Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, Section 17, the Exchange's Kill Switch Risk Protection, 59428-59432 [2019-23975]
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Federal Register / Vol. 84, No. 213 / Monday, November 4, 2019 / Notices
violated, and the sanction or sanctions
to be imposed. The letter, if accepted,
would stipulate that the Member or
associated person accepts the finding of
violation, consents to the imposition of
sanctions, and agrees to waive such
Member’s or associated person’s right to
a hearing before a Hearing Panel or, if
applicable, an Extended Hearing Panel,
and any right of appeal to the LTSE
Appeals Committee, the Board, the
Commission, and the courts, or to
otherwise challenge the validity of the
letter. Unless the letter states otherwise,
the effective date of any sanction(s)
imposed would be a date to be
determined by LTSE Regulation staff. In
the event the letter is not accepted by
the Member or associated person, or is
rejected by FINRA’s Office of
Disciplinary Affairs, the matter can
proceed in accordance with the
Exchange’s disciplinary rules, which
include hearing rights for formal
disciplinary proceedings.9
According to the Exchange, upon the
Commission’s declaration of
effectiveness of the MRVP, the Exchange
will provide to the Commission a
quarterly report for any actions taken on
minor rule violations under the
MRVP.10 The quarterly report will
include: The Exchange’s internal file
number for the case, the name of the
individual and/or organization, the
nature of the violation, the specific rule
provision violated, the sanction
imposed, the number of times the rule
violation occurred, and the date of the
disposition.11
The Exchange requested that the
Commission deem any changes to the
rules applicable to the Exchange’s
MRVP to be deemed modifications to
the Exchange’s MRVP.12
The Commission finds that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act, as required by Rule 19d–
1(c)(2) under the Act,13 because the
MRVP will permit the Exchange to carry
out its oversight and enforcement
responsibilities as an SRO more
efficiently in cases where formal
disciplinary proceedings are not
necessary due to the minor nature of the
particular violation.
In declaring the Exchange’s MRVP
effective, the Commission does not
minimize the importance of compliance
with Exchange rules and all other rules
9 See
Notice, supra note 3, at 50526.
Id.
11 The Exchange attached a sample form of the
quarterly report with its submission to the
Commission.
12 See Notice, supra note 3, at 50526.
13 17 CFR 240.19d–1(c)(2).
subject to the imposition of sanctions
under LTSE Rule 9.216(b). Violation of
an SRO’s rules, as well as Commission
rules, is a serious matter. However,
LTSE Rule 9.216(b) provides a
reasonable means of addressing
violations that do not rise to the level of
requiring formal disciplinary
proceedings, while providing greater
flexibility in handling certain violations.
Regarding whether a violation requires
formal disciplinary action or whether a
sanction under the MRVP is
appropriate, the Commission expects
the Exchange to continue to conduct
surveillance and make determinations
based on its findings on a case-by-case
basis.
It is therefore ordered, pursuant to
Rule 19d–1(c)(2) under the Act,14 that
the proposed MRVP for Long-Term
Stock Exchange, Inc, File No. 4–753 be,
and hereby is, declared effective.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–23977 Filed 11–1–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87413; File No. SR–GEMX–
2019–15]
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 3,
Section 17, the Exchange’s Kill Switch
Risk Protection
October 29, 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
15, 2019, Nasdaq GEMX, LLC (‘‘GEMX’’
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.
10 See
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14 Id.
15 17
CFR 200.30–3(a)(44).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
Options 3, Section 17, which sets forth
the Exchange’s optional Kill Switch risk
protection.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqgemx.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 expand the
optional Kill Switch risk protection the
Exchange offers to Members today to
allow cancellation and restriction of
quotes, orders, or both. This new
functionality will be offered alongside
the existing port Kill Switch (as defined
below), which currently allows
Members to cancel and restrict only
their orders. The Exchange also
proposes to amend its rules to add more
detail on how the port Kill Switch
operates today. As discussed further
below, no functional changes to the
existing port Kill Switch functionality
are being contemplated by this rule
change; rather, the Exchange is
providing more detailed information on
the port Kill Switch so that the rule is
more aligned with the current operation
of existing functionality.
Port Kill Switch
Today, Kill Switch provides Members
with a risk management tool for
immediate control of their order
activity. Specifically as set forth in
Options 3, Section 17(a), Kill Switch
enables Members to initiate a message 3
3 Today, Members are able to send a message to
the Exchange to initiate the Kill Switch. A Kill
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to the System 4 to promptly cancel
orders and restrict entry of new orders
until re-entry has been enabled.
Members may submit a request to the
System to cancel orders for that
Member. The System will send an
automated message to the Member when
a Kill Switch request has been
processed by the Exchange’s System.
If orders are cancelled by the Member
utilizing the Kill Switch, it will result in
the removal of all orders for the
Member.5 The Member is unable to
enter additional orders until the
Member has made a verbal request to
the Exchange and Exchange staff has set
a re-entry indicator to enable re-entry.6
Once enabled for re-entry, the System
will send a Re-entry Notification
Message to the Member. The applicable
Clearing Member for that Member will
also be notified of the re-entry into the
System after orders are cancelled as a
result of the Kill Switch, provided the
Clearing Member has requested to
receive such notification.
The Exchange now proposes to
provide additional detail regarding the
port Kill Switch described above to
better align the Rule with existing
system functionality. The Exchange
proposes to clarify that Members may
submit a Kill Switch request to the
System through FIX, OTTO, or Precise
for the Member’s requested identifier
(i.e., badge 7 or mnemonic 8)
(‘‘Identifier’’) on a user level (i.e., by
individual badge or mnemonic).9 As
Switch message may be sent through the Exchange
order entry ports FIX, OTTO, or Precise
(hereinafter, referred to as ‘‘port Kill Switch’’).
4 The term ‘‘System’’ means the electronic system
operated by the Exchange that receives and
disseminates quotes, executes orders and reports
transactions. See Options 1, Section 1(a)(48).
