Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing of Proposed Rule Change To Utilize the FIX Protocol To Submit Orders to BX's Price Improvement Auction Mechanism, 73095-73099 [2020-25180]
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Federal Register / Vol. 85, No. 221 / Monday, November 16, 2020 / Notices
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–CboeBZX–2020–079 and
should be submitted on or before
December 7, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–25182 Filed 11–13–20; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing of Proposed
Rule Change To Utilize the FIX
Protocol To Submit Orders to BX’s
Price Improvement Auction
Mechanism
November 9, 2020.
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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
27, 2020, 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
Options 3, Section 7(d)(1)(A) relating to
‘‘Financial Information eXchange’’ or
‘‘FIX’’ in connection with offering BX
Participants the ability to utilize FIX to
submit orders to its Price Improvement
Auction (‘‘PRISM’’) mechanism.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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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.
1. Purpose
[Release No. 34–90383; File No. SR–BX–
2020–033]
1 15
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
21 17
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/bx/rules, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
The Exchange proposes to offer BX
Participants a manner in which to send
messages through FIX, to other BX
Participants, for the specific purpose of
requesting another BX Participant
submit an ‘‘Initiating Order’’ 3 along
with the sender’s PRISM Order 4 into
the Price Improvement Auction
(‘‘PRISM’’) mechanism for execution
pursuant to Options 3, Section 13.
Specifically, the Exchange proposes to
amend BX Options 3, Section 7(d)(1)(A)
relating to ‘‘Financial Information
eXchange’’ or ‘‘FIX’’ in connection with
this offering. This functionality would
provide an additional workflow to BX
Participants seeking to enter paired
orders into PRISM. This proposal does
not amend the PRISM rule within
Options 3, Section 13 in connection
with offering Participants the ability to
submit a Request for PRISM through
FIX.
FIX is an interface that allows
Participants and their Sponsored
Customers to connect, send, and receive
messages related to orders and auction
orders and responses to and from the
Exchange. Features include the
following: (1) Execution messages; (2)
order messages; and (3) risk protection
3 An Initiating Order is an order executed against
principal interest or against any other order it
represents as agent. See Options 3, Section 13.
4 A PRISM Order is an order submitted by a BX
Participant that it represents as agent on behalf of
a Public Customer, broker dealer, or any other
entity, electronically, for execution. See Options 3,
Section 13.
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triggers and cancel notifications.5
Today, all BX Participants utilize FIX to
submit orders to BX.
This proposal would expand the
capabilities of the FIX protocol to allow
a BX Participant (sender) to utilize FIX
to send a message to other BX
Participants (responders) with an order
the sender represents as agent (‘‘PRISM
Order’’) on behalf of a Public Customer,
broker dealer or other entity requesting
the responders provide a contra-side
Initiating Order (a ‘‘response’’) and
begin a PRISM auction (collectively a
‘‘Request for PRISM’’).6 Today,
Participants communicate their desire to
have their orders paired in other ways,7
which may be less efficient. This
proposal would permit BX Participants
to streamline their workflow and utilize
FIX as a tool to message a Request for
PRISM to all BX Participants that opted
to receive these notifications, as
described below. If a BX Participant
desires to respond to the request, the BX
Participant would add an Initiating
Order to the sender’s PRISM Order and
submit the paired order directly into
PRISM, through FIX, for processing in
accordance with Options 3, Section 13.
BX Participants may elect to ‘‘opt in’’ to
receive Requests for PRISM. BX
Participants that do not elect to ‘‘opt in’’
will not receive such requests. Once a
BX Participant elects to receive Requests
for PRISM, they would receive all
requests from any BX Participant
submitting a Request for PRISM. The BX
Participant cannot elect to only receive
requests from certain Participants and
the sender may not elect to send the
request to a select group of BX
Participants.
Specifically, the Request for PRISM
created by the BX Participant would be
systematized so that a BX Participant
may add an Initiating Order to the
previously submitted sender PRISM
Order and directly submit the PRISM
Order through FIX. The Exchange will
set a certain time period up to one
second 8 within which the PRISM Order
must be submitted or it would otherwise
cancel or book pursuant to the sending
5 See
Options 3, Section 7(d)(1)(A).
Request for PRISM, if accepted and
submitted into PRISM, would become the ‘‘PRISM
Order’’ pursuant to Options 3, Section 13.
7 This proposal represents an alternative to the
other methods of submitting an order which may
include: telephone, electronically using an external
order management system, or utilizing instant
message.
8 The Exchange will initially set the time period
to 100 milliseconds to respond to the Request for
PRISM or otherwise not respond before the Request
for PRISM would become unavailable. The
Exchange will post the time period on its System
settings page.
6 The
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Participant’s instructions, as described
in more detail below.
The Request for PRISM would include
the price, size, symbol, side and
instruction for handling of the order, in
the event there are no responses. A
response must match the PRISM Order
and may not improve the price, or the
response will be rejected. A response
may be configured to improve the
PRISM Order stop price 9 pursuant to
Options 3, Section 13(ii)(A)(1)(c). The
configuration would apply if this
response initiated a PRISM auction.
BX Participants are not obligated to
respond to the request. If a BX
Participant elects not to respond they
would ignore the request. If no BX
Participant responds, pursuant to the
sender’s instruction, the PRISM Order
would be placed on the Order Book as
a Limit Order or cancelled. In any event,
no order would be submitted into the
PRISM mechanism in the instance that
no BX Participant responded to the
request.
By way of example, BX Firm A elects
to send a Request for PRISM. BX Firm
A would enter a Request for PRISM with
a PRISM Order, for example an order to
sell 100 contracts in AAPL at $1.00 with
an instruction to enter the order on the
Order Book if no one responds with an
Initiating Order into PRISM. This
Request for PRISM is entered into FIX.
The Request for PRISM would be sent
to all BX Participants who opted in to
receive this request, also a timer not to
exceed one second would commence.
Assume in this example that 3 firms
responded (Firm B, C, and D, in that
order of response) with each firm
willing to buy 100 contracts 10 in AAPL
at $1.00 and they respond within 50
milliseconds. The System would
process Firm B’s Initiating Order along
with the PRISM Order by entering the
paired order, through FIX, into PRISM
for execution pursuant to Options 3,
Section 13. The System would send the
other 2 responders (C and D) a reject
message.
