impact the execution of an order. The Exchange proposes to add new rule at Chapter VI, Section 7(a)(5) which states, ‘‘Nullification by Mutual Agreement. Trades may be nullified if all parties participating in the trade agree to the nullification. In such case, one party must notify the Exchange and the Exchange promptly will disseminate the nullification to OPRA. It is considered conduct inconsistent with just and equitable principles of trade for a party to use the mutual adjustment process to circumvent any applicable Exchange rule, the Act or any of the rules and regulations thereunder.’’ The rule text of new Chapter VI, Section 7(a)(5) is similar to Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq GEMX, LLC (‘‘GEMX’’) and Nasdaq MRX, LLC (‘‘MRX’’) Options 3, Section 4(b). Trades may be nullified today by agreement of the parties. The Exchange believes that it is consistent with the Act to permit parties to agree to a nullification provided the nullification does not violate other exchange rules. The Exchange notes that parties may not agree to a mutual agreement for purposes that would cause another rule to be violated. The Exchange believes that it is consistent with the Act and protection of investors and general public to make clear the expected behavior with respect to nullifications. The Exchange proposes to adopt new rule text at Chapter VI, Section 7(b) is similar to rule text at to ISE, GEMX and VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 MRX Options 3, Section 15(a). This proposed rule provides, NBBO Price Protection. Orders, other than Intermarket Sweep Orders (as defined in Rule Chapter XII, Section 1(9)) will not be automatically executed by the System at prices inferior to the NBBO (as defined in Chapter XII, Section 1(11)). There is no NBBO price protection with respect to any other market whose quotations are Non-Firm (as defined in Chapter XII, Section 1(12)). The Exchange believes that although BX Rules 10 make clear that orders may not execute at prices inferior to the NBBO, this rule text will provide that limitation in this proposed list of limitations for ease of reference. The Exchange notes that this NBBO Protection applies to orders and therefore is being discussed within proposed Chapter VI, Section 7 which applies to all Options Participants. In contrast, Chapter VI, Section 6, which applies to quotes entered by Market Makers, describes the Firm Quote protections and the interplay of NBBO with respect to quotes. Trade-Through is described in both Chapter VI, Section 6 and 7. The Exchange proposes to state at Chapter VI, Section 7(c), ‘‘The System automatically executes eligible orders using the Exchange’s displayed best bid and offer (‘‘BBO’’).’’ This rule seeks to define the Exchange’s best bid and offer as the ‘‘BBO.’’ On BX, eligible orders will execute at the best price available, the BBO. The Exchange believes that this information will provide Options Participants with additional information as some markets have non-displayed order types and BX has no nondisplayed order types. The Exchange proposes to relocate BX Chapter VI, Section 7(b)(3)(C) to Chapter VI, Section 7(d). The Exchange proposes to add a sentence at Chapter VI, Section 7(e) which provides, ‘‘Orders will be displayed in the System as described in Chapter VI, Section 19.’’ Chapter VI, Section 19 contains information on data feeds and the information that is provided. This provision is similar to Chapter VI, Section 6(c). The Exchange proposes to delete current Chapter VI, Section 7(b)(1)–(3) which provides, (1) System Book Feed—displayed orders resident in the System available for execution will be displayed via the System Book Feed. 10 Intermarket Sweep Orders (as defined in Rule Chapter XII, Section 1(9)) will not be automatically executed by the System at prices inferior to the NBBO (as defined in Chapter XII, Section 1(11)). PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 (2) Best Priced Order Display—For each System Security, the aggregate size of all Orders at the best price to buy and sell resident in the System will be transmitted for display to the appropriate network processor. (3) Exceptions—The following exceptions shall apply to the display parameters set forth in paragraphs (1) and (2) above: The display of orders as well as the text relating to System Book Feed are being deleted because data feeds are described in other rules.11 The Exchange believes this information is unnecessary as the data feeds are specific as to the content of the displayed information. The Exchange is also proposing to remove the rule text related to Best Priced Order Display as this information is described within Chapter XII, Options Order Protection and Locked and Crossed Markets. Specifically, BX Chapter XII, Section 1(18) which describes a Protected Bid and Offer and the manner in which they are disseminated to the OPRA Plan. The Exchange proposes to delete Chapter VI, Section 7(b)(3) as well as subsections (A), which is currently reserved. Current BX Chapter VI, Section 7(b)(3) notes exceptions to the display parameters. As noted (A) is reserved and as mentioned herein (B) and (C) are relocated within Section 7. The Exchange’s proposal to adopt a new Chapter VI, Section 7, ‘‘Entry and Display of Orders’’ and describe the current requirements and conditions for entering orders, similar to proposed changes to Chapter VI, Section 6 for quotes is consistent with the Act because it will provide transparency as to manner in which orders may be submitted to the System. The Exchange’s new rule reflects the current requirements for submitting orders into the System. Similar to proposed Chapter VI, Section 6, the Exchange proposes to memorialize requirements and limitations within one rule for ease of reference. Chapter VI, Section 10, Book Processing As noted above, the Exchange is relocating rule text from current Chapter VI, Section 6(a)(3) and 6(b) to Chapter VI, Section 10(5) and (6). The Exchange also proposes to renumber current Chapter VI, Section 10(5) as ‘‘(7)’’. Chapter VI, Section 21, Order and Quote Protocols The Exchange proposes to amend Chapter VI, Section 21(a)(i)(B) to add the following sentence to Specialized 11 See BX Chapter VI, Section 19, ‘‘Data Feeds and Trade Information.’’ E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices Quote Feed (‘‘SQF’’), ‘‘Market Makers may only enter interest into SQF in their assigned options series.’’ The Exchange notes that today Market Makers may utilize SQF to quote only in their assigned options series.12 This proposed rule text is consistent with the Act because it will add greater clarity to the current rule for the protection of investors and the public interest. Chapter VII, Section 5, Obligations of Market Makers The Exchange proposes to add a new Chapter VII, Section 5(d) to describe the manner in which Market Makers may enter orders on BX. There is no rule currently describing order entry by Market Makers. The Exchange proposes to memorialize the current practice by providing ‘‘Market Makers may enter all order types defined in Chapter VI, Section 1(e) in the options classes to which they are appointed and nonappointed.’’ This rule will provide Market Makers with information as to the types of orders that may entered on BX. Chapter VII, Section 12, Order Exposure Requirements The Exchange proposes to amend current Chapter VII, Section 12, titled ‘‘Order Exposure Requirements.’’ The Exchange proposes to amend the title to ‘‘Limitations on Order Entry’’ to conform the rule to other Nasdaq affiliate market rules.13 The Exchange proposes to amend Chapter VII, Section 12(a) to add the title ‘‘Limitations on Principal Transactions.’’ This change is not substantive. The Exchange proposes to amend Chapter VII, Section 12(b) to renumber it as (1) and replace the words ‘‘Section 12’’ with ‘‘This Rule.’’ The Exchange proposes to add a new Chapter VII, Section 12(b) similar to Phlx Rule 1097(a). The rule text would provide, Limit Orders. Options Participants shall not enter Public Customer limit orders into the System in the same options series, for the account or accounts of the same or related beneficial owners, in such a manner that the beneficial owner(s) effectively is operating as a market maker by holding itself out as willing to buy and sell such options contract on a regular or continuous basis. In determining whether a beneficial owner effectively is operating as a market maker, the Exchange will consider, among other things: the simultaneous or nearsimultaneous entry of limit orders to 12 See 13 See BX Chapter VII, Section 2. note 7 above. VerDate Sep<11>2014 17:26 Oct 16, 2019 buy and sell the same options contract and the entry of multiple limit orders at different prices in the same options series. This Rule prohibits Public Customers from entering limit orders into the Order Book in the same option series in a manner where the public customer is effectively operating as a market maker by holding itself out as willing to buy and sell such options contract on a regular or continuous basis. This rule would limit the ability of Options Participants that are not Market Makers to compete on preferential terms, including Public Customers who are provided with certain benefits, such as priority of bids and offers. Restrictions on the entry of Professional or brokerdealer orders are not imposed because the same priority does not exist. As noted herein, Market Makers are required to register with the Exchange.14 Market Makers are afforded preferential pricing.15 The Exchange believes that Public Customers that desire to make markets on BX should register with the Exchange. The Exchange’s proposal to adopt this new rule text within Chapter VII, Section 12(b) will bring greater clarity to current limitations that exist when entering orders. Section 12 is consistent with the Act and will promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market and a national market system because it will continue to make clear the requirement to expose orders as well as present more specific limitations on order entry which would violate BX Rules. Providing members with more information as to the type of behavior that is violative with respect to order exposure will prevent inadvertent violations of Exchange rules and ensure that orders are subject to appropriate price discovery. The Exchange proposes to amend Chapter VII, Section 12(c) by adding a new titled ‘‘Limitations on Solicitation Orders.’’ The Exchange also proposes to amend the rule text to more closely align with ISE, GEMX and MRX Rules at Options 3, Section 22. The amendments to the rule text is not substantive and simply reiterates the same exception for BX PRISM that is currently contained within Chapter VII, Section 12(a) for completeness. The Exchange proposes to amend Chapter VII, Section 12(d) to add rule text that specifically notes that ‘‘for purposes of violating Chapter VII, Section 12’’ at the end of the rule text. 14 See 15 See Jkt 250001 PO 00000 BX Chapter VII, Section 2. BX’s Pricing Schedule at Options 7. Frm 00096 Fmt 4703 Sfmt 4703 55635 This phrase will make clear that the violation is specific to this rule. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,16 in general, and furthers the objectives of Section 6(b)(5) of the Act,17 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest as provided for within the purpose section. Chapter VI, Section 6, Acceptance of Quotes and Orders The Exchange’s proposal to add a new section (b) to Chapter VI, Section 6 to describe the current requirements and conditions for submitting quotes is consistent with the Act. The Exchange proposes within Chapter VI, Section 6 to create a list of all the requirements and conditions for submitting quotes on BX within one rule is consistent with the Act because it will provide greater transparency to market participants of the applicable requirements. The Exchange’s proposal is intended to provide greater information with respect to Firm Quote within new Section 6(b)(5) and regarding trade-through and locked and crossed markets Section 6(b)(6). The additional rule text is consistent with the Act because it adds detail regarding the method in which orders which are firm or locked and crossed will be handled in the System. The notifications for Firm Quote are made clear with the proposed rule text. The Exchange believes that it is consistent with the Act to specify when quotes are firm and the handling of such quotes by the System for the protection of investors and the general public. The clarity is designed to promote just and equitable principles of trade by notifying all participants engaged in market making of potential outcomes. Today, quotations may not be executed against at prices that trade-through an away market. Also, quotations may not lock or cross an away market. The repricing of quotations is consistent with the Act because repricing prevents the Exchange from disseminating a price which locks or crosses another market. BX is required to avoid displaying a quotation that would lock or cross a quotation of another market center at the time it is displayed. Preventing inferior prices from displaying perfects 16 15 17 15 E:\FR\FM\17OCN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 17OCN1 55636 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices the mechanism of a free and open market and a national market system, and, in general protects investors and the public interest. BX is memorializing its current practice by reflecting the various requirements and limitations for quote entry in one rule for ease of reference and clarity. The Exchange proposes to conform this rule to similar rules across other Nasdaq affiliated exchanges.18 Making clear the manner in which Market Makers may generate and submit option quotations will provide these market participants with clear guidance within the rules. Chapter VII, Section 6(b)(1) makes clear that Market Makers may submit quotes.19 Further, Chapter VI, Section 21 describes the SQF interface.20 BX proposes to clarify that only one quote may be submitted at a time for a series. The Exchange believes that memorializing these restrictions will bring greater clarity to the Exchange’s rules. The relocations of both the Kill Switch and Detection of Loss of Communication rules is consistent with the Act because these relocations will bring greater transparency to these protection rules because they will be easier to search by the title within the Rulebook. The relocation of the zero-bid and routing information to Chapter VI, Section 10(5) and (6) is intended to locate that information with rules describing allocation. The Exchange’s proposal to eliminate rule text within current Chapter VI, Section 6(a)(1) and (2) is consistent with the Act because these rules describe order types in general. The order types are described today within Chapter VI, Section 1(e). All order types are executable against marketable contraside orders in the System. All Time in Force designations noted in Chapter VI, Section 1(g) are available to market participants entering orders on BX. The Exchange believes that the information provided in Chapter VI, Section 6(a)(1) 18 See note 7 above. VII, Section 2 describes the manner in which Market Makers must register and Section 6(c) provides for firm quote. 20 Chapter VI, Section 21(a)(i)(B) provides, ‘‘Specialized Quote Feed’’ or ‘‘SQF’’ is an interface that allows Market Makers to connect, send, and receive messages related to quotes, Immediate-orCancel Orders, and auction responses 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; (8) opening imbalance messages; (9) auction notifications; and (10) auction responses. The SQF Purge Interface only receives and notifies of purge request from the Market Maker. 19 Chapter VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 and (2) is covered within Chapter VI, Section 1. The Exchange believes that eliminating this rule is consistent with the Act because the rule text does not add any new information. Chapter VI, Section 7, Entry and Display Orders Similar to Chapter VI, Section 6, which describes requirements for quotes, the Exchange proposes to adopt a new Chapter VI, Section 7, ‘‘Entry and Display of Orders’’ and describe the current requirements and conditions for entering orders. The Exchange notes that the requirements provided for within this rule represent the current practice. The purpose of Chapter VI, Section 7 is to memorialize this information within a single rule to provide a list of other requirements which may impact the execution of an order. Trades may be nullified today by agreement of the parties. The Exchange believes that it is consistent with the Act to permit parties to agree to a nullification provided the nullification does not violate other exchange rules. The Exchange notes that parties may not agree to a mutual agreement for purposes that would cause another rule to be violated. The Exchange believes that it is consistent with the Act and protection of investors and general public to make clear the expected behavior with respect to nullifications. Today, orders may not be executed at a price that trades through an away market. Also, orders may not lock or cross an away market. Routable orders must comply with Trade-Through and Locked and Crossed Markets restrictions. The repricing of orders is consistent with the Act because repricing prevents the Exchange from disseminating a price which locks or crosses another market. BX is required avoiding displaying an order that would lock or cross a quotation of another market center at the time it is displayed. Preventing inferior prices from displaying perfects the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. The Exchange’s proposal to adopt a new Chapter VI, Section 7, ‘‘Entry and Display of Orders’’ and describe the current requirements and conditions for entering orders, similar to proposed changes to Chapter VI, Section 6 for quotes is consistent with the Act because it will provide transparency as to manner in which orders may be submitted to the System. The Exchange’s new rule reflects the current requirements for submitting orders into the System. Similar to proposed Chapter VI, Section 6, the Exchange proposes to PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 memorialize requirements and limitations within one rule for ease of reference. The Exchange’s proposal to adopt a new Chapter VI, Section 7 will conform proposed Rule to other Nasdaq affiliated markets filing similar rules.21 The Exchange’s proposal to add rule text to describe potential violations of this rule will bring greater clarity to current limitations that exist when entering orders. Proposed Chapter VI, Section 7 is consistent with the Act because it provides one rule for ease of reference which lists the current limitations and some additional limitations. The Exchange believes the proposed rule will promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market and a national market system because it will continue to make clear the requirement to expose orders as well as present more specific limitations on order entry which would violate BX Rules. Providing members with more information as to the type of behavior that is violative with respect to order exposure will prevent inadvertent violations of Exchange rules and ensure that orders are subject to appropriate price discovery. Chapter VI, Section 21, Order and Quote Protocols The Exchange’s proposal to amend Chapter VI, Section 21(a)(i)(B) to make clear that Market Makers may only enter interest into SQF in their assigned options series is consistent with the Act. Chapter VII, Section 2, Market Maker Registration, describes the manner in which Market Makers are appointed in options series. This sentence simply provides that SQF may only be utilized for quoting in assigned options series. Chapter VII, Section 5, Obligations of Market Makers Memorializing information related to order entry for Market Makers within Chapter VII, Section 5 will bring greater clarity to the Rulebook. Today, Market Makers may enter all order types defined in Chapter VI, Section 1(e). Chapter VII, Section 12, Order Exposure Requirements The Exchange’s proposal to amend Chapter VII, Section 12 to provide a specific rule for entering Public Customer is consistent with the Act. Providing market participants with clear guidelines will protect investors and the public interest by providing additional notice of violative behavior when 21 See E:\FR\FM\17OCN1.SGM note 7 above. 