5 Members may not cancel orders by symbol. Of
note, Opening Sweeps are also cancelled. An
Opening Sweep is a Market Maker order submitted
for execution against eligible interest in the system
during the Opening Process pursuant to Options 3,
Section 8(b)(1). See Options 3, Section 7(t).
Consistent with current auction functionality, PIM
auction orders and responses are not cancelled. PIM
is the Exchange’s price improvement mechanism.
See Options 3, Section 13. Other auctions orders
and responses are cancelled.
6 The Member must directly and verbally contact
the Exchange to request the re-set.
7 A ‘‘badge’’ shall mean an account number,
which may contain letters and/or numbers,
assigned to Market Makers. A Market Maker
account may be associated with multiple badges.
See Options 1, Section 1(a)(4).
8 A ‘‘mnemonic’’ shall mean an acronym
comprised of letters and/or numbers assigned to
Electronic Access Members. An Electronic Access
Member account may be associated with multiple
mnemonics. See Options 1, Section 1(a)(22).
9 Using the port Kill Switch, Members are only
able to cancel and restrict their order activity at the
user level (i.e., by individual Identifier). As
discussed below, the new Kill Switch enhancement
will offer Members the additional option of
submitting requests at the user level or group
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such, Members using the port Kill
Switch today may elect to cancel all
existing orders and restrict entry of
additional orders by individual badge/
mnemonic (i.e., Identifier). Furthermore,
if the Member’s requested Identifier(s) is
enabled to trade on both the Exchange
and the Exchange’s affiliate, Nasdaq ISE
(‘‘ISE’’), the port Kill Switch applies
across both GEMX and ISE.10 If a
Member chooses to configure its
Identifier on GEMX but not ISE, the port
Kill Switch activated on GEMX will
only apply to that Identifier on GEMX.
While the current rule text does not
specifically provide for these two
features (i.e., the ability to cancel and
restrict orders by individual Identifier(s)
and, if set by the Member, across both
GEMX and ISE), the existing port Kill
Switch functionality operates in this
manner today. Accordingly, the
Exchange proposes to replace the
existing language in section (a)(1) with
the following to make clear how the
System operates today: ‘‘A Member may
submit a request to the System through
FIX, OTTO, or Precise to cancel all
existing orders and restrict entry of
additional orders for the requested
Identifier(s) on a user level on Nasdaq
GEMX, or across both Nasdaq GEMX
and Nasdaq ISE, in either case as set by
the Member.’’
As noted above, the Exchange is not
proposing any functional modifications
to the existing port Kill Switch; rather,
all of the changes proposed above are to
provide additional specificity as to how
the port Kill Switch operates today for
greater consistency between the rule
text and the operation of the System.
Lastly, the Exchange proposes to delete
the last sentence of (a)(1), which is
redundant with the re-entry provisions
already set forth in the Rule.11
GUI Kill Switch
The Exchange also proposes to add
new functionality that would enhance
the current Kill Switch risk protection
level—in other words, by individual Identifier or
for a group of Identifiers. See, e.g., Nasdaq Options
Market (‘‘NOM’’) Chapter VI, Sec. 6(d), which sets
forth NOM’s Kill Switch rule, for similar
terminology related to Identifier.
10 Thus, for example, an Electronic Access
Member that is configured to trade on ISE and
GEMX in mnemonics ABCD1, ABCD2, and ABCD3
would submit a separate request for each mnemonic
using the port Kill Switch, which would result in
the cancellation of all existing orders and the
restriction of additional orders associated with
mnemonics ABCD1, ABCD2, and ABCD3 across
both ISE and GEMX. The ability to kill interest
across both ISE and GEMX is a feature that was
carried over from the Exchange’s previous T7
trading system.
11 See Options 3, Section 17(a)(2). As discussed
below, this section will be renumbered as section
(a)(3) under this proposal.
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for orders to apply to both orders and
quotes.12 The Exchange will provide
this enhancement through a separate
graphical user interface (hereinafter,
‘‘GUI Kill Switch’’) as an alternative
way for Members to manage their
trading activity.13 As discussed below,
the new GUI Kill Switch will be
functionally similar to the existing port
Kill Switch, with the most notable
difference being the added ability to
cancel all existing quotes and block the
entry of additional quotes. For instance,
similar to the port Kill Switch today,
Members will be able to use the GUI Kill
Switch for requested Identifier(s) to
apply either on GEMX only or across
both GEMX and ISE, depending on how
the Identifier(s) was set up by the
Member. Accordingly, Options 3,
Section 17 will be amended to reflect
that the Exchange will offer the
proposed GUI Kill Switch alongside the
existing port Kill Switch. In particular,
paragraph (a) will provide that Kill
Switch would enable Members to
initiate a message to the System to
promptly cancel and restrict their quote
and order activity on GEMX, or across
both GEMX and ISE, as further
described in the Rule. The Exchange
also proposes to specify that Members
may submit a Kill Switch request to the
System for certain Identifier(s) on either
a user or group level. Permissible groups
must reside within a single Member
firm.14
As discussed above, while the
proposed language in section (a) on
applying Kill Switch for requested
Identifier(s) across both GEMX and ISE
is new, these features exist today with
respect to the port Kill Switch.
Accordingly, the proposed changes in
(a) with respect to order cancellation
and restriction clarify the current
manner in which the port Kill Switch
operates today, and also extends the
rule to encompass the proposed GUI
Kill Switch.
The Exchange further proposes to
describe the new GUI Kill Switch
functionality in new section (a)(2).15
Specifically, the Exchange proposes to
add the following: ‘‘Alternatively, a
12 As discussed more fully later in the filing, the
proposed Kill Switch enhancement will also have
additional features to allow Members to kill quotes
and/or orders for requested Identifier(s) on either a
user or group level.
13 The GUI Kill Switch will be available to all
Members through a web-based interface.
14 For example, a permissible group could include
all badges associated with a Market Maker. Member
would be able to set up these groups beforehand to
include all or some of the Identifiers associated
with the Member firm so that a GUI Kill Switch
request could apply to this pre-defined group.
15 In light of adopting this new section, current
(a)(2) will be renumbered as (a)(3).