Assume the same example, that Firm
B had responded that it was willing to
buy 100 contracts in AAPL at $1.00, and
Firm B also configured the response
with a No Worse Than price. Because in
this example Firm B’s Initiating Order,
along with the PRISM Order was sent
into PRISM for execution pursuant to
Options 3, Section 13, the No Worse
Than price would be considered in the
allocation and the Initiating Order will
9 BX Options 3, Section 13(ii)(A)(1) permits
Participants to submit a No Worse Than price.
10 As noted above, a response must match the
PRISM Order and may not improve the price, or the
response will be rejected.
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auto-match unrelated orders and PANs
that provide the PRISM Order price
improvement up to the No Worse Than
price.
Assume the same example, except in
this scenario no Participant responds
during the timer, the Initiating Order
would post to the Order Book as a Limit
Order and be handled in accordance
with Options 3, Section 10 (Order Book
Allocation) pursuant to the Participant’s
instructions. The System would
disseminate a PRISM notification to all
Participants if a responder submitted an
Initiating Order into the PRISM
mechanism. The System would retain
an audit trail of the Request for PRISM
and the responses, if any, received.
As noted above, a Request for PRISM
would be sent to all BX Participants that
elected to opt in to receive these
requests. Unlike the workflow today,
wherein a Participant may call one or
multiple members to enter into a PRISM
Order, all BX Participants that opted in
would receive any Request for PRISM.
The System will submit the first
Initiating Order response received,
during the timer, into a PRISM. Once
the recipient of a Request for PRISM has
responded to the Request for PRISM by
adding the Initiating Order, the PRISM
may not be cancelled. The sender may
not cancel a Request for PRISM once
that Request for PRISM has been sent.
The identity of the sender and
recipients would not be known to any
party. Further, the Exchange would not
disclose a list of Participants that opted
in to receive Requests for PRISM.
The Exchange believes this new FIX
feature will enhance the workflow of BX
Participants desiring to enter orders into
PRISM for execution and price
improvement. The Exchange believes
that this new functionality will offer
market participants another method to
directly engage with other BX
Participants to locate an Initiating Order
for submission of a paired order into the
PRISM mechanism.
The Exchange proposes to amend
Options 3, Section 7(d)(1)(A) to add the
following sentence to the description of
the FIX protocol, ‘‘In addition, a BX
Participant may elect to utilize FIX to
send a message and PRISM Order, as
defined within Options 3, Section 13, to
all BX Participants that opt in to receive
Requests for PRISM requesting that it
submit the sender’s PRISM Order with
responder’s Initiating Order, as defined
within Options 3, Section 13, into the
Price Improvement Auction (‘PRISM’)
mechanism, pursuant to Options 3,
Section 13 (‘Request for PRISM’).’’
(a) BX Participants must ‘‘opt in’’ to
receive Requests for PRISM. A
Participant who opts in to receive
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Requests for PRISM will receive all
requests from a Participant submitting a
Request for PRISM.
(b) The Exchange will set a certain
time period up to one second within
which a recipient of a Request for
PRISM may utilize FIX to submit the
sender’s PRISM Order, along with an
Initiating Order (a ‘‘response’’) into the
System for execution into PRISM
pursuant to Options 3, Section 13. The
System will permit the first responder to
start a PRISM Auction and will send a
reject message to subsequent
responders. A response must match the
PRISM Order and may not improve the
price, or the response will be rejected.
A response may be configured to
improve the PRISM Order stop price
pursuant to Options 3, Section
13(ii)(A)(1)(c); the configuration would
apply if this response initiated a PRISM
auction. If no BX Participant responds
to the Request for PRISM, the PRISM
Order would be placed on the Order
Book as a Limit Order or cancelled,
consistent with the sending
Participant’s instruction.
(c) A Request for PRISM will be sent
simultaneously to all BX Participants
who opted in to receive Requests for
PRISM.
(d) Once the recipient of a Request for
PRISM has responded to the Request for
PRISM by adding the Initiating Order,
the PRISM may not be cancelled.
(e) The sender may not cancel a
Request for PRISM once that Request for
PRISM has been sent.
(f) The identity of the sender and
recipients will not be known to any
party. The Exchange will not disclose a
list of Participants that opted in to
receive Requests for PRISM.
(g) It would be deemed conduct
inconsistent with just and equitable
principles of trade and a violation of
Options 9, Section 1, and other
Exchange Rules, to utilize non-public
information in connection with a
Request for PRISM to a Participant’s
economic advantage.
BX will employ surveillances to
prevent misuse of non-public
information specifically related to a
Request for PRISM. Today, Options 3,
Section 13(iv) 11 and (v) 12 describes
11 BX Options 3, Section 13(iv) provides, ‘‘A
pattern or practice of submitting multiple orders in
response to a PAN at a particular price point that
exceed, in the aggregate, the size of the PRISM
Order, will be deemed conduct inconsistent with
just and equitable principles of trade and a
violation of General 9, Section 1.’’
12 BX Options 3, Section 13(v) provides, ‘‘A
pattern or practice of submitting unrelated orders or
quotes that cross the stop price, causing a PRISM
Auction to conclude before the end of the PRISM
Auction period will be deemed conduct
inconsistent with just and equitable principles of
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,13 in general, and furthers the
objectives of Section 6(b)(5) of the Act,14
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
proposing another method for BX
Participants to submit PRISM Orders,
while effectively reducing certain
workflow. In particular, the proposal
provides greater flexibility for
Participants submitting orders into
PRISM, specifically providing an
avenue for BX Participants desiring to
send orders to the PRISM mechanism to
locate an Initiating Order to pair their
PRISM Order with and participate in a
PRISM Auction. The Exchange also
believes the proposal will provide an
opportunity for Participants to achieve
better handling of orders by providing
Participants with an ability to solicit
interest from any BX Participant who
opts in to receive a Request for PRISM.
A BX Participant sending a Request for
PRISM via FIX would have the
opportunity to have their order
responded to by a broader array of
market participants in a more direct
fashion Adopting this proposal and
providing the ability for BX Participants
to anonymously solicit interest from
other BX Participants desiring to enter
a Initiating Order into PRISM will
promote just and equitable principles of
trade and foster cooperation and
coordination with persons engaged in
facilitating transactions in securities.