17OCN1 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices entering orders. The proposed rule text is similar to current Nasdaq Phlx LLC Rules.22 The Exchange believes that this proposed language will provide more transparency as to the types of transactions that are not permitted today on BX. With respect to limit orders, the Exchange seeks to limit the ability of non-market makers to effectively make markets on the Exchange using automated systems that place and cancel orders in a manner that is similar to quoting. With respect to principal transactions, the Exchange is making clear that a BX Options Participant may not take both sides of a trade (the agency side and also act as principal) on an execution without order exposure to provide the agency order the opportunity for price improvement. This rule is intended to ensure that customers receive fair executions. This rule is consistent with the Act in that it promotes just and equitable principles of trade and protects investors and the public interest. The Exchange’s proposal to describe exposure of agency orders mirrors language already contained with Chapter VI, Section 12. The Exchange also notes that current Chapter III, Section 4(d) would apply to the types of violations noted with respect to new Chapter VII, Section 12 provisions. 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 that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that other options markets have similar rules with respect to order and quote entry and the requirements to expose orders. The implementation of such rules may vary across options markets. Despite the variation in implementation, the Exchange does not believe this proposal creates an undue burden on intermarket competition because the requirements for order exposure are consistent with respect to all markets as well as the ability to submit quotes and orders on all options markets.’ Chapter VI, Section 6, Acceptance of Quotes and Orders The Exchange’s proposal to describe the current requirements and conditions for submitting quotes does not impose an undue burden on competition and all Market Makers are subject to these requirements today. The Exchange is memorializing its current practice by reflecting the various requirements and limitations for quote entry in one rule 22 See Nasdaq Phlx LLC Rule 1097. VerDate Sep<11>2014 17:26 Oct 16, 2019 Jkt 250001 for ease of reference and clarity. The Exchange is also proposing to conform this rule to similar rules across other Nasdaq affiliated exchanges. Chapter VI, Section 7, Entry and Display Orders The Exchange’s proposal to amend Chapter VI, Section 7, ‘‘Entry and Display Orders’’ to describe the current requirements and conditions for entering orders, similar to proposed changes to Chapter VI, Section 6 for quotes does not create an undue burden on competition because it will apply uniformly to all market participants. The Exchange is memorializing its current practice by reflecting the various requirements and limitations for order entry in one rule for ease of reference and clarity. The Exchange is also proposing to conform this rule to similar rules across other Nasdaq affiliated exchanges. Making clear the manner in which Options Participants may generate and submit option orders will provide these market participants with clear guidance within the rules. Chapter VI, Section 21, Order and Quote Protocols The Exchange proposes to amend Chapter VI, Section 21(a)(i)(B) to make clear that Market Makers may only enter interest into SQF in their assigned options series does not impose an undue burden on competition, rather it makes clear that SQF may only be utilized for quoting in assigned options series. This rule is applicable to all Market Makers. Chapter VII, Section 5, Obligations of Market Makers Memorializing information related to order entry for Market Makers within Chapter VII, Section 5 does not impose an undue burden on competition. Today, Market Makers may enter all order types defined in Chapter VI, Section 1(e). Chapter VII, Section 12, Order Exposure Requirements The Exchange’s proposal to amend Chapter VII, Section 12 to provide specific rules for limitations on entering limit orders, principal transactions and agency orders does not impose an undue burden on competition because these rules provide additional specificity as to the manner in which orders may be entered on BX. The Exchange believes that this proposed language will provide more transparency as to the types of transactions that are not permitted today on BX and would violate BX Chapter III, Section 4(f). These rules will apply PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 55637 uniformly to all BX Options Participants. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 23 and subparagraph (f)(6) of Rule 19b–4 thereunder.24 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 should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BX–2019–033 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. 23 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. 24 17 E:\FR\FM\17OCN1.SGM 17OCN1 55638 Federal Register / Vol. 84, No. 201 / Thursday, October 17, 2019 / Notices All submissions should refer to File Number SR–BX–2019–033. 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–2019–033 and should be submitted on or before November 7, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–22588 Filed 10–16–19; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87294; File No. SR– CboeEDGA–2019–015] Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Introduce a Small Retail Broker Distribution Program Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe EDGA Exchange, Inc. (‘‘EDGA’’ or the ‘‘Exchange’’) is filing with the Securities and Exchange Commission (the ‘‘Commission’’) a proposed rule change to introduce a Small Retail Broker Distribution Program. The text of the proposed changes to the fee schedule are enclosed as Exhibit 5. [sic] The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/edga/), at the Exchange’s Office of the Secretary, 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 BILLING CODE 8011–01–P October 11, 2019. (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 1, 2019, Cboe EDGA Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGA’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1. Purpose The purpose of the proposed rule change is to introduce a pricing program that would allow small retail brokers that purchase top of book market data from the Exchange to benefit from discounted fees for access to such market data. The Small Retail Broker Distribution Program (the ‘‘Program’’) would reduce the distribution and consolidation fees paid by small brokerdealers that operate a retail business. In turn, the Program may increase retail 1 15 25 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:26 Oct 16, 2019 2 17 Jkt 250001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00099 Fmt 4703 Sfmt 4703 investor access to real-time U.S. equity quote and trade information, and allow the Exchange to better compete for this business with competitors that offer similar optional products. The Exchange initially filed to introduce the Program on August 1, 2019 (‘‘Initial Proposal’’) to further ensure that retail investors served by smaller firms have cost effective access to its market data products, and as part of its ongoing efforts to improve the retail investor experience in the public markets. The Initial Proposal was published in the Federal Register on August 20, 2019,3 and the Commission received no commenter letters on the proposal. The Program remained in effect until the fee change was temporarily suspended pursuant to a suspension order (the ‘‘Suspension Order’’).4 The Suspension Order also instituted proceedings to determine whether to approve or disapprove the Initial Proposal.5 Current Fees The Cboe One Summary Feed is a top of book data feed that provides real-time U.S. equity quote and trade information to investors based on equity orders submitted to the Exchange and its affiliated equities exchanges—i.e., Cboe EDGX Exchange, Inc., Cboe BZX Exchange, Inc., and Cboe BYX Exchange, Inc. Specifically, the Cboe One Summary Feed is a data feed that contains the aggregate best bid and offer of all displayed orders for securities traded on the Exchange and its affiliated exchanges. The Cboe One Summary Feed also contains the individual last sale information for the Exchange and each of its affiliated exchanges, and consolidated volume for all listed equity securities. The fee for external distribution of the Cboe One Summary Feed is $5,000 per month, and external distributors are also liable for a Data Consolidation Fee of $1,000 per month, and User fees equal to $10 per month for each Professional User, and $0.25 per month for each Non-Professional User.6 3 See Securities Exchange Act Release No. 86676 (August 14, 2019), 84 FR 43218 (August 20, 2019) (SR–CboeEDGA–2019–013). 4 See Securities Exchange Act Release No. 87165 (September 30, 2019) (SR–CboeEDGA–2019–013) (Federal Register publication pending). 5 Id. 6 The Exchange also offers an Enterprise license for the Cboe One Summary Feed at a cost of $50,000 per month. An Enterprise license permits distribution to an unlimited number of Professional and Non-Professional Users, keeping costs down for firms that provide access to a large number of subscribers. E:\FR\FM\17OCN1.SGM 17OCN1