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Member may submit a request to the
System through a graphical user
interface to cancel all existing, and
restrict entry of additional, quotes and/
or orders for the requested Identifier(s)
on either a user or group level on
Nasdaq GEMX, or across both Nasdaq
GEMX and Nasdaq ISE, in either case as
set by the Member.’’ 16
The Exchange believes that the
proposed enhancement to the Kill
Switch will offer Members an
alternative means to control their
exposure, through a separate interface
which is not dependent on the integrity
of the member’s own systems, should
the member experience a failure.
Because the proposed enhancement will
be provided through a separate user
interface instead of one of the
Exchange’s order entry ports, the
Exchange believes it would promote
transparency in its Rules to separately
define these alternative methods in
(a)(1) and (a)(2). As noted above, the
proposed enhancement is similar to the
existing port Kill Switch that allows
Members to control their order activity
but has additional optionality, most
significantly the ability to cancel and
restrict quotes, orders, or both.
Furthermore, Members can set up the
GUI Kill Switch so they are able to
control their quote and/or order activity
for an individual Identifier or a group of
Identifiers,17 as compared to the port
Kill Switch which is limited to
individual Identifiers only.18
The re-entry provisions in section
(a)(3) will also be amended throughout
16 Members may not cancel orders and quotes by
symbol using the GUI Kill Switch, similar to how
orders may not be cancelled by symbol through the
port Kill Switch today. Also similar to the port Kill
Switch, Opening Sweeps will be cancelled upon
initiating the GUI Kill Switch. Lastly, all auction
orders and responses other than PIM orders/
responses will similarly be cancelled. See supra
note 5.
17 As noted above, NOM Chapter VI, Sec. 6(d) has
similar terminology in its Kill Switch rule. See
supra note 9. Furthermore, the proposed GUI Kill
Switch is functionally similar to NOM’s Kill Switch
in that both are offered through a separate graphical
user interface and have similar features, including
the ability for members to apply Kill Switch for
certain identifiers on a user or group level.
18 As an example of the GUI Kill Switch, assume
a Market Maker is configured to trade on ISE and
GEMX in badges 123A, 123B, and 123C, with predefined settings that include all three badges as one
group to which the GUI Kill Switch will apply. The
Market Maker could then submit a GUI Kill Switch
request to restrict their quote activity for the predefined group, resulting in the cancellation of all
existing quotes and restriction of additional quotes
associated with badges 123A, 123B, and 123C
across both ISE and GEMX. The same Market Maker
could instead opt to submit a GUI Kill Switch
request for only badge 123A to cancel all existing
quotes and restrict entry of additional quotes for
that individual badge. The proposed functionality
therefore allows the Member to have more
optionality as compared to the existing mechanism.
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to reflect that the re-entry process after
initiating the GUI Kill Switch will be
identical to the current process for the
port Kill Switch. Specifically, once a
Member initiates either the port or GUI
Kill Switch, the Member will be unable
to enter additional orders, and/or quotes
if pursuant to the GUI Kill Switch, for
the affected Identifier(s) until the
Member has made a verbal request to
the Exchange and Exchange staff has set
a re-entry indicator to enable re-entry.19
Lastly, the Exchange proposes to make
a related change in the last sentence of
section (a)(3) to delete the reference to
order cancellation, and also provide that
the ‘‘applicable Clearing Member will be
notified of such re-entry . . .’’ for better
readability.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 20 in general, and furthers the
objectives of Section 6(b)(5) of the Act 21
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, by
enhancing the risk protections available
to Members. The proposal promotes
policy goals of the Commission which
has highlighted the need for execution
venues, exchange and non-exchange
alike, to enhance risk protection tools
and other mechanisms to decrease risk
and increase stability.22
The proposed GUI Kill Switch,
similar to the existing port Kill Switch,
is designed to protect Members in the
event the Member encounters a
situation, like a systems issue, for which
they would need to withdraw
temporarily from the market. The
individual Member firm benefits of
enhanced risk protections, including
Kill Switch mechanisms, flow
downstream to counter-parties both at
the Exchange and at other options
exchanges, thereby increasing systemic
protections as well. Additionally,
because the Exchange will continue
19 Identical to re-entry for the port Kill Switch,
Members must directly and verbally contact the
Exchange to request the re-set if they initiate the
GUI Kill Switch. See supra note 6 with
accompanying text.
20 15 U.S.C. 78f(b).
21 15 U.S.C. 78f(b)(5).
22 See, e.g., Securities Exchange Act Release Nos.
69077 (March 8, 2013), 78 FR 18083 (March 25,
2013) (Proposing Release) at 18090–91; and 73639
(November 19, 2014), 79 FR 72251 (December 5,
2014) (Adopting Release) at 72253 (highlighting that
quality standards, testing and improved error
response mechanisms are among the issues needing
very thoughtful and focused attention in today’s
securities markets).
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offer this optional risk tool to all
Members, the Exchange believes that it
will encourage liquidity generally and
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and
protect investors and the public interest.
To the extent the Exchange’s proposal
provides Members with greater control
over their quotes and orders, and allows
them to remove quotes and cancel
orders in an appropriate manner, then
the proposal may encourage Members to
provide liquidity on GEMX and thus
contribute to fair and orderly markets in
a manner that protects the public
interest and protects investors.
As noted above, this optional risk tool
will continue to be offered to all
Members. The Exchange further
represents that its proposal will
continue to operate consistently with
the firm quote obligations of a brokerdealer pursuant to Rule 602 of
Regulation NMS and that the
functionality is not mandatory.
Specifically, any interest that is
executable against a Member’s orders or
quotes that are received 23 by the
Exchange, prior to the time the Kill
Switch is processed by the System, will
automatically execute at the price up to
the Member’s size. The Kill Switch
message will be accepted by the System
in the order of receipt in the queue and
will be processed in that order so that
interest that is already accepted into the
System will be processed prior to the
Kill Switch message. Messages sent to
the System by the Kill Switch are
processed in the order they are received
by the matching engine, through the
same queuing mechanism that a quote
or order message is processed. The
Exchange also notes that the latency
profile of the GUI Kill Switch is
comparable to the latency profile of
killing interest through a message based
Kill Switch from a Member’s order entry
port.