Any BX Participant may respond to a
PRISM Auction and therefore all BX
Participants benefit from the ability to
interact with additional order flow that
this functionality would generate as a
result of matching PRISM Orders to
Initiating Orders, thereby removing
impediments to and perfecting the
mechanism of a free and open market
and a national market system.
Today, Participants communicate
their desire to have their orders paired
in other ways,15 which may be less
efficient. For example, today parties on
trading floors negotiate paired orders
prior to entry into a trading crowd.16
This proposal would permit BX
Participants to streamline their
workflow and utilize FIX as a tool to
message a Request for PRISM to all BX
Participants opting to receive these
requests. This proposal would not
amend the manner in which PRISM
operates. There are no amendments
proposed to BX Options 3, Section 13
herein. This feature, which expands the
FIX protocol offering to allow any BX
Participant to send a Request for PRISM
to all BX Participants opting to receive
these requests, would offer BX
Participants a manner in which to
effectively communicate an interest to
initiate a PRISM Auction. The
functionality, which systematizes the
Request for PRISM for streamlined entry
to PRISM through FIX, provides an
avenue for BX Participants who have no
order flow arrangements to locate
interest. If no one responds to the
Request for PRISM, then the sending
Participant may elect to have the System
post the PRISM Order to the Order Book
as a Limit Order or cancel the PRISM
Order. If a Participant responds to a
Request for PRISM then the paired order
will be entered into PRISM by the
System and any BX Participant may
respond. All BX Participants benefit
from the ability to interact with order
flow on BX.
Permitting Participants to opt in to
receive a Request for PRISM is
consistent with the Act and promotes
free and open markets because anyone
can opt in and participate. Also, if a BX
Participant does not want to opt in, it
prevents Participants from receiving
unwanted solicitations. Once a
Participant elects to receive Requests for
trade and a violation of General 9, Section 1. It will
also be deemed conduct inconsistent with just and
equitable principles of trade and a violation of
General 9, Section 1 to engage in a pattern of
conduct where the Initiating Participant breaks up
a PRISM Order into separate orders for the purpose
of gaining a higher allocation percentage than the
Initiating Participant would have otherwise
received in accordance with the allocation
procedures contained in subparagraph (ii)(E) and
(ii)(F) above.’’
13 15 U.S.C. 78f(b)
14 15 U.S.C. 78f(b)(5).
15 This proposal represents an alternative to the
other methods of submitting an order which may
include: telephone, electronically using an external
order management system, or utilizing instant
message.
16 See PHLX Options 8, Section 30(c) which
provides that a Phlx member or member
organization representing an order in options
(‘‘originating order’’) may solicit another member,
member organization or nonmember broker-dealer
outside the trading crowd (‘‘solicited party’’) to
participate in the transaction on a proprietary basis,
provided the paired order is exposed.
certain activity prohibited by BX related
to PRISM.
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Implementation
The Exchange intends to begin
implementation of the proposed rule
change by June 30, 2021. The Exchange
will issue an Options Trader Alert to
Participants with the date of
implementation.
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PRISM, they would receive a request
from any BX Participant.17 The
Exchange believes that it is consistent
with the Act to not allow Participants to
selectively exclude interest from certain
Participants, if they chose to utilize this
workflow. Additionally, the Exchange
believes that no BX Participant should
be required to accept solicitations of
interest from other Participants if they
elect not to receive such notifications.
The identity of the sender and the
recipients would not be known to any
party. The Exchange believes that it is
consistent with the Act to not disclose
the identities of any party as the
Exchange believes that anonymity will
prevent potential manipulation that may
result if the Request for PRISM is not
responded to and eventually rests on the
Order Book as a Limit Order. Further,
parties may feel free to solicit interest
without disclosing information as the
identity of the sender will remain
unknown. Finally, selectively
responding to certain senders would be
avoided by not disclosing identifying
information about the parties. The
Exchange would permit BX Participants
to opt in and subsequently opt out as
they desire. The Exchange would not
disclose the parties that have opted in
to further create an anonymous
communication among BX Participants.
The PRISM auction will be governed
by Options 3, Section 13. Any paired
order entered into PRISM must comply
with the required price to commence
the auction and NBBO requirements to
prevent trade-through as provided for
within Options 3, Section 13. The
auction eligibility requirements apply to
all paired orders entered into PRISM
even those that were submitted as a
result of a Request for PRISM.
BX will employ surveillances to
prevent misuse of non-public
information specifically related to a
Request for PRISM similar to the
manner in which it employs
surveillances today to ensure that
information available in auctions is not
misused. The Exchange would have
information regarding the Request for
PRISM and would be able to monitor
entries into both the Order Book and
PRISM Auction. Today, Options 3,
Section 13(iv) 18 and (v) 19 describes
certain activity prohibited by BX related
17 While Participants will have a certain time
period, up to one second, to act if they elect to
participate in the Request for PRISM, the
Participant also may elect not to respond. If no
recipient Participants respond this would cause the
cancellation of the initial Request for PRISM and no
order would be submitted into the PRISM
mechanism.
18 See note 11 above.
19 See note 12 above.
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to PRISM in addition to Options 3,
Section 22. Participants receiving such
Requests for PRISM may not utilize the
information to a Participant’s economic
advantage as provided for in proposed
Options 3, Section 7(d)(1)(A)(1)(f). The
Exchange notes the requests are subject
to the restrictions noted within Options
3, Section 22, Limitations on Order
Entry, as well as restriction noted with
Options 3, Section 13. The
communications that would occur,
through FIX, would be available to the
Exchange and these communications
would be maintained. The Exchange
would have information regarding the
Request for PRISM and would be able to
monitor entries into both the Order
Book and PRISM Auction.
Broker-dealers are required to obtain
best execution of customer orders,20
including taking into account price
improvement opportunities. All brokerdealers have a duty to obtain best
execution when representing orders on
an agency basis.