Agencies

[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55631-55638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22588]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87270; File No. SR-BX-2019-033]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend BX Rules 
at Chapter VI, Section 6

October 10, 2019.
    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 8, 2019, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BX Rules at Chapter VI, Section 6, 
``Acceptance of Quotes and Orders,'' Chapter VI, Section 7, ``Entry and 
Display Orders,'' Chapter VI, Section 10, ``Book Processing,'' Chapter 
VI, Section 21, ``Order and Quote Protocols,'' Chapter VII, Section 5, 
``Obligations of Market Makers,'' and Chapter VII, Section 12, ``Order 
Exposure Requirements.'' The Exchange proposes to relocate certain 
current rules to new Rules Chapter VI, Section 22, titled ``Kill 
Switch'' and 23, titled ``Detection of Loss of Communication.''
    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 statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Chapter VI, Section 6, ``Acceptance 
of Quotes and Orders,'' Chapter VI, Section 7, ``Entry and Display 
Orders,'' Chapter VI, Section 10, ``Book Processing,'' Chapter VI, 
Section 21, ``Order and Quote Protocols,'' Chapter VII, Section 5, 
``Obligations of Market Makers,'' and Chapter VII, Section 12, ``Order 
Exposure Requirements.'' The Exchange proposes to relocate certain 
current rules to new Rules Chapter VI, Section 22, titled ``Kill 
Switch'' and 23, titled ``Detection of Loss of Communication.'' Each 
rule change will be discussed in greater detail below.
Chapter VI, Section 6, Acceptance of Quotes and Orders
    Currently, Chapter VI, Section 6 is titled ``Acceptance of Quotes 
and Orders.'' The Exchange proposes to retitle Chapter VI, Section 6 as 
``Entry and Display of Quotes.'' The Exchange proposes to add an (a) 
before the first paragraph. The Exchange is removing references to 
orders in this Rule because it also proposes to adopt a new Chapter VI, 
Section 7, titled ``Entry and Display of Orders'' to describe 
requirements for order entry.
    The Exchange proposes to add a new section (b) to Chapter VI, 
Section 6 to describe the current requirements and

[[Page 55632]]

conditions for submitting quotes. These requirements reflect the 
current System operation today. The Exchange proposes to memorialize 
the various requirements for the submission of quotes into the System 
for greater transparency. The Exchange proposes to provide at proposed 
Chapter VI, Section 6(b), ``Quotes are subject to the following 
requirements and conditions:''. The Exchange proposes to add at Chapter 
VI, Section 6(b)(1) that ``Market Makers may generate and submit option 
quotations.'' Current Chapter VII, Section 6 makes clear that Market 
Makers may submit quotes,\3\ however the Exchange proposes to create a 
list of rules related to quote submission within this rule for ease of 
reference. The Exchange proposes to provide at proposed Chapter VI, 
Section 6(b)(2) that ``The System shall time-stamp a quote which shall 
determine the time ranking of the quote for purposes of processing the 
quote.'' The Exchange notes that all quotes today are time-stamped for 
purposes of processing quotes. Proposed Rule Chapter VI, Section 
6(b)(3) states that ``Market Makers may enter bids and/or offers in the 
form of a two-sided quote. Only one quote may be submitted at a time 
for an option series.'' The Exchange believes that this information 
will provide Market Makers with information on submitting a quote. The 
Exchange notes that bid or offer may be a ``0,'' however a price is 
required to be entered for both the bid and offer to be entered into 
the System. Further, the Exchange proposes at Chapter VI, Section 
6(b)(4) to provide clarity for entering quotes and proposes to specify, 
``The System accepts quotes beginning at a time specified by the 
Exchange and communicated on the Exchange's website.'' \4\ The Exchange 
believes that this information will bring greater transparency to the 
Rulebook with respect to limitations for submitting quotations into the 
System.
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    \3\ Chapter VII, Section 6(b) provides, ``A Market Maker that 
enters a bid (offer) in a series of an option in which he is 
registered on BX Options must enter an offer (bid).''
    \4\ The system settings page is located: https://www.nasdaqtrader.com/content/technicalsupport/BXOptions_SystemSettings.pdf.
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    The Exchange proposes a provision regarding firm quote within 
proposed Rule Chapter VI, Section 6(b)(5):
    Firm Quote. When quotes in options on another market or markets are 
subject to relief from the firm quote requirement set forth in the SEC 
Quote Rule, orders and quotes will receive an automatic execution at or 
better than the NBBO based on the best bid or offer in markets whose 
quotes are not subject to such relief. Such determination may be made 
by way of notification from another market that its quotes are not firm 
or are unreliable; administrative message from the Option Price 
Reporting Authority (``OPRA''); quotes received from another market 
designated as ``not firm'' using the appropriate indicator; and/or 
telephonic or electronic inquiry to, and verification from, another 
market that its quotes are not firm. The Exchange shall maintain a 
record of each instance in which another exchange's quotes are excluded 
from the Exchange's calculation of NBBO, and shall notify such other 
exchange that its quotes have been so excluded. Where quotes in options 
on another market or markets previously subject to relief from the firm 
quote requirement set forth in the Quote Rule are no longer subject to 
such relief, such quotations will be included in the calculation of 
NBBO for such options. Such determination may be made by way of 
notification from another market that its quotes are firm; 
administrative message from OPRA; and/or telephonic or electronic 
inquiry to, and verification from, another market that its quotes are 
firm.
    BX Chapter VI, Section 6(b)(5) describes Firm Quote for purposes of 
quote submission. The Exchange proposes to memorialize within its Rules 
the requirement for the dissemination of quotations pursuant to Reg 
NMS.\5\ The Exchange is proposing to add the above rule text to provide 
context as to this restriction for submitting quotes. The Exchange 
proposes to make clear the manner in which quote relief will occur. 
Specifically, this proposed rule text indicates the manner in which a 
determination for quote relief is made. Further, the rule notes the 
Exchange shall maintain a record of each instance in which another 
exchange's quotes are excluded from the Exchange's calculation of NBBO, 
and shall notify such other exchange that its quotes have been so 
excluded. Also, when relief is no longer available, such quotations 
will be included in the calculation of NBBO for such options. The 
Exchange notes how the determination is made that relief is no longer 
available. The proposed rule text adds greater context to the manner in 
which Firm Quote relief is applied. This rule text represents the 
current practice.
---------------------------------------------------------------------------

    \5\ 17 CFR 242.602.
---------------------------------------------------------------------------

    Similarly, the Exchange proposes to provide the following proposed 
new Chapter VI, Section 6(b)(6):
    Trade-Through Compliance and Locked or Crossed Markets. A quote 
will not be executed at a price that trades through another market or 
displayed at a price that would lock or cross another market. If, at 
the time of entry, a quote would cause a locked or crossed market 
violation or would cause a trade-through, violation, it will be re-
priced to the current national best offer (for bids) or the current 
national best bid (for offers) and displayed at one minimum price 
variance above (for offers) or below (for bids) the national best 
price.
    Today, quotations may not be executed against prices that trade-
through an away market as provided for in the Options Order Protection 
and Locked/Crossed Market Plan which is also described within Chapter 
XII, Options Order Protection and Locked and Crossed Market Rules. 
Also, quotations may not lock or cross an away market. The repricing is 
provided for today within BX Chapter VI, Section 7(b)(3)(C).\6\ By 
stating this limitation in the rule, Market Makers will have greater 
clarity as to this limitation. Further, the Exchange is making clear 
that a quote that would cause a locked or crossed market violation or 
would cause a trade-through violation will be re-priced. The Exchange 
would display the quote at one minimum price variation (``MPV'') above 
(for offers) or below (for bids) the national best price. Repricing 
quotes is consistent with the Act because the Exchange is not permitted 
to lock or cross an away market's quote or order. The Exchange reprices 
the quotes one MPV inferior to cause the displayed price to reflect the 
available market on BX.
---------------------------------------------------------------------------