A Market Maker’s obligation to
provide two-sided quotes on a daily
basis is not diminished by the removal
of such quotes and/or orders by utilizing
the Kill Switch. Market Makers that
utilize Kill Switch will not be relieved
of the obligation to provide intra-day
quotes pursuant to Options 2, Section
5(e), nor will it prohibit the Exchange
from taking disciplinary action against a
Market Maker for failing to meet its
quoting obligations each trading day.
The proposed changes will also
permit Clearing Members that clear
transactions on a Member’s behalf
23 The time of receipt for an order or quote is the
time such message is processed by the Exchange’s
order book.
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pursuant to a Letter of Guarantee 24 to
receive information regarding the
Member’s re-entry into the System after
the Member initiates the GUI Kill
Switch, and makes the verbal request to
the Exchange for re-entry pursuant to
Options 3, Section 17(a). As is the case
today with the port Kill Switch, because
such Clearing Members guarantee all
transactions on behalf of that Member
and therefore bear the risk associated
with those transactions, the Exchange
believes that it is appropriate for the
Clearing Member to receive information
regarding re-entry into the System after
quotes and/or orders are cancelled as a
result of the GUI Kill Switch, should the
Clearing Member request such
notification. This information may help
provide Clearing Members with greater
control and flexibility in managing the
risk associated with the Member’s
activity.
The Exchange’s proposal also extends
the cross-market feature available today
through the port Kill Switch to the
proposed GUI Kill Switch. The
Exchange notes that issues that would
prompt a Member to submit a Kill
Switch request are normally not
confined to a member’s activity on a
single exchange. Accordingly, the
Exchange believes that offering both the
port and GUI Kill Switch protections on
a cross-market basis would help
Members to more effectively manage
their risk when trading on multiple
markets, and reduce disruptive trading
events to the benefit of all members and
investors. For the same reasons, the
Exchange already offers other cross
market risk protections pursuant to the
Market Wide Risk Protection
(‘‘MWRP’’) 25 as well as for market
maker quotes, both of which can be
applied across GEMX and ISE similar to
the port and GUI Kill Switch.26 Like
MWRP and the cross-market protections
for market maker quotes, the Exchange
ported over the Kill Switch’s crossmarket feature from the Exchange’s
previous trading system with minimal
modifications to minimize the impact to
Members that were already familiar
with the existing risk management tools.
Lastly, the Exchange believes that the
proposed changes to add greater
specificity with respect to how the port
Kill Switch currently operates (i.e., that
a Kill Switch request sent through FIX,
OTTO, or Precise will result in the
cancellation of all existing orders, and
24 A Letter of Guarantee obligates the issuing
Clearing Member to accept financial responsibilities
for all Exchange transactions made by the
guaranteed Member. See Options 6, Section 4(a)
and (b).
25 See Options 3, Section 15(b)(1)(D).
26 See Options 3, Section 15(b)(3)(B)(vi).
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restrict entry of additional orders for the
requested Identifier(s) on a user level on
GEMX, or across both GEMX and ISE, in
either case as set by the Member) will
promote greater transparency around
the existing Kill Switch, and will serve
to better align the Exchange’s rules with
current System functionality, to the
benefit of investors and the public
interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The proposal
does not impose an undue burden on
intramarket competition because all
Members may avail themselves of the
Kill Switch. The Kill Switch risk
protection is optional. The proposed
rule change to expand this risk
protection to encompass quote
cancellation and restriction will further
protect Members in the event the
Member is suffering from a systems
issue or from the occurrence of unusual
or unexpected market activity that
would require them to withdraw from
the market in order to protect investors.
As discussed above, the proposed GUI
Kill Switch, like the existing port Kill
Switch, would be offered cross-market
to Members that want to be protected
from inadvertent exposure to excessive
risk when trading on both GEMX and
ISE. The Exchange does not believe that
permitting this functionality to be crossmarket will impose any undue burden
on intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
target of the cross-market feature is to
reduce risk for Members that trade on
GEMX and ISE. As noted above, issues
that would prompt a Member to submit
a Kill Switch request are normally not
confined to a Member’s activity on a
single exchange, so the Exchange
believes that having the ability to
manage risk across more than one
market will ultimately be beneficial by
providing Members with greater control
over their quotes and orders, which may
reduce disruptive trading events to the
benefit of all investors and the public
interest. Finally, the Exchange notes
other exchanges, including the
Exchange’s affiliated options markets,
similarly offer Kill Switch protections
for both quotes and orders.27
27 The proposed GUI Kill Switch protections are
similar to those available on its affiliated options
markets Nasdaq BX (‘‘BX’’), NOM, and Nasdaq Phlx
(‘‘Phlx’’), except BX, NOM, and Phlx Kill Switches
do not apply cross-market to other affiliated
exchanges. As discussed above, the proposed GUI
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59431
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 28 and
subparagraph (f)(6) of Rule 19b–4
thereunder.29
A proposed rule change filed under
Rule 19b–4(f)(6) 30 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),31 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has requested
that the Commission waive the 30-day
operative delay. According to the
Exchange, waiver of the operative delay
is consistent with the protection of
investors and the public interest
because it would provide Members with
greater control over their quotes and
orders, which may reduce disruptive
trading events to the benefit of all
investors and the public interest. The
Exchange notes that similar kill switch
protections are available on other
options exchanges and that the
Commission has previously approved
similar cross market risk protections,32
and that as such, the proposed rule
change does not raise any new, unique
or substantive issues. The Commission
Kill Switch may apply across GEMX and ISE, if set
by the Exchange member. See BX Chapter VI,
Section 6(d); NOM Chapter VI, Section 6(d); and
Phlx Rule 1019(b). See also CBOE Exchange Rule
5.34(c)(7) and BOX Options Exchange Rule 7280(b)
for other options exchanges that offer Kill Switch
protections for quotes and orders.
28 15 U.S.C. 78s(b)(3)(A)(iii).
29 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has requested that the Commission waive the prefiling requirement. The Commission hereby waives
that requirement.