The Exchange believes that this
proposal removes impediments to and
perfects the mechanism of a free and
open market and a national market
system by promoting a more efficient
workflow to seek to pair BX Participants
who desire to initiate a PRISM Auction
with Initiating Orders. This
functionality permits Participants to
further pair buyers and sellers for the
purpose of executing transactions on its
facility. Further, this proposal promotes
competition by allowing Participants to
seek the best execution through the
Request for PRISM which offers a means
for BX Participants to effectively solicit
all BX Participants to locate interest for
participation in a PRISM Order. Finally,
the Exchange believes this proposal
protect investors and the public interest
by creating an auditable method of
surveilling Requests for PRISM.
Price improvement auctions are
widely recognized by market
participants as invaluable, both as a tool
to access liquidity, and a mechanism to
help meet their best execution
obligations. The proposed rule change
will further the ability of BX
Participants to submit orders into
PRISM. Finally, the proposal serves as
a competitive response to price
improvement auctions on other options
exchanges by providing for another
manner in which BX Participants may
solicit interest for the purpose of
entering a paired order into PRISM in a
more widespread fashion. The Exchange
20 The duty of best execution requires brokerdealers to periodically assess the quality of
competing markets to assure that order flow is
directed to the markets providing the most
beneficial terms for their customer orders.
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believes the Request for PRISM will
attract more liquidity in PRISM.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange’s proposal offers all BX
Participants the ability to send a
Request for PRISM, through FIX, to any
BX Participant who opts in to receive
such requests.
The proposed rule creates a new
modality for Participants to send orders
to BX Participants for representation.
Today, all BX Participants utilize FIX to
submit orders to BX and all Participants
who utilize FIX may submit orders into
PRISM. Any Participant may respond to
the PRISM Auction.
The Exchange notes that it is
providing BX Participants an ability to
anonymously solicit interest for the
purpose of entering a paired order into
PRISM. Today, BX Participants locate
interest by other methods. This
functionality would allow all BX
Participants another method to enter a
paired order into PRISM by
anonymously permitting a solicitation
of interest to seek an Initiating Order to
pair with their PRISM Order. The
Exchange believes that this functionality
will allow a greater number of BX
Participants to utilize PRISM. Any BX
Participant may contact other market
participants to continue to solicit
interest, as is the case today. The
Exchange believes that this proposal
will benefit all BX Participants by
offering an increased opportunity to
trade on the Exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will: (a) By order approve or disapprove
such proposed rule change, or (b)
institute proceedings to determine
whether the proposed rule change
should be disapproved.
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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–2020–033 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.
All submissions should refer to File
Number SR–BX–2020–033. 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–2020–033 and should
be submitted on or before December 7,
2020.
E:\FR\FM\16NON1.SGM
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Federal Register / Vol. 85, No. 221 / Monday, November 16, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–25180 Filed 11–13–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90367; File No. SR–NSCC–
2020–802]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of No Objection to
Advance Notice To Enhance National
Securities Clearing Corporation’s
Haircut-Based Volatility Charge
Applicable to Illiquid Securities and
UITs and Make Certain Other Changes
to Procedure XV
November 6, 2020.
I. Introduction
On March 16, 2020, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
advance notice SR–NSCC–2020–802
(‘‘Advance Notice’’) pursuant to Section
806(e)(1) of Title VIII of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act, entitled Payment,
Clearing and Settlement Supervision
Act of 2010 (‘‘Clearing Supervision
Act’’) 1 and Rule 19b–4(n)(1)(i) 2 under
the Securities Exchange Act of 1934
(‘‘Exchange Act’’) 3 to enhance the
calculation of certain components of the
Clearing Fund formula.4 The Advance
21 17
CFR 200.30–3(a)(12).
U.S.C. 5465(e)(1).
2 17 CFR 240.19b–4(n)(1)(i).
3 15 U.S.C. 78a et seq.
4 NSCC also filed related proposed rule change
with the Commission pursuant to Section 19(b)(1)
of the Act and Rule 19b–4 thereunder, seeking
approval of proposed changes to their rules
necessary to implement the Advance Notices
(‘‘Proposed Rule Change’’). 15 U.S.C. 78s(b)(1) and
17 CFR 240.19b–4, respectively. The Proposed Rule
Change was published in the Federal Register on
March 21, 2020. Securities Exchange Act Release
No. 88474 (March 25, 2020), 85 FR 17910 (March
31, 2020) (SR–NSCC–2020–003). On May 15, 2020,
the Commission designated a longer period within
which to approve, disapprove, or institute
proceedings to determine whether to approve or
disapprove the Proposed Rule Change. Securities
Exchange Act Release No. 88885 (May 15, 2020), 85
FR 31007 (May 21, 2020) (SR–NSCC–2020–003). On
June 24, 2020, the Commission issued an order
instituting proceedings to determine whether to
approve or disapprove the Proposed Rule Changes.
Securities Exchange Act Release No. 89145 (June
24, 2020), 85 FR 39244 (June 30, 2020) (SR–NSCC–
2020–003). On September 22, 2020, the
Commission designated a longer period for
Commission action on the proceedings to determine
whether to approve or disapprove the Proposed
jbell on DSKJLSW7X2PROD with NOTICES
1 12
VerDate Sep<11>2014
20:13 Nov 13, 2020
Jkt 253001
Notice was published for comment in
the Federal Register on April 15, 2020.5
The Commission received comments on
the proposal.6 On May 15, 2020, the
Commission requested further
information for consideration of the
Advance Notices, pursuant to Section
806(e)(1)(D) of the Clearing Supervision
Act (‘‘RFI’’),7 which tolled the
Commission’s period of review of the
Advance Notices until 60 days from the
date the information required by the
Commission was received by the
Commission.8 On September 9, 2020,
the Commission received responses to
the RFI from NSCC.9 This publication
serves as notice of no objection to the
Advance Notice.
II. The Advance Notice
A. Background
NSCC provides clearing, settlement,
risk management, central counterparty
services, and a guarantee of completion
for virtually all broker-to-broker trades
involving equity securities, corporate
and municipal debt securities, and unit
investment trust transactions in the U.S.
markets. A key tool that NSCC uses to
manage its credit exposure to its
Members is collecting an appropriate
Required Fund Deposit (i.e., margin)
from each Member.10 A Member’s
Required Fund Deposit is designed to
mitigate potential losses to NSCC
associated with liquidation of the
Member’s portfolio in the event of a
Rule Change. Securities Exchange Act Release No.