    \6\ An order that is designated by a member as non-routable will 
be re-priced in order to comply with applicable Trade-Through and 
Locked and Crossed Markets restrictions.
---------------------------------------------------------------------------

    Finally, the Exchange proposes at Chapter VI, Section 6(b)(7) to 
provide, ``Quotes submitted to the System are subject to the following: 
Minimum increments provided for in Chapter VI, Section 5 and risk 
protections provided for in Chapter VI, Section 18.'' The Exchange is 
noting herein the manner in which a quote may be rejected by the System 
to provide market participants with expectations as to the interplay 
among the various BX Rules. Specifically, if the Market Maker does not 
submit a quotation compliant with Chapter VI, Section 5, the quote will 
not be accepted by the System because market participants are required 
to abide by Chapter VI, Section 5 which describes the increments with 
which options series are to be quoted. Chapter VI, Section 18 provides 
a list of all protections applicable to quotes that may be rejected. 
The Exchange believes that this rule will provide Options Participants 
with requirements and

[[Page 55633]]

conditions for submitting quotations and provide transparency as to 
limitations that cause a quote to be rejected.
    The Exchange proposes to provide at Chapter VI, Section 6(c), 
``Quotes will be displayed in the System as described in Chapter VI, 
Section 19.'' Chapter VI, Section 19, titled ``Data Fees and Trade 
Information'' provides for the available feeds that Options 
Participants may access on the Exchange. This list represents the 
available data feeds and the content of those data feeds which are 
offered today by BX.
    The amendments to BX Chapter VI, Section 6 create a list of all the 
requirements and conditions for submitting quotes on BX within one rule 
is consistent with the Act because it will provide greater transparency 
to market participants of the applicable requirements. Further, this 
proposal will make the current rule clear and understandable for market 
participants thereby protecting investors and the general public. The 
Exchange notes that while some of these requirements appear in other 
rules, for ease of reference the requirements are located within a 
single rule with this proposal. The proposal reflects the Exchange's 
current practice with respect to quoting requirements. This proposal 
will conform this Rule to other Nasdaq affiliated markets filing 
similar rules.\7\ The Exchange's proposal is intended to provide 
greater information with respect to Firm Quote within new BX Chapter 
VI, Section 6(b)(5) and regarding trade-through and locked and crossed 
markets Section 6(b)(6). The addition of this rule text is consistent 
with the Act because the Exchange is adding detail regarding the method 
in which quotes which are firm or locked and crossed will be handled in 
the System. The notifications for Firm Quote are made clear with the 
proposed rule text. The Exchange believes that it is consistent with 
the Act to specify when quotes are firm and the handling of such quotes 
by the System for the protection of investors and the general public. 
The clarity is designed to promote just and equitable principles of 
trade by notifying all participants engaged in market making of 
potential outcomes. Today, quotations may not be executed against at 
prices that trade-through an away market. Also, quotations may not lock 
or cross an away market. The repricing of quotations is consistent with 
the Act because repricing prevents the Exchange from disseminating a 
price which locks or crosses another market. BX is required to avoid 
displaying a quotation that would lock or cross a quotation of another 
market center at the time it is displayed. Preventing inferior prices 
from displaying perfects the mechanism of a free and open market and a 
national market system, and, in general to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \7\ Nasdaq Phlx, Nasdaq ISE, LLC, Nasdaq GEMX, LLC and Nasdaq 
MRX, LLC have similar rules. See Securities Exchange Act Release 
Nos. 86286 (July 2, 2019), 84 FR 32794 (July 9, 2019) (SR-Phlx-2019-
25); 86947 (September 12, 2019), 84 FR 49165 (September 18, 2019) 
(SR-ISE-2019-23); 87180 (October 1, 2019), 84 FR 53497 (October 7, 
2019) (SR-GEMX-2019-13) and 87182 (October 1, 2019), 84 FR 53534 
(October 7, 2019) (SR-MRX-2019-20).
---------------------------------------------------------------------------

    The Exchange proposes to delete the rule text at Chapter VI, 
Section 6(a)(1) and (2), which states:
    (a) General--A System order is an order that is entered into the 
System for display and/or execution as appropriate. Such orders are 
executable against marketable contra-side orders in the System.
    (1) All System Orders shall indicate whether they are a call or put 
and buy or sell and a price, if any. Systems Orders can be designated 
as Immediate or Cancel (``IOC''), Good-till-Cancelled (``GTC''), Day 
(``DAY'') or WAIT. Any of the foregoing may also be designated as a 
Directed Order.
    (2) A System order may also be designated as a Limit Order, a 
Minimum Quantity Order, a Market Order, or an All-or-None Order. Any of 
the foregoing may also be designated as a Directed Order.
    The Exchange notes that all order types listed in Chapter VI, 
Section 1(e) may be entered on BX. All order types are executable 
against marketable contra-side orders in the System. The System will 
not permit an order to execute that is not marketable. BX has described 
in this proposal that it would not trade-through an away market. All 
Time in Force designations noted in Chapter VI, Section 1(g) are 
available to market participants entering orders on BX. The Exchange 
believes that the information provided in Chapter VI, Section 6(a)(1) 
and (2) is also covered within Chapter VI, Section 1 and therefore 
proposes to delete this rule text.
    The Exchange proposes to relocate Chapter VI, Section 6(a)(3), 
relating to zero-bid, and 6(b), relating to routing, into Chapter VI, 
Section 10(5) and (6). The Exchange believes that this information 
should be described within the rule describing allocation. Chapter VI, 
Section 6(c), which is reserved, is being deleted. The Exchange 
proposes to relocate Chapter VI, Section 6(d), related to the BX 
Options Kill Switch, to new Chapter VI, Section 22. The Exchange 
proposes to relocate Chapter VI, Section 6(e), related to Detection of 
Loss of Communication, to new Chapter VI, Section 23. The Exchange 
believes that these two topics should be in separate rules for ease of 
locating those rules.
    The Exchange is not proposing to amend the Kill Switch or Detection 
of Loss of Communication rules; this rule change is non-substantive. 
The Exchange proposes to update internal cross-references.
Chapter VI, Section 7, Entry and Display Orders
    The Exchange proposes to amend Chapter VI, Section 7 titled ``Entry 
and Display Orders.'' The Exchange proposes to retitle this rule, 
``Entry and Display of Orders.'' Similar to Chapter VI, Section 6 for 
quotes, the Exchange proposes this new rule to describe the current 
requirements and conditions for entering orders. The Exchange notes 
that the requirements provided for within this rule represent the 
current practice. The purpose of Chapter VI, Section 7 is to 
memorialize this information within a single rule.
    The Exchange proposes to amend Chapter VI, Section 7(a) to remove 
the title, ``Entry of Orders- ''. The Exchange proposes to memorialize 
the manner in which orders may be submitted to the System to add more 
detail to its rules. The Exchange proposes to amend Chapter VI, Section 
7(a)(1) to remove and unnecessary ``a'' and also to remove the sentence 
which provides, ``Each order shall indicate the amount of Reserve Size 
(if applicable).'' No order type on BX has a Reserve Size.\8\ BX no 
longer has any order types with non-displayed interest; previously, BX 
offered Discretionary Orders and Reserve Orders on BX, but both have 
been eliminated. The Exchange proposes to adopt a new Chapter VI, 
Section 7(a)(2) which provides, ``The System accepts orders beginning 
at a time specified by the Exchange and communicated on the Exchange's 
website.'' \9\ The Exchange proposes to renumber current Chapter VI, 
Section 7(a)(2) as (a)(3). The Exchange proposes to renumber current 
Chapter VI, Section 7(a)(3) as (a)(4) and amend the rule which 
provides, ``Orders can be entered into the System (or previously 
entered orders cancelled) from the time prior to market open specified 
by the Exchange on its website until market close'' to ``Orders 
submitted to the System are subject to minimum increments