30 17 CFR 240.19b–4(f)(6).
31 17 CFR 240.19b–4(f)(6)(iii).
32 See supra notes 25–27 and accompanying text.
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Federal Register / Vol. 84, No. 213 / Monday, November 4, 2019 / Notices
believes that waiving the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, the Commission
waives the 30-day operative delay and
designates the proposed rule change
operative upon filing.33
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.
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–GEMX–2019–15 and
should be submitted on or before
November 25, 2019.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Jill M. Peterson,
Assistant Secretary.
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–
GEMX–2019–15 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–GEMX–2019–15. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
33 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Sep<11>2014
20:48 Nov 01, 2019
Jkt 250001
[FR Doc. 2019–23975 Filed 11–1–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–87414; File No. SR–MRX–
2019–22]
Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 3,
Section 17, the Exchange’s Kill Switch
Risk Protection
October 29, 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
15, 2019, Nasdaq MRX, LLC (‘‘MRX’’ 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
Options 3, Section 17, which sets forth
the Exchange’s optional Kill Switch risk
protection.
34 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqmrx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
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 expand the
optional Kill Switch risk protection the
Exchange offers to Members today to
allow cancellation and restriction of
quotes, orders, or both. This new
functionality will be offered alongside
the existing port Kill Switch (as defined
below), which currently allows
Members to cancel and restrict only
their orders. The Exchange also
proposes to amend its rules to add more
detail on how the port Kill Switch
operates today. As discussed further
below, no functional changes to the
existing port Kill Switch functionality
are being contemplated by this rule
change; rather, the Exchange is
providing more detailed information on
the port Kill Switch so that the rule is
more aligned with the current operation
of existing functionality.
Port Kill Switch
Today, Kill Switch provides Members
with a risk management tool for
immediate control of their order
activity. Specifically as set forth in
Options 3, Section 17(a), Kill Switch
enables Members to initiate a message 3
to the System 4 to promptly cancel
orders and restrict entry of new orders
3 Today, Members are able to send a message to
the Exchange to initiate the Kill Switch. A Kill
Switch message may be sent through the Exchange
order entry ports FIX or OTTO (hereinafter, referred
to as ‘‘port Kill Switch’’).
4 The term ‘‘System’’ means the electronic system
operated by the Exchange that receives and
disseminates quotes, executes orders and reports
transactions. See Options 1, Section 1(a)(48).
E:\FR\FM\04NON1.SGM
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]]>Agencies
[Federal Register Volume 84, Number 213 (Monday, November 4, 2019)]
[Notices]
[Pages 59428-59432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23975]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87413; File No. SR-GEMX-2019-15]
Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3,
Section 17, the Exchange's Kill Switch Risk Protection
October 29, 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 15, 2019, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 3, Section 17, which sets
forth the Exchange's optional Kill Switch risk protection.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqgemx.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 expand the optional Kill Switch risk
protection the Exchange offers to Members today to allow cancellation
and restriction of quotes, orders, or both. This new functionality will
be offered alongside the existing port Kill Switch (as defined below),
which currently allows Members to cancel and restrict only their
orders. The Exchange also proposes to amend its rules to add more
detail on how the port Kill Switch operates today. As discussed further
below, no functional changes to the existing port Kill Switch
functionality are being contemplated by this rule change; rather, the
Exchange is providing more detailed information on the port Kill Switch
so that the rule is more aligned with the current operation of existing
functionality.
Port Kill Switch
Today, Kill Switch provides Members with a risk management tool for
immediate control of their order activity. Specifically as set forth in
Options 3, Section 17(a), Kill Switch enables Members to initiate a
message \3\
[[Page 59429]]
to the System \4\ to promptly cancel orders and restrict entry of new
orders until re-entry has been enabled. Members may submit a request to
the System to cancel orders for that Member. The System will send an
automated message to the Member when a Kill Switch request has been
processed by the Exchange's System.
---------------------------------------------------------------------------
\3\ Today, Members are able to send a message to the Exchange to
initiate the Kill Switch. A Kill Switch message may be sent through
the Exchange order entry ports FIX, OTTO, or Precise (hereinafter,
referred to as ``port Kill Switch'').
\4\ The term ``System'' means the electronic system operated by
the Exchange that receives and disseminates quotes, executes orders
and reports transactions. See Options 1, Section 1(a)(48).
---------------------------------------------------------------------------
If orders are cancelled by the Member utilizing the Kill Switch, it
will result in the removal of all orders for the Member.\5\ The Member
is unable to enter additional orders until the Member has made a verbal
request to the Exchange and Exchange staff has set a re-entry indicator
to enable re-entry.\6\ Once enabled for re-entry, the System will send
a Re-entry Notification Message to the Member. The applicable Clearing
Member for that Member will also be notified of the re-entry into the
System after orders are cancelled as a result of the Kill Switch,
provided the Clearing Member has requested to receive such
notification.
---------------------------------------------------------------------------
\5\ Members may not cancel orders by symbol. Of note, Opening
Sweeps are also cancelled. An Opening Sweep is a Market Maker order
submitted for execution against eligible interest in the system
during the Opening Process pursuant to Options 3, Section 8(b)(1).
See Options 3, Section 7(t). Consistent with current auction
functionality, PIM auction orders and responses are not cancelled.
PIM is the Exchange's price improvement mechanism. See Options 3,
Section 13. Other auctions orders and responses are cancelled.
\6\ The Member must directly and verbally contact the Exchange
to request the re-set.
---------------------------------------------------------------------------
The Exchange now proposes to provide additional detail regarding
the port Kill Switch described above to better align the Rule with
existing system functionality. The Exchange proposes to clarify that
Members may submit a Kill Switch request to the System through FIX,
OTTO, or Precise for the Member's requested identifier (i.e., badge \7\
or mnemonic \8\) (``Identifier'') on a user level (i.e., by individual
badge or mnemonic).\9\ As such, Members using the port Kill Switch
today may elect to cancel all existing orders and restrict entry of
additional orders by individual badge/mnemonic (i.e., Identifier).