89949 (September 22, 2020), 85 FR 60854
(September 28, 2020) (SR–NSCC–2020–003).
5 Securities Exchange Act Release No. 88615
(April 9, 2020), 85 FR 21037 (April 15, 2020) (SR–
NSCC–2020–802) (‘‘Notice of Filing’’).
6 Comments are available at https://www.sec.gov/
comments/sr-nscc-2020-003/srnscc20200037108527-215929.pdf. All but one of the comments
were submitted with respect to the Proposed Rule
Change. Supra note 4. Because the proposals
contained in the Advance Notice and the Proposed
Rule Change are the same, all public comments
received on the proposal were considered
regardless of whether the comments were submitted
with respect to the Advance Notice or the Proposed
Rule Change.
7 12 U.S.C. 5465(e)(1)(D).
8 See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); see
Memorandum from the Office of Clearance and
Settlement Supervision, Division of Trading and
Markets, titled ‘‘Commission’s Request for
Additional Information,’’ available at https://
www.sec.gov/rules/sro/nscc-an/2020/34-88615request-for-info.pdf.
9 See 12 U.S.C. 5465(e)(1)(E)(ii) and (G)(ii); see
Memorandum from the Office of Clearance and
Settlement Supervision, Division of Trading and
Markets, titled ‘‘Response to the Commission’s
Request for Additional Information,’’ available at
https://www.sec.gov/rules/sro.shtml.
10 Terms not defined herein are defined in
NSCC’s Rules and Procedures (‘‘Rules’’), available
at https://www.dtcc.com/∼/media/Files/Downloads/
legal/rules/nscc_rules.pdf. See Rule 4 (Clearing
Fund) and Procedure XV (Clearing Fund Formula
and Other Matters) of the Rules.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
73099
Member default.11 The aggregate of all
NSCC Members’ Required Fund
Deposits (together with certain other
deposits required under the Rules)
constitutes NSCC’s Clearing Fund,
which NSCC would access should a
Member default and that Member’s
Required Fund Deposit, upon
liquidation, be insufficient to satisfy
NSCC’s losses.12
Each Member’s Required Fund
Deposit consists of a number of
applicable components, each of which
is calculated to address specific risks
faced by NSCC, as identified within
NSCC’s Rules.13 Generally, the largest
component of Members’ Required Fund
Deposits is the volatility component.
The volatility component is designed to
reflect the amount of money that could
be lost on a portfolio over a given period
within a 99% confidence level. This
component represents the amount
assumed necessary to absorb losses
while liquidating the portfolio.
NSCC’s methodology for calculating
the volatility component of a Member’s
Required Fund Deposit depends on the
type of security and whether the
security has sufficient pricing or trading
history for NSCC to perform statistical
analysis. Generally, for most securities
(e.g., equity securities), NSCC calculates
the volatility component using, among
other things, a parametric Value at Risk
(‘‘VaR’’) model, which results in a ‘‘VaR
Charge.’’ 14 However, the VaR model
generally relies on predictability, and
this model may be less reliable for
measuring market risk of securities that
exhibit illiquid characteristics. More
specifically, the VaR model relies on
assumptions that are based on historical
observations of security prices.
Securities that exhibit illiquid
characteristics, which generally have
low trading volumes or are not traded
frequently may not present sufficient
instances of price observations to allow
11 Under NSCC’s Rules, a default would generally
be referred to as a ‘‘cease to act’’ and could
encompass a number of circumstances, such as a
member’s failure to make a Required Fund Deposit
in a timely fashion. See Rule 46 (Restrictions on
Access to Services), supra note 10.
12 See Rule 46 (Restrictions on Access to
Services), supra note 10.
13 See Procedure XV, supra note 10.
14 Specifically, NSCC calculates the VaR Charge
as the greatest of (1) the larger of two separate
calculations that utilize the VaR model, (2) a gap
risk measure calculation based on the largest nonindex position in a portfolio that exceeds a
concentration threshold, which addresses
concentration risk that can be present in a member’s
portfolio, and (3) a portfolio margin floor
calculation based on the market values of the long
and short positions in the portfolio, which
addresses risks that might not be adequately
addressed with the other volatility component
calculations. See Sections I.(A)(1)(a)(i) and
I.(A)(2)(a)(i) of Procedure XV, supra note 10.
E:\FR\FM\16NON1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 221 (Monday, November 16, 2020)]
[Notices]
[Pages 73095-73099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25180]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90383; File No. SR-BX-2020-033]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
of Proposed Rule Change To Utilize the FIX Protocol To Submit Orders to
BX's Price Improvement Auction Mechanism
November 9, 2020.
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 27, 2020, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 3, Section 7(d)(1)(A)
relating to ``Financial Information eXchange'' or ``FIX'' in connection
with offering BX Participants the ability to utilize FIX to submit
orders to its Price Improvement Auction (``PRISM'') mechanism.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, 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 offer BX Participants a manner in which to
send messages through FIX, to other BX Participants, for the specific
purpose of requesting another BX Participant submit an ``Initiating
Order'' \3\ along with the sender's PRISM Order \4\ into the Price
Improvement Auction (``PRISM'') mechanism for execution pursuant to
Options 3, Section 13. Specifically, the Exchange proposes to amend BX
Options 3, Section 7(d)(1)(A) relating to ``Financial Information
eXchange'' or ``FIX'' in connection with this offering. This
functionality would provide an additional workflow to BX Participants
seeking to enter paired orders into PRISM. This proposal does not amend
the PRISM rule within Options 3, Section 13 in connection with offering
Participants the ability to submit a Request for PRISM through FIX.
---------------------------------------------------------------------------
\3\ An Initiating Order is an order executed against principal
interest or against any other order it represents as agent. See
Options 3, Section 13.
\4\ A PRISM Order is an order submitted by a BX Participant that
it represents as agent on behalf of a Public Customer, broker
dealer, or any other entity, electronically, for execution. See
Options 3, Section 13.
---------------------------------------------------------------------------
FIX is an interface that allows Participants and their Sponsored
Customers to connect, send, and receive messages related to orders and
auction orders and responses to and from the Exchange. Features include
the following: (1) Execution messages; (2) order messages; and (3) risk
protection triggers and cancel notifications.\5\ Today, all BX
Participants utilize FIX to submit orders to BX.