[[Page 55634]]

provided for in Chapter VI, Section 5, risk protections within Chapter 
VI, Section 18 and the restrictions of order types within Chapter VI, 
Section 21(b). Orders may execute at multiple prices.'' The Exchange is 
proposing to conform order entry rules across its Nasdaq Affiliated 
markets, where applicable. The Exchange proposed the time during which 
the System accepts orders within Chapter VI, Section 7(a)(2) and 
therefore this rule text is not necessary as the proposed rule 
describes time for accepting orders elsewhere. All orders must adhere 
to other rule requirements such as minimum increments, risk protection 
rules and order types. Similar to the rule text for quotes, orders are 
currently subject to the minimum increment requirements in Chapter VI, 
Section 5, the risk protections for orders which are listed within 
current Chapter VI, Section 18 as well as the restrictions of order 
types within Chapter VI, Section 21(b). This rule provides a list of 
other requirements which may impact the execution of an order. Finally, 
orders may execute at multiple prices. This rule provides a list of 
other requirements which may impact the execution of an order.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 65873 (December 2, 
2011), 76 FR 76786 (December 8, 2011) (SR-NASDAQ-2011-164).
    \9\ See note 4 above.
---------------------------------------------------------------------------

    The Exchange proposes to add new rule at Chapter VI, Section 
7(a)(5) which states, ``Nullification by Mutual Agreement. Trades may 
be nullified if all parties participating in the trade agree to the 
nullification. In such case, one party must notify the Exchange and the 
Exchange promptly will disseminate the nullification to OPRA. It is 
considered conduct inconsistent with just and equitable principles of 
trade for a party to use the mutual adjustment process to circumvent 
any applicable Exchange rule, the Act or any of the rules and 
regulations thereunder.'' The rule text of new Chapter VI, Section 
7(a)(5) is similar to Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC 
(``GEMX'') and Nasdaq MRX, LLC (``MRX'') Options 3, Section 4(b). 
Trades may be nullified today by agreement of the parties. The Exchange 
believes that it is consistent with the Act to permit parties to agree 
to a nullification provided the nullification does not violate other 
exchange rules. The Exchange notes that parties may not agree to a 
mutual agreement for purposes that would cause another rule to be 
violated. The Exchange believes that it is consistent with the Act and 
protection of investors and general public to make clear the expected 
behavior with respect to nullifications.
    The Exchange proposes to adopt new rule text at Chapter VI, Section 
7(b) is similar to rule text at to ISE, GEMX and MRX Options 3, Section 
15(a). This proposed rule provides,
    NBBO Price Protection. Orders, other than Intermarket Sweep Orders 
(as defined in Rule Chapter XII, Section 1(9)) will not be 
automatically executed by the System at prices inferior to the NBBO (as 
defined in Chapter XII, Section 1(11)). There is no NBBO price 
protection with respect to any other market whose quotations are Non-
Firm (as defined in Chapter XII, Section 1(12)).
    The Exchange believes that although BX Rules \10\ make clear that 
orders may not execute at prices inferior to the NBBO, this rule text 
will provide that limitation in this proposed list of limitations for 
ease of reference. The Exchange notes that this NBBO Protection applies 
to orders and therefore is being discussed within proposed Chapter VI, 
Section 7 which applies to all Options Participants. In contrast, 
Chapter VI, Section 6, which applies to quotes entered by Market 
Makers, describes the Firm Quote protections and the interplay of NBBO 
with respect to quotes. Trade-Through is described in both Chapter VI, 
Section 6 and 7.
---------------------------------------------------------------------------

    \10\ Intermarket Sweep Orders (as defined in Rule Chapter XII, 
Section 1(9)) will not be automatically executed by the System at 
prices inferior to the NBBO (as defined in Chapter XII, Section 
1(11)).
---------------------------------------------------------------------------

    The Exchange proposes to state at Chapter VI, Section 7(c), ``The 
System automatically executes eligible orders using the Exchange's 
displayed best bid and offer (``BBO'').'' This rule seeks to define the 
Exchange's best bid and offer as the ``BBO.'' On BX, eligible orders 
will execute at the best price available, the BBO. The Exchange 
believes that this information will provide Options Participants with 
additional information as some markets have non-displayed order types 
and BX has no non-displayed order types.
    The Exchange proposes to relocate BX Chapter VI, Section 7(b)(3)(C) 
to Chapter VI, Section 7(d).
    The Exchange proposes to add a sentence at Chapter VI, Section 7(e) 
which provides, ``Orders will be displayed in the System as described 
in Chapter VI, Section 19.'' Chapter VI, Section 19 contains 
information on data feeds and the information that is provided. This 
provision is similar to Chapter VI, Section 6(c).
    The Exchange proposes to delete current Chapter VI, Section 
7(b)(1)-(3) which provides,
    (1) System Book Feed--displayed orders resident in the System 
available for execution will be displayed via the System Book Feed.
    (2) Best Priced Order Display--For each System Security, the 
aggregate size of all Orders at the best price to buy and sell resident 
in the System will be transmitted for display to the appropriate 
network processor.
    (3) Exceptions--The following exceptions shall apply to the display 
parameters set forth in paragraphs (1) and (2) above:
    The display of orders as well as the text relating to System Book 
Feed are being deleted because data feeds are described in other 
rules.\11\ The Exchange believes this information is unnecessary as the 
data feeds are specific as to the content of the displayed information. 
The Exchange is also proposing to remove the rule text related to Best 
Priced Order Display as this information is described within Chapter 
XII, Options Order Protection and Locked and Crossed Markets. 
Specifically, BX Chapter XII, Section 1(18) which describes a Protected 
Bid and Offer and the manner in which they are disseminated to the OPRA 
Plan. The Exchange proposes to delete Chapter VI, Section 7(b)(3) as 
well as subsections (A), which is currently reserved. Current BX 
Chapter VI, Section 7(b)(3) notes exceptions to the display parameters. 
As noted (A) is reserved and as mentioned herein (B) and (C) are 
relocated within Section 7.
---------------------------------------------------------------------------

    \11\ See BX Chapter VI, Section 19, ``Data Feeds and Trade 
Information.''
---------------------------------------------------------------------------

    The Exchange's proposal to adopt a new Chapter VI, Section 7, 
``Entry and Display of Orders'' and describe the current requirements 
and conditions for entering orders, similar to proposed changes to 
Chapter VI, Section 6 for quotes is consistent with the Act because it 
will provide transparency as to manner in which orders may be submitted 
to the System. The Exchange's new rule reflects the current 
requirements for submitting orders into the System. Similar to proposed 
Chapter VI, Section 6, the Exchange proposes to memorialize 
requirements and limitations within one rule for ease of reference.
Chapter VI, Section 10, Book Processing
    As noted above, the Exchange is relocating rule text from current 
Chapter VI, Section 6(a)(3) and 6(b) to Chapter VI, Section 10(5) and 
(6). The Exchange also proposes to renumber current Chapter VI, Section 
10(5) as ``(7)''.
Chapter VI, Section 21, Order and Quote Protocols
    The Exchange proposes to amend Chapter VI, Section 21(a)(i)(B) to 
add the following sentence to Specialized

[[Page 55635]]

Quote Feed (``SQF''), ``Market Makers may only enter interest into SQF 
in their assigned options series.'' The Exchange notes that today 
Market Makers may utilize SQF to quote only in their assigned options 
series.\12\ This proposed rule text is consistent with the Act because 
it will add greater clarity to the current rule for the protection of 
investors and the public interest.
---------------------------------------------------------------------------

    \12\ See BX Chapter VII, Section 2.
---------------------------------------------------------------------------