Furthermore, if the Member's requested Identifier(s) is enabled to
trade on both the Exchange and the Exchange's affiliate, Nasdaq ISE
(``ISE''), the port Kill Switch applies across both GEMX and ISE.\10\
If a Member chooses to configure its Identifier on GEMX but not ISE,
the port Kill Switch activated on GEMX will only apply to that
Identifier on GEMX.
---------------------------------------------------------------------------
\7\ A ``badge'' shall mean an account number, which may contain
letters and/or numbers, assigned to Market Makers. A Market Maker
account may be associated with multiple badges. See Options 1,
Section 1(a)(4).
\8\ A ``mnemonic'' shall mean an acronym comprised of letters
and/or numbers assigned to Electronic Access Members. An Electronic
Access Member account may be associated with multiple mnemonics. See
Options 1, Section 1(a)(22).
\9\ Using the port Kill Switch, Members are only able to cancel
and restrict their order activity at the user level (i.e., by
individual Identifier). As discussed below, the new Kill Switch
enhancement will offer Members the additional option of submitting
requests at the user level or group level--in other words, by
individual Identifier or for a group of Identifiers. See, e.g.,
Nasdaq Options Market (``NOM'') Chapter VI, Sec. 6(d), which sets
forth NOM's Kill Switch rule, for similar terminology related to
Identifier.
\10\ Thus, for example, an Electronic Access Member that is
configured to trade on ISE and GEMX in mnemonics ABCD1, ABCD2, and
ABCD3 would submit a separate request for each mnemonic using the
port Kill Switch, which would result in the cancellation of all
existing orders and the restriction of additional orders associated
with mnemonics ABCD1, ABCD2, and ABCD3 across both ISE and GEMX. The
ability to kill interest across both ISE and GEMX is a feature that
was carried over from the Exchange's previous T7 trading system.
---------------------------------------------------------------------------
While the current rule text does not specifically provide for these
two features (i.e., the ability to cancel and restrict orders by
individual Identifier(s) and, if set by the Member, across both GEMX
and ISE), the existing port Kill Switch functionality operates in this
manner today. Accordingly, the Exchange proposes to replace the
existing language in section (a)(1) with the following to make clear
how the System operates today: ``A Member may submit a request to the
System through FIX, OTTO, or Precise to cancel all existing orders and
restrict entry of additional orders for the requested Identifier(s) on
a user level on Nasdaq GEMX, or across both Nasdaq GEMX and Nasdaq ISE,
in either case as set by the Member.''
As noted above, the Exchange is not proposing any functional
modifications to the existing port Kill Switch; rather, all of the
changes proposed above are to provide additional specificity as to how
the port Kill Switch operates today for greater consistency between the
rule text and the operation of the System. Lastly, the Exchange
proposes to delete the last sentence of (a)(1), which is redundant with
the re-entry provisions already set forth in the Rule.\11\
---------------------------------------------------------------------------
\11\ See Options 3, Section 17(a)(2). As discussed below, this
section will be renumbered as section (a)(3) under this proposal.
---------------------------------------------------------------------------
GUI Kill Switch
The Exchange also proposes to add new functionality that would
enhance the current Kill Switch risk protection for orders to apply to
both orders and quotes.\12\ The Exchange will provide this enhancement
through a separate graphical user interface (hereinafter, ``GUI Kill
Switch'') as an alternative way for Members to manage their trading
activity.\13\ As discussed below, the new GUI Kill Switch will be
functionally similar to the existing port Kill Switch, with the most
notable difference being the added ability to cancel all existing
quotes and block the entry of additional quotes. For instance, similar
to the port Kill Switch today, Members will be able to use the GUI Kill
Switch for requested Identifier(s) to apply either on GEMX only or
across both GEMX and ISE, depending on how the Identifier(s) was set up
by the Member. Accordingly, Options 3, Section 17 will be amended to
reflect that the Exchange will offer the proposed GUI Kill Switch
alongside the existing port Kill Switch. In particular, paragraph (a)
will provide that Kill Switch would enable Members to initiate a
message to the System to promptly cancel and restrict their quote and
order activity on GEMX, or across both GEMX and ISE, as further
described in the Rule. The Exchange also proposes to specify that
Members may submit a Kill Switch request to the System for certain
Identifier(s) on either a user or group level. Permissible groups must
reside within a single Member firm.\14\
---------------------------------------------------------------------------
\12\ As discussed more fully later in the filing, the proposed
Kill Switch enhancement will also have additional features to allow
Members to kill quotes and/or orders for requested Identifier(s) on
either a user or group level.
\13\ The GUI Kill Switch will be available to all Members
through a web-based interface.
\14\ For example, a permissible group could include all badges
associated with a Market Maker. Member would be able to set up these
groups beforehand to include all or some of the Identifiers
associated with the Member firm so that a GUI Kill Switch request
could apply to this pre-defined group.
---------------------------------------------------------------------------
As discussed above, while the proposed language in section (a) on
applying Kill Switch for requested Identifier(s) across both GEMX and
ISE is new, these features exist today with respect to the port Kill
Switch. Accordingly, the proposed changes in (a) with respect to order
cancellation and restriction clarify the current manner in which the
port Kill Switch operates today, and also extends the rule to encompass
the proposed GUI Kill Switch.
The Exchange further proposes to describe the new GUI Kill Switch
functionality in new section (a)(2).\15\ Specifically, the Exchange
proposes to add the following: ``Alternatively, a
[[Page 59430]]
Member may submit a request to the System through a graphical user
interface to cancel all existing, and restrict entry of additional,
quotes and/or orders for the requested Identifier(s) on either a user
or group level on Nasdaq GEMX, or across both Nasdaq GEMX and Nasdaq
ISE, in either case as set by the Member.'' \16\
---------------------------------------------------------------------------
\15\ In light of adopting this new section, current (a)(2) will
be renumbered as (a)(3).
\16\ Members may not cancel orders and quotes by symbol using
the GUI Kill Switch, similar to how orders may not be cancelled by
symbol through the port Kill Switch today. Also similar to the port
Kill Switch, Opening Sweeps will be cancelled upon initiating the
GUI Kill Switch. Lastly, all auction orders and responses other than
PIM orders/responses will similarly be cancelled. See supra note 5.