---------------------------------------------------------------------------
\5\ See Options 3, Section 7(d)(1)(A).
---------------------------------------------------------------------------
This proposal would expand the capabilities of the FIX protocol to
allow a BX Participant (sender) to utilize FIX to send a message to
other BX Participants (responders) with an order the sender represents
as agent (``PRISM Order'') on behalf of a Public Customer, broker
dealer or other entity requesting the responders provide a contra-side
Initiating Order (a ``response'') and begin a PRISM auction
(collectively a ``Request for PRISM'').\6\ Today, Participants
communicate their desire to have their orders paired in other ways,\7\
which may be less efficient. This proposal would permit BX Participants
to streamline their workflow and utilize FIX as a tool to message a
Request for PRISM to all BX Participants that opted to receive these
notifications, as described below. If a BX Participant desires to
respond to the request, the BX Participant would add an Initiating
Order to the sender's PRISM Order and submit the paired order directly
into PRISM, through FIX, for processing in accordance with Options 3,
Section 13. BX Participants may elect to ``opt in'' to receive Requests
for PRISM. BX Participants that do not elect to ``opt in'' will not
receive such requests. Once a BX Participant elects to receive Requests
for PRISM, they would receive all requests from any BX Participant
submitting a Request for PRISM. The BX Participant cannot elect to only
receive requests from certain Participants and the sender may not elect
to send the request to a select group of BX Participants.
---------------------------------------------------------------------------
\6\ The Request for PRISM, if accepted and submitted into PRISM,
would become the ``PRISM Order'' pursuant to Options 3, Section 13.
\7\ This proposal represents an alternative to the other methods
of submitting an order which may include: telephone, electronically
using an external order management system, or utilizing instant
message.
---------------------------------------------------------------------------
Specifically, the Request for PRISM created by the BX Participant
would be systematized so that a BX Participant may add an Initiating
Order to the previously submitted sender PRISM Order and directly
submit the PRISM Order through FIX. The Exchange will set a certain
time period up to one second \8\ within which the PRISM Order must be
submitted or it would otherwise cancel or book pursuant to the sending
[[Page 73096]]
Participant's instructions, as described in more detail below.
---------------------------------------------------------------------------
\8\ The Exchange will initially set the time period to 100
milliseconds to respond to the Request for PRISM or otherwise not
respond before the Request for PRISM would become unavailable. The
Exchange will post the time period on its System settings page.
---------------------------------------------------------------------------
The Request for PRISM would include the price, size, symbol, side
and instruction for handling of the order, in the event there are no
responses. A response must match the PRISM Order and may not improve
the price, or the response will be rejected. A response may be
configured to improve the PRISM Order stop price \9\ pursuant to
Options 3, Section 13(ii)(A)(1)(c). The configuration would apply if
this response initiated a PRISM auction.
---------------------------------------------------------------------------
\9\ BX Options 3, Section 13(ii)(A)(1) permits Participants to
submit a No Worse Than price.
---------------------------------------------------------------------------
BX Participants are not obligated to respond to the request. If a
BX Participant elects not to respond they would ignore the request. If
no BX Participant responds, pursuant to the sender's instruction, the
PRISM Order would be placed on the Order Book as a Limit Order or
cancelled. In any event, no order would be submitted into the PRISM
mechanism in the instance that no BX Participant responded to the
request.
By way of example, BX Firm A elects to send a Request for PRISM. BX
Firm A would enter a Request for PRISM with a PRISM Order, for example
an order to sell 100 contracts in AAPL at $1.00 with an instruction to
enter the order on the Order Book if no one responds with an Initiating
Order into PRISM. This Request for PRISM is entered into FIX. The
Request for PRISM would be sent to all BX Participants who opted in to
receive this request, also a timer not to exceed one second would
commence. Assume in this example that 3 firms responded (Firm B, C, and
D, in that order of response) with each firm willing to buy 100
contracts \10\ in AAPL at $1.00 and they respond within 50
milliseconds. The System would process Firm B's Initiating Order along
with the PRISM Order by entering the paired order, through FIX, into
PRISM for execution pursuant to Options 3, Section 13. The System would
send the other 2 responders (C and D) a reject message.
---------------------------------------------------------------------------
\10\ As noted above, a response must match the PRISM Order and
may not improve the price, or the response will be rejected.
---------------------------------------------------------------------------
Assume the same example, that Firm B had responded that it was
willing to buy 100 contracts in AAPL at $1.00, and Firm B also
configured the response with a No Worse Than price. Because in this
example Firm B's Initiating Order, along with the PRISM Order was sent
into PRISM for execution pursuant to Options 3, Section 13, the No
Worse Than price would be considered in the allocation and the
Initiating Order will auto-match unrelated orders and PANs that provide
the PRISM Order price improvement up to the No Worse Than price.
Assume the same example, except in this scenario no Participant
responds during the timer, the Initiating Order would post to the Order
Book as a Limit Order and be handled in accordance with Options 3,
Section 10 (Order Book Allocation) pursuant to the Participant's
instructions. The System would disseminate a PRISM notification to all
Participants if a responder submitted an Initiating Order into the
PRISM mechanism. The System would retain an audit trail of the Request
for PRISM and the responses, if any, received.
As noted above, a Request for PRISM would be sent to all BX
Participants that elected to opt in to receive these requests. Unlike
the workflow today, wherein a Participant may call one or multiple
members to enter into a PRISM Order, all BX Participants that opted in
would receive any Request for PRISM. The System will submit the first
Initiating Order response received, during the timer, into a PRISM.
Once the recipient of a Request for PRISM has responded to the Request
for PRISM by adding the Initiating Order, the PRISM may not be
cancelled. The sender may not cancel a Request for PRISM once that
Request for PRISM has been sent. The identity of the sender and
recipients would not be known to any party. Further, the Exchange would
not disclose a list of Participants that opted in to receive Requests
for PRISM.
The Exchange believes this new FIX feature will enhance the
workflow of BX Participants desiring to enter orders into PRISM for
execution and price improvement. The Exchange believes that this new
functionality will offer market participants another method to directly
engage with other BX Participants to locate an Initiating Order for
submission of a paired order into the PRISM mechanism.