Chapter VII, Section 5, Obligations of Market Makers
    The Exchange proposes to add a new Chapter VII, Section 5(d) to 
describe the manner in which Market Makers may enter orders on BX. 
There is no rule currently describing order entry by Market Makers. The 
Exchange proposes to memorialize the current practice by providing 
``Market Makers may enter all order types defined in Chapter VI, 
Section 1(e) in the options classes to which they are appointed and 
non-appointed.'' This rule will provide Market Makers with information 
as to the types of orders that may entered on BX.
Chapter VII, Section 12, Order Exposure Requirements
    The Exchange proposes to amend current Chapter VII, Section 12, 
titled ``Order Exposure Requirements.'' The Exchange proposes to amend 
the title to ``Limitations on Order Entry'' to conform the rule to 
other Nasdaq affiliate market rules.\13\
---------------------------------------------------------------------------

    \13\ See note 7 above.
---------------------------------------------------------------------------

    The Exchange proposes to amend Chapter VII, Section 12(a) to add 
the title ``Limitations on Principal Transactions.'' This change is not 
substantive. The Exchange proposes to amend Chapter VII, Section 12(b) 
to re-number it as (1) and replace the words ``Section 12'' with ``This 
Rule.'' The Exchange proposes to add a new Chapter VII, Section 12(b) 
similar to Phlx Rule 1097(a). The rule text would provide,
    Limit Orders. Options Participants shall not enter Public Customer 
limit orders into the System in the same options series, for the 
account or accounts of the same or related beneficial owners, in such a 
manner that the beneficial owner(s) effectively is operating as a 
market maker by holding itself out as willing to buy and sell such 
options contract on a regular or continuous basis. In determining 
whether a beneficial owner effectively is operating as a market maker, 
the Exchange will consider, among other things: the simultaneous or 
near-simultaneous entry of limit orders to buy and sell the same 
options contract and the entry of multiple limit orders at different 
prices in the same options series.
    This Rule prohibits Public Customers from entering limit orders 
into the Order Book in the same option series in a manner where the 
public customer is effectively operating as a market maker by holding 
itself out as willing to buy and sell such options contract on a 
regular or continuous basis. This rule would limit the ability of 
Options Participants that are not Market Makers to compete on 
preferential terms, including Public Customers who are provided with 
certain benefits, such as priority of bids and offers. Restrictions on 
the entry of Professional or broker-dealer orders are not imposed 
because the same priority does not exist. As noted herein, Market 
Makers are required to register with the Exchange.\14\ Market Makers 
are afforded preferential pricing.\15\ The Exchange believes that 
Public Customers that desire to make markets on BX should register with 
the Exchange. The Exchange's proposal to adopt this new rule text 
within Chapter VII, Section 12(b) will bring greater clarity to current 
limitations that exist when entering orders. Section 12 is consistent 
with the Act and will promote just and equitable principles of trade 
and remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it will continue to make 
clear the requirement to expose orders as well as present more specific 
limitations on order entry which would violate BX Rules. Providing 
members with more information as to the type of behavior that is 
violative with respect to order exposure will prevent inadvertent 
violations of Exchange rules and ensure that orders are subject to 
appropriate price discovery.
---------------------------------------------------------------------------

    \14\ See BX Chapter VII, Section 2.
    \15\ See BX's Pricing Schedule at Options 7.
---------------------------------------------------------------------------

    The Exchange proposes to amend Chapter VII, Section 12(c) by adding 
a new titled ``Limitations on Solicitation Orders.'' The Exchange also 
proposes to amend the rule text to more closely align with ISE, GEMX 
and MRX Rules at Options 3, Section 22. The amendments to the rule text 
is not substantive and simply reiterates the same exception for BX 
PRISM that is currently contained within Chapter VII, Section 12(a) for 
completeness.
    The Exchange proposes to amend Chapter VII, Section 12(d) to add 
rule text that specifically notes that ``for purposes of violating 
Chapter VII, Section 12'' at the end of the rule text. This phrase will 
make clear that the violation is specific to this rule.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\17\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest as provided for within the purpose section.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Chapter VI, Section 6, Acceptance of Quotes and Orders
    The Exchange's proposal to add a new section (b) to Chapter VI, 
Section 6 to describe the current requirements and conditions for 
submitting quotes is consistent with the Act. The Exchange proposes 
within Chapter VI, Section 6 to create a list of all the requirements 
and conditions for submitting quotes on BX within one rule is 
consistent with the Act because it will provide greater transparency to 
market participants of the applicable requirements. The Exchange's 
proposal is intended to provide greater information with respect to 
Firm Quote within new Section 6(b)(5) and regarding trade-through and 
locked and crossed markets Section 6(b)(6).
    The additional rule text is consistent with the Act because it adds 
detail regarding the method in which orders which are firm or locked 
and crossed will be handled in the System. The notifications for Firm 
Quote are made clear with the proposed rule text. The Exchange believes 
that it is consistent with the Act to specify when quotes are firm and 
the handling of such quotes by the System for the protection of 
investors and the general public. The clarity is designed to promote 
just and equitable principles of trade by notifying all participants 
engaged in market making of potential outcomes. Today, quotations may 
not be executed against at prices that trade-through an away market. 
Also, quotations may not lock or cross an away market. The repricing of 
quotations is consistent with the Act because repricing prevents the 
Exchange from disseminating a price which locks or crosses another 
market. BX is required to avoid displaying a quotation that would lock 
or cross a quotation of another market center at the time it is 
displayed. Preventing inferior prices from displaying perfects

[[Page 55636]]

the mechanism of a free and open market and a national market system, 
and, in general protects investors and the public interest.
    BX is memorializing its current practice by reflecting the various 
requirements and limitations for quote entry in one rule for ease of 
reference and clarity. The Exchange proposes to conform this rule to 
similar rules across other Nasdaq affiliated exchanges.\18\ Making 
clear the manner in which Market Makers may generate and submit option 
quotations will provide these market participants with clear guidance 
within the rules. Chapter VII, Section 6(b)(1) makes clear that Market 
Makers may submit quotes.\19\ Further, Chapter VI, Section 21 describes 
the SQF interface.\20\ BX proposes to clarify that only one quote may 
be submitted at a time for a series. The Exchange believes that 
memorializing these restrictions will bring greater clarity to the 
Exchange's rules.
---------------------------------------------------------------------------

    \18\ See note 7 above.
    \19\ Chapter VII, Section 2 describes the manner in which Market 
Makers must register and Section 6(c) provides for firm quote.
    \20\ Chapter VI, Section 21(a)(i)(B) provides, ``Specialized 
Quote Feed'' or ``SQF'' is an interface that allows Market Makers to 
connect, send, and receive messages related to quotes, Immediate-or-
Cancel Orders, and auction responses 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; (8) 
opening imbalance messages; (9) auction notifications; and (10) 
auction responses. The SQF Purge Interface only receives and 
notifies of purge request from the Market Maker.
---------------------------------------------------------------------------