---------------------------------------------------------------------------
The Exchange believes that the proposed enhancement to the Kill
Switch will offer Members an alternative means to control their
exposure, through a separate interface which is not dependent on the
integrity of the member's own systems, should the member experience a
failure. Because the proposed enhancement will be provided through a
separate user interface instead of one of the Exchange's order entry
ports, the Exchange believes it would promote transparency in its Rules
to separately define these alternative methods in (a)(1) and (a)(2). As
noted above, the proposed enhancement is similar to the existing port
Kill Switch that allows Members to control their order activity but has
additional optionality, most significantly the ability to cancel and
restrict quotes, orders, or both. Furthermore, Members can set up the
GUI Kill Switch so they are able to control their quote and/or order
activity for an individual Identifier or a group of Identifiers,\17\ as
compared to the port Kill Switch which is limited to individual
Identifiers only.\18\
---------------------------------------------------------------------------
\17\ As noted above, NOM Chapter VI, Sec. 6(d) has similar
terminology in its Kill Switch rule. See supra note 9. Furthermore,
the proposed GUI Kill Switch is functionally similar to NOM's Kill
Switch in that both are offered through a separate graphical user
interface and have similar features, including the ability for
members to apply Kill Switch for certain identifiers on a user or
group level.
\18\ As an example of the GUI Kill Switch, assume a Market Maker
is configured to trade on ISE and GEMX in badges 123A, 123B, and
123C, with pre-defined settings that include all three badges as one
group to which the GUI Kill Switch will apply. The Market Maker
could then submit a GUI Kill Switch request to restrict their quote
activity for the pre-defined group, resulting in the cancellation of
all existing quotes and restriction of additional quotes associated
with badges 123A, 123B, and 123C across both ISE and GEMX. The same
Market Maker could instead opt to submit a GUI Kill Switch request
for only badge 123A to cancel all existing quotes and restrict entry
of additional quotes for that individual badge. The proposed
functionality therefore allows the Member to have more optionality
as compared to the existing mechanism.
---------------------------------------------------------------------------
The re-entry provisions in section (a)(3) will also be amended
throughout to reflect that the re-entry process after initiating the
GUI Kill Switch will be identical to the current process for the port
Kill Switch. Specifically, once a Member initiates either the port or
GUI Kill Switch, the Member will be unable to enter additional orders,
and/or quotes if pursuant to the GUI Kill Switch, for the affected
Identifier(s) until the Member has made a verbal request to the
Exchange and Exchange staff has set a re-entry indicator to enable re-
entry.\19\ Lastly, the Exchange proposes to make a related change in
the last sentence of section (a)(3) to delete the reference to order
cancellation, and also provide that the ``applicable Clearing Member
will be notified of such re-entry . . .'' for better readability.
---------------------------------------------------------------------------
\19\ Identical to re-entry for the port Kill Switch, Members
must directly and verbally contact the Exchange to request the re-
set if they initiate the GUI Kill Switch. See supra note 6 with
accompanying text.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \20\ in general, and furthers the objectives of Section
6(b)(5) of the Act \21\ 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, by enhancing the risk protections available to Members. The
proposal promotes policy goals of the Commission which has highlighted
the need for execution venues, exchange and non-exchange alike, to
enhance risk protection tools and other mechanisms to decrease risk and
increase stability.\22\
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
\22\ See, e.g., Securities Exchange Act Release Nos. 69077
(March 8, 2013), 78 FR 18083 (March 25, 2013) (Proposing Release) at
18090-91; and 73639 (November 19, 2014), 79 FR 72251 (December 5,
2014) (Adopting Release) at 72253 (highlighting that quality
standards, testing and improved error response mechanisms are among
the issues needing very thoughtful and focused attention in today's
securities markets).
---------------------------------------------------------------------------
The proposed GUI Kill Switch, similar to the existing port Kill
Switch, is designed to protect Members in the event the Member
encounters a situation, like a systems issue, for which they would need
to withdraw temporarily from the market. The individual Member firm
benefits of enhanced risk protections, including Kill Switch
mechanisms, flow downstream to counter-parties both at the Exchange and
at other options exchanges, thereby increasing systemic protections as
well. Additionally, because the Exchange will continue offer this
optional risk tool to all Members, the Exchange believes that it will
encourage liquidity generally and remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
protect investors and the public interest. To the extent the Exchange's
proposal provides Members with greater control over their quotes and
orders, and allows them to remove quotes and cancel orders in an
appropriate manner, then the proposal may encourage Members to provide
liquidity on GEMX and thus contribute to fair and orderly markets in a
manner that protects the public interest and protects investors.
As noted above, this optional risk tool will continue to be offered
to all Members. The Exchange further represents that its proposal will
continue to operate consistently with the firm quote obligations of a
broker-dealer pursuant to Rule 602 of Regulation NMS and that the
functionality is not mandatory. Specifically, any interest that is
executable against a Member's orders or quotes that are received \23\
by the Exchange, prior to the time the Kill Switch is processed by the
System, will automatically execute at the price up to the Member's
size. The Kill Switch message will be accepted by the System in the
order of receipt in the queue and will be processed in that order so
that interest that is already accepted into the System will be
processed prior to the Kill Switch message. Messages sent to the System
by the Kill Switch are processed in the order they are received by the
matching engine, through the same queuing mechanism that a quote or
order message is processed. The Exchange also notes that the latency
profile of the GUI Kill Switch is comparable to the latency profile of
killing interest through a message based Kill Switch from a Member's
order entry port.
---------------------------------------------------------------------------
\23\ The time of receipt for an order or quote is the time such
message is processed by the Exchange's order book.
---------------------------------------------------------------------------
A Market Maker's obligation to provide two-sided quotes on a daily
basis is not diminished by the removal of such quotes and/or orders by
utilizing the Kill Switch. Market Makers that utilize Kill Switch will
not be relieved of the obligation to provide intra-day quotes pursuant
to Options 2, Section 5(e), nor will it prohibit the Exchange from
taking disciplinary action against a Market Maker for failing to meet
its quoting obligations each trading day.