The Exchange proposes to amend Options 3, Section 7(d)(1)(A) to add
the following sentence to the description of the FIX protocol, ``In
addition, a BX Participant may elect to utilize FIX to send a message
and PRISM Order, as defined within Options 3, Section 13, to all BX
Participants that opt in to receive Requests for PRISM requesting that
it submit the sender's PRISM Order with responder's Initiating Order,
as defined within Options 3, Section 13, into the Price Improvement
Auction (`PRISM') mechanism, pursuant to Options 3, Section 13
(`Request for PRISM').''
(a) BX Participants must ``opt in'' to receive Requests for PRISM.
A Participant who opts in to receive Requests for PRISM will receive
all requests from a Participant submitting a Request for PRISM.
(b) The Exchange will set a certain time period up to one second
within which a recipient of a Request for PRISM may utilize FIX to
submit the sender's PRISM Order, along with an Initiating Order (a
``response'') into the System for execution into PRISM pursuant to
Options 3, Section 13. The System will permit the first responder to
start a PRISM Auction and will send a reject message to subsequent
responders. A response must match the PRISM Order and may not improve
the price, or the response will be rejected. A response may be
configured to improve the PRISM Order stop price pursuant to Options 3,
Section 13(ii)(A)(1)(c); the configuration would apply if this response
initiated a PRISM auction. If no BX Participant responds to the Request
for PRISM, the PRISM Order would be placed on the Order Book as a Limit
Order or cancelled, consistent with the sending Participant's
instruction.
(c) A Request for PRISM will be sent simultaneously to all BX
Participants who opted in to receive Requests for PRISM.
(d) Once the recipient of a Request for PRISM has responded to the
Request for PRISM by adding the Initiating Order, the PRISM may not be
cancelled.
(e) The sender may not cancel a Request for PRISM once that Request
for PRISM has been sent.
(f) The identity of the sender and recipients will not be known to
any party. The Exchange will not disclose a list of Participants that
opted in to receive Requests for PRISM.
(g) It would be deemed conduct inconsistent with just and equitable
principles of trade and a violation of Options 9, Section 1, and other
Exchange Rules, to utilize non-public information in connection with a
Request for PRISM to a Participant's economic advantage.
BX will employ surveillances to prevent misuse of non-public
information specifically related to a Request for PRISM. Today, Options
3, Section 13(iv) \11\ and (v) \12\ describes
[[Page 73097]]
certain activity prohibited by BX related to PRISM.
---------------------------------------------------------------------------
\11\ BX Options 3, Section 13(iv) provides, ``A pattern or
practice of submitting multiple orders in response to a PAN at a
particular price point that exceed, in the aggregate, the size of
the PRISM Order, will be deemed conduct inconsistent with just and
equitable principles of trade and a violation of General 9, Section
1.''
\12\ BX Options 3, Section 13(v) provides, ``A pattern or
practice of submitting unrelated orders or quotes that cross the
stop price, causing a PRISM Auction to conclude before the end of
the PRISM Auction period will be deemed conduct inconsistent with
just and equitable principles of trade and a violation of General 9,
Section 1. It will also be deemed conduct inconsistent with just and
equitable principles of trade and a violation of General 9, Section
1 to engage in a pattern of conduct where the Initiating Participant
breaks up a PRISM Order into separate orders for the purpose of
gaining a higher allocation percentage than the Initiating
Participant would have otherwise received in accordance with the
allocation procedures contained in subparagraph (ii)(E) and (ii)(F)
above.''
---------------------------------------------------------------------------
Implementation
The Exchange intends to begin implementation of the proposed rule
change by June 30, 2021. The Exchange will issue an Options Trader
Alert to Participants with the date of implementation.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\13\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\14\ 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 proposing another method for BX Participants to submit
PRISM Orders, while effectively reducing certain workflow. In
particular, the proposal provides greater flexibility for Participants
submitting orders into PRISM, specifically providing an avenue for BX
Participants desiring to send orders to the PRISM mechanism to locate
an Initiating Order to pair their PRISM Order with and participate in a
PRISM Auction. The Exchange also believes the proposal will provide an
opportunity for Participants to achieve better handling of orders by
providing Participants with an ability to solicit interest from any BX
Participant who opts in to receive a Request for PRISM. A BX
Participant sending a Request for PRISM via FIX would have the
opportunity to have their order responded to by a broader array of
market participants in a more direct fashion Adopting this proposal and
providing the ability for BX Participants to anonymously solicit
interest from other BX Participants desiring to enter a Initiating
Order into PRISM will promote just and equitable principles of trade
and foster cooperation and coordination with persons engaged in
facilitating transactions in securities. Any BX Participant may respond
to a PRISM Auction and therefore all BX Participants benefit from the
ability to interact with additional order flow that this functionality
would generate as a result of matching PRISM Orders to Initiating
Orders, thereby removing impediments to and perfecting the mechanism of
a free and open market and a national market system.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b)
\14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Today, Participants communicate their desire to have their orders
paired in other ways,\15\ which may be less efficient. For example,
today parties on trading floors negotiate paired orders prior to entry
into a trading crowd.\16\ This proposal would permit BX Participants to
streamline their workflow and utilize FIX as a tool to message a
Request for PRISM to all BX Participants opting to receive these
requests. This proposal would not amend the manner in which PRISM
operates. There are no amendments proposed to BX Options 3, Section 13
herein. This feature, which expands the FIX protocol offering to allow
any BX Participant to send a Request for PRISM to all BX Participants
opting to receive these requests, would offer BX Participants a manner
in which to effectively communicate an interest to initiate a PRISM
Auction. The functionality, which systematizes the Request for PRISM
for streamlined entry to PRISM through FIX, provides an avenue for BX
Participants who have no order flow arrangements to locate interest. If
no one responds to the Request for PRISM, then the sending Participant
may elect to have the System post the PRISM Order to the Order Book as
a Limit Order or cancel the PRISM Order. If a Participant responds to a
Request for PRISM then the paired order will be entered into PRISM by
the System and any BX Participant may respond. All BX Participants
benefit from the ability to interact with order flow on BX.