    The relocations of both the Kill Switch and Detection of Loss of 
Communication rules is consistent with the Act because these 
relocations will bring greater transparency to these protection rules 
because they will be easier to search by the title within the Rulebook. 
The relocation of the zero-bid and routing information to Chapter VI, 
Section 10(5) and (6) is intended to locate that information with rules 
describing allocation.
    The Exchange's proposal to eliminate rule text within current 
Chapter VI, Section 6(a)(1) and (2) is consistent with the Act because 
these rules describe order types in general. The order types are 
described today within Chapter VI, Section 1(e). All order types are 
executable against marketable contra-side orders in the System. All 
Time in Force designations noted in Chapter VI, Section 1(g) are 
available to market participants entering orders on BX. The Exchange 
believes that the information provided in Chapter VI, Section 6(a)(1) 
and (2) is covered within Chapter VI, Section 1. The Exchange believes 
that eliminating this rule is consistent with the Act because the rule 
text does not add any new information.
Chapter VI, Section 7, Entry and Display Orders
    Similar to Chapter VI, Section 6, which describes requirements for 
quotes, the Exchange proposes to adopt a new Chapter VI, Section 7, 
``Entry and Display of Orders'' and describe the current requirements 
and conditions for entering orders. The Exchange notes that the 
requirements provided for within this rule represent the current 
practice. The purpose of Chapter VI, Section 7 is to memorialize this 
information within a single rule to provide a list of other 
requirements which may impact the execution of an order. Trades may be 
nullified today by agreement of the parties. The Exchange believes that 
it is consistent with the Act to permit parties to agree to a 
nullification provided the nullification does not violate other 
exchange rules. The Exchange notes that parties may not agree to a 
mutual agreement for purposes that would cause another rule to be 
violated. The Exchange believes that it is consistent with the Act and 
protection of investors and general public to make clear the expected 
behavior with respect to nullifications.
    Today, orders may not be executed at a price that trades through an 
away market. Also, orders may not lock or cross an away market. 
Routable orders must comply with Trade-Through and Locked and Crossed 
Markets restrictions. The repricing of orders is consistent with the 
Act because repricing prevents the Exchange from disseminating a price 
which locks or crosses another market. BX is required avoiding 
displaying an order that would lock or cross a quotation of another 
market center at the time it is displayed. Preventing inferior prices 
from displaying perfects the mechanism of a free and open market and a 
national market system, and, in general to protect investors and the 
public interest. The Exchange's proposal to adopt a new Chapter VI, 
Section 7, ``Entry and Display of Orders'' and describe the current 
requirements and conditions for entering orders, similar to proposed 
changes to Chapter VI, Section 6 for quotes is consistent with the Act 
because it will provide transparency as to manner in which orders may 
be submitted to the System. The Exchange's new rule reflects the 
current requirements for submitting orders into the System. Similar to 
proposed Chapter VI, Section 6, the Exchange proposes to memorialize 
requirements and limitations within one rule for ease of reference.
    The Exchange's proposal to adopt a new Chapter VI, Section 7 will 
conform proposed Rule to other Nasdaq affiliated markets filing similar 
rules.\21\ The Exchange's proposal to add rule text to describe 
potential violations of this rule will bring greater clarity to current 
limitations that exist when entering orders. Proposed Chapter VI, 
Section 7 is consistent with the Act because it provides one rule for 
ease of reference which lists the current limitations and some 
additional limitations. The Exchange believes the proposed rule will 
promote just and equitable principles of trade and remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because it will continue to make clear the requirement to 
expose orders as well as present more specific limitations on order 
entry which would violate BX Rules. Providing members with more 
information as to the type of behavior that is violative with respect 
to order exposure will prevent inadvertent violations of Exchange rules 
and ensure that orders are subject to appropriate price discovery.
---------------------------------------------------------------------------

    \21\ See note 7 above.
---------------------------------------------------------------------------

Chapter VI, Section 21, Order and Quote Protocols
    The Exchange's proposal to amend Chapter VI, Section 21(a)(i)(B) to 
make clear that Market Makers may only enter interest into SQF in their 
assigned options series is consistent with the Act. Chapter VII, 
Section 2, Market Maker Registration, describes the manner in which 
Market Makers are appointed in options series. This sentence simply 
provides that SQF may only be utilized for quoting in assigned options 
series.
Chapter VII, Section 5, Obligations of Market Makers
    Memorializing information related to order entry for Market Makers 
within Chapter VII, Section 5 will bring greater clarity to the 
Rulebook. Today, Market Makers may enter all order types defined in 
Chapter VI, Section 1(e).
Chapter VII, Section 12, Order Exposure Requirements
    The Exchange's proposal to amend Chapter VII, Section 12 to provide 
a specific rule for entering Public Customer is consistent with the 
Act. Providing market participants with clear guidelines will protect 
investors and the public interest by providing additional notice of 
violative behavior when

[[Page 55637]]

entering orders. The proposed rule text is similar to current Nasdaq 
Phlx LLC Rules.\22\ The Exchange believes that this proposed language 
will provide more transparency as to the types of transactions that are 
not permitted today on BX. With respect to limit orders, the Exchange 
seeks to limit the ability of non-market makers to effectively make 
markets on the Exchange using automated systems that place and cancel 
orders in a manner that is similar to quoting. With respect to 
principal transactions, the Exchange is making clear that a BX Options 
Participant may not take both sides of a trade (the agency side and 
also act as principal) on an execution without order exposure to 
provide the agency order the opportunity for price improvement. This 
rule is intended to ensure that customers receive fair executions. This 
rule is consistent with the Act in that it promotes just and equitable 
principles of trade and protects investors and the public interest. The 
Exchange's proposal to describe exposure of agency orders mirrors 
language already contained with Chapter VI, Section 12. The Exchange 
also notes that current Chapter III, Section 4(d) would apply to the 
types of violations noted with respect to new Chapter VII, Section 12 
provisions.
---------------------------------------------------------------------------

    \22\ See Nasdaq Phlx LLC Rule 1097.
---------------------------------------------------------------------------

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that 
other options markets have similar rules with respect to order and 
quote entry and the requirements to expose orders. The implementation 
of such rules may vary across options markets. Despite the variation in 
implementation, the Exchange does not believe this proposal creates an 
undue burden on inter-market competition because the requirements for 
order exposure are consistent with respect to all markets as well as 
the ability to submit quotes and orders on all options markets.'
Chapter VI, Section 6, Acceptance of Quotes and Orders
    The Exchange's proposal to describe the current requirements and 
conditions for submitting quotes does not impose an undue burden on 
competition and all Market Makers are subject to these requirements 
today. The Exchange is memorializing its current practice by reflecting 
the various requirements and limitations for quote entry in one rule 
for ease of reference and clarity. The Exchange is also proposing to 
conform this rule to similar rules across other Nasdaq affiliated 
exchanges.
Chapter VI, Section 7, Entry and Display Orders
    The Exchange's proposal to amend Chapter VI, Section 7, ``Entry and 
Display Orders'' to describe the current requirements and conditions 
for entering orders, similar to proposed changes to Chapter VI, Section 
6 for quotes does not create an undue burden on competition because it 
will apply uniformly to all market participants. The Exchange is 
memorializing its current practice by reflecting the various 
requirements and limitations for order entry in one rule for ease of 
reference and clarity. The Exchange is also proposing to conform this 
rule to similar rules across other Nasdaq affiliated exchanges. Making 
clear the manner in which Options Participants may generate and submit 
option orders will provide these market participants with clear 
guidance within the rules.
Chapter VI, Section 21, Order and Quote Protocols
    The Exchange proposes to amend Chapter VI, Section 21(a)(i)(B) to 
make clear that Market Makers may only enter interest into SQF in their 
assigned options series does not impose an undue burden on competition, 
rather it makes clear that SQF may only be utilized for quoting in 
assigned options series. This rule is applicable to all Market Makers.
Chapter VII, Section 5, Obligations of Market Makers
    Memorializing information related to order entry for Market Makers 
within Chapter VII, Section 5 does not impose an undue burden on 
competition. Today, Market Makers may enter all order types defined in 
Chapter VI, Section 1(e).
Chapter VII, Section 12, Order Exposure Requirements
    The Exchange's proposal to amend Chapter VII, Section 12 to provide 
specific rules for limitations on entering limit orders, principal 
transactions and agency orders does not impose an undue burden on 
competition because these rules provide additional specificity as to 
the manner in which orders may be entered on BX. The Exchange believes 
that this proposed language will provide more transparency as to the 
types of transactions that are not permitted today on BX and would 
violate BX Chapter III, Section 4(f). These rules will apply uniformly 
to all BX Options Participants.

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

    No written comments were either solicited or received.

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

    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 \23\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\24\
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    \23\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \24\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is 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 should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2019-033 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.


[[Page 55638]]


All submissions should refer to File Number SR-BX-2019-033. 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-2019-033 and should be submitted on 
or before November 7, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22588 Filed 10-16-19; 8:45 am]
 BILLING CODE 8011-01-P
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