Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Nasdaq Options Market LLC Rules at Options 3, Section 7, Types of Orders and Order and Quote Protocols, and Options 3, Section 15, Risk Protections, 26753-26758 [2021-10274]
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Federal Register / Vol. 86, No. 93 / Monday, May 17, 2021 / Notices
The Exchange has requested that the
Commission waive the 30-day operative
delay. The Commission notes that other
exchanges have substantively similar
rules regarding size limitation for
certain incoming orders or quotes.18 In
addition, the non-substantive
amendments will correct typographical
errors and remove duplicative text,
which will bring greater clarity to BX’s
rules. Thus, the Commission believes
waiver of the 30-day operative delay is
consistent with the protection of
investors and the public interest. The
Commission therefore waives the 30-day
operative delay and designates this
proposal operative upon filing.19
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.
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–2021–020 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–2021–020. 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
18 See ISE, GEMX and MRX rules at Options 3,
Section 15(a)(2)(B).
19 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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–2021–020 and should
be submitted on or before June 1, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10273 Filed 5–14–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91841; File No. SR–
NASDAQ–2021–030]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Nasdaq Options Market LLC Rules at
Options 3, Section 7, Types of Orders
and Order and Quote Protocols, and
Options 3, Section 15, Risk Protections
May 11, 2021.
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 April 28,
2021, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ 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
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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26753
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 The
Nasdaq Options Market LLC (‘‘NOM’’)
Rules at Options 3, Section 7, Types of
Orders and Order and Quote Protocols,
and Options 3, Section 15, Risk
Protections.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/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 amend
NOM’s Rules at Options 3, Section 15,
Risk Protections, to describe Size
Limitation. The Exchange also proposes
to amend Options 3, Section 7, Types of
Orders and Order and Quote Protocols,
to: (1) Remove the One-Cancels-theOther