The proposed changes will also permit Clearing Members that clear
transactions on a Member's behalf
[[Page 59431]]
pursuant to a Letter of Guarantee \24\ to receive information regarding
the Member's re-entry into the System after the Member initiates the
GUI Kill Switch, and makes the verbal request to the Exchange for re-
entry pursuant to Options 3, Section 17(a). As is the case today with
the port Kill Switch, because such Clearing Members guarantee all
transactions on behalf of that Member and therefore bear the risk
associated with those transactions, the Exchange believes that it is
appropriate for the Clearing Member to receive information regarding
re-entry into the System after quotes and/or orders are cancelled as a
result of the GUI Kill Switch, should the Clearing Member request such
notification. This information may help provide Clearing Members with
greater control and flexibility in managing the risk associated with
the Member's activity.
---------------------------------------------------------------------------
\24\ A Letter of Guarantee obligates the issuing Clearing Member
to accept financial responsibilities for all Exchange transactions
made by the guaranteed Member. See Options 6, Section 4(a) and (b).
---------------------------------------------------------------------------
The Exchange's proposal also extends the cross-market feature
available today through the port Kill Switch to the proposed GUI Kill
Switch. The Exchange notes that issues that would prompt a Member to
submit a Kill Switch request are normally not confined to a member's
activity on a single exchange. Accordingly, the Exchange believes that
offering both the port and GUI Kill Switch protections on a cross-
market basis would help Members to more effectively manage their risk
when trading on multiple markets, and reduce disruptive trading events
to the benefit of all members and investors. For the same reasons, the
Exchange already offers other cross market risk protections pursuant to
the Market Wide Risk Protection (``MWRP'') \25\ as well as for market
maker quotes, both of which can be applied across GEMX and ISE similar
to the port and GUI Kill Switch.\26\ Like MWRP and the cross-market
protections for market maker quotes, the Exchange ported over the Kill
Switch's cross-market feature from the Exchange's previous trading
system with minimal modifications to minimize the impact to Members
that were already familiar with the existing risk management tools.
---------------------------------------------------------------------------
\25\ See Options 3, Section 15(b)(1)(D).
\26\ See Options 3, Section 15(b)(3)(B)(vi).
---------------------------------------------------------------------------
Lastly, the Exchange believes that the proposed changes to add
greater specificity with respect to how the port Kill Switch currently
operates (i.e., that a Kill Switch request sent through FIX, OTTO, or
Precise will result in the cancellation of all existing orders, and
restrict entry of additional orders for the requested Identifier(s) on
a user level on GEMX, or across both GEMX and ISE, in either case as
set by the Member) will promote greater transparency around the
existing Kill Switch, and will serve to better align the Exchange's
rules with current System functionality, to the benefit of investors
and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposal does not impose an
undue burden on intramarket competition because all Members may avail
themselves of the Kill Switch. The Kill Switch risk protection is
optional. The proposed rule change to expand this risk protection to
encompass quote cancellation and restriction will further protect
Members in the event the Member is suffering from a systems issue or
from the occurrence of unusual or unexpected market activity that would
require them to withdraw from the market in order to protect investors.
As discussed above, the proposed GUI Kill Switch, like the existing
port Kill Switch, would be offered cross-market to Members that want to
be protected from inadvertent exposure to excessive risk when trading
on both GEMX and ISE. The Exchange does not believe that permitting
this functionality to be cross-market will impose any undue burden on
intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the target of the cross-
market feature is to reduce risk for Members that trade on GEMX and
ISE. As noted above, issues that would prompt a Member to submit a Kill
Switch request are normally not confined to a Member's activity on a
single exchange, so the Exchange believes that having the ability to
manage risk across more than one market will ultimately be beneficial
by providing Members with greater control over their quotes and orders,
which may reduce disruptive trading events to the benefit of all
investors and the public interest. Finally, the Exchange notes other
exchanges, including the Exchange's affiliated options markets,
similarly offer Kill Switch protections for both quotes and orders.\27\
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\27\ The proposed GUI Kill Switch protections are similar to
those available on its affiliated options markets Nasdaq BX
(``BX''), NOM, and Nasdaq Phlx (``Phlx''), except BX, NOM, and Phlx
Kill Switches do not apply cross-market to other affiliated
exchanges. As discussed above, the proposed GUI Kill Switch may
apply across GEMX and ISE, if set by the Exchange member. See BX
Chapter VI, Section 6(d); NOM Chapter VI, Section 6(d); and Phlx
Rule 1019(b). See also CBOE Exchange Rule 5.34(c)(7) and BOX Options
Exchange Rule 7280(b) for other options exchanges that offer Kill
Switch protections for quotes and orders.
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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 \28\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\
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\28\ 15 U.S.C. 78s(b)(3)(A)(iii).
\29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has requested that the Commission waive the pre-filing
requirement. The Commission hereby waives that requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \30\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\31\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has
requested that the Commission waive the 30-day operative delay.
According to the Exchange, waiver of the operative delay is consistent
with the protection of investors and the public interest because it
would provide Members with greater control over their quotes and
orders, which may reduce disruptive trading events to the benefit of
all investors and the public interest. The Exchange notes that similar
kill switch protections are available on other options exchanges and
that the Commission has previously approved similar cross market risk
protections,\32\ and that as such, the proposed rule change does not
raise any new, unique or substantive issues. The Commission
[[Page 59432]]
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest. Accordingly, the
Commission waives the 30-day operative delay and designates the
proposed rule change operative upon filing.\33\
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\30\ 17 CFR 240.19b-4(f)(6).
\31\ 17 CFR 240.19b-4(f)(6)(iii).
\32\ See supra notes 25-27 and accompanying text.
\33\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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-GEMX-2019-15 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-GEMX-2019-15. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the 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-GEMX-2019-15 and should be submitted on
or before November 25, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23975 Filed 11-1-19; 8:45 am]
BILLING CODE 8011-01-P