---------------------------------------------------------------------------
\15\ This proposal represents an alternative to the other
methods of submitting an order which may include: telephone,
electronically using an external order management system, or
utilizing instant message.
\16\ See PHLX Options 8, Section 30(c) which provides that a
Phlx member or member organization representing an order in options
(``originating order'') may solicit another member, member
organization or nonmember broker-dealer outside the trading crowd
(``solicited party'') to participate in the transaction on a
proprietary basis, provided the paired order is exposed.
---------------------------------------------------------------------------
Permitting Participants to opt in to receive a Request for PRISM is
consistent with the Act and promotes free and open markets because
anyone can opt in and participate. Also, if a BX Participant does not
want to opt in, it prevents Participants from receiving unwanted
solicitations. Once a Participant elects to receive Requests for PRISM,
they would receive a request from any BX Participant.\17\ The Exchange
believes that it is consistent with the Act to not allow Participants
to selectively exclude interest from certain Participants, if they
chose to utilize this workflow. Additionally, the Exchange believes
that no BX Participant should be required to accept solicitations of
interest from other Participants if they elect not to receive such
notifications.
---------------------------------------------------------------------------
\17\ While Participants will have a certain time period, up to
one second, to act if they elect to participate in the Request for
PRISM, the Participant also may elect not to respond. If no
recipient Participants respond this would cause the cancellation of
the initial Request for PRISM and no order would be submitted into
the PRISM mechanism.
---------------------------------------------------------------------------
The identity of the sender and the recipients would not be known to
any party. The Exchange believes that it is consistent with the Act to
not disclose the identities of any party as the Exchange believes that
anonymity will prevent potential manipulation that may result if the
Request for PRISM is not responded to and eventually rests on the Order
Book as a Limit Order. Further, parties may feel free to solicit
interest without disclosing information as the identity of the sender
will remain unknown. Finally, selectively responding to certain senders
would be avoided by not disclosing identifying information about the
parties. The Exchange would permit BX Participants to opt in and
subsequently opt out as they desire. The Exchange would not disclose
the parties that have opted in to further create an anonymous
communication among BX Participants.
The PRISM auction will be governed by Options 3, Section 13. Any
paired order entered into PRISM must comply with the required price to
commence the auction and NBBO requirements to prevent trade-through as
provided for within Options 3, Section 13. The auction eligibility
requirements apply to all paired orders entered into PRISM even those
that were submitted as a result of a Request for PRISM.
BX will employ surveillances to prevent misuse of non-public
information specifically related to a Request for PRISM similar to the
manner in which it employs surveillances today to ensure that
information available in auctions is not misused. The Exchange would
have information regarding the Request for PRISM and would be able to
monitor entries into both the Order Book and PRISM Auction. Today,
Options 3, Section 13(iv) \18\ and (v) \19\ describes certain activity
prohibited by BX related
[[Page 73098]]
to PRISM in addition to Options 3, Section 22. Participants receiving
such Requests for PRISM may not utilize the information to a
Participant's economic advantage as provided for in proposed Options 3,
Section 7(d)(1)(A)(1)(f). The Exchange notes the requests are subject
to the restrictions noted within Options 3, Section 22, Limitations on
Order Entry, as well as restriction noted with Options 3, Section 13.
The communications that would occur, through FIX, would be available to
the Exchange and these communications would be maintained. The Exchange
would have information regarding the Request for PRISM and would be
able to monitor entries into both the Order Book and PRISM Auction.
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\18\ See note 11 above.
\19\ See note 12 above.
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Broker-dealers are required to obtain best execution of customer
orders,\20\ including taking into account price improvement
opportunities. All broker-dealers have a duty to obtain best execution
when representing orders on an agency basis.
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\20\ The duty of best execution requires broker-dealers to
periodically assess the quality of competing markets to assure that
order flow is directed to the markets providing the most beneficial
terms for their customer orders.
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The Exchange believes that this proposal removes impediments to and
perfects the mechanism of a free and open market and a national market
system by promoting a more efficient workflow to seek to pair BX
Participants who desire to initiate a PRISM Auction with Initiating
Orders. This functionality permits Participants to further pair buyers
and sellers for the purpose of executing transactions on its facility.
Further, this proposal promotes competition by allowing Participants to
seek the best execution through the Request for PRISM which offers a
means for BX Participants to effectively solicit all BX Participants to
locate interest for participation in a PRISM Order. Finally, the
Exchange believes this proposal protect investors and the public
interest by creating an auditable method of surveilling Requests for
PRISM.
Price improvement auctions are widely recognized by market
participants as invaluable, both as a tool to access liquidity, and a
mechanism to help meet their best execution obligations. The proposed
rule change will further the ability of BX Participants to submit
orders into PRISM. Finally, the proposal serves as a competitive
response to price improvement auctions on other options exchanges by
providing for another manner in which BX Participants may solicit
interest for the purpose of entering a paired order into PRISM in a
more widespread fashion. The Exchange believes the Request for PRISM
will attract more liquidity in PRISM.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange's proposal offers
all BX Participants the ability to send a Request for PRISM, through
FIX, to any BX Participant who opts in to receive such requests.
The proposed rule creates a new modality for Participants to send
orders to BX Participants for representation. Today, all BX
Participants utilize FIX to submit orders to BX and all Participants
who utilize FIX may submit orders into PRISM. Any Participant may
respond to the PRISM Auction.
The Exchange notes that it is providing BX Participants an ability
to anonymously solicit interest for the purpose of entering a paired
order into PRISM. Today, BX Participants locate interest by other
methods. This functionality would allow all BX Participants another
method to enter a paired order into PRISM by anonymously permitting a
solicitation of interest to seek an Initiating Order to pair with their
PRISM Order. The Exchange believes that this functionality will allow a
greater number of BX Participants to utilize PRISM. Any BX Participant
may contact other market participants to continue to solicit interest,
as is the case today. The Exchange believes that this proposal will
benefit all BX Participants by offering an increased opportunity to
trade on the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2020-033 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.
All submissions should refer to File Number SR-BX-2020-033. 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-2020-033 and should be submitted on
or before December 7, 2020.
[[Page 73099]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25180 Filed 11-13-20; 8:45 am]
BILLING CODE 8011-01-P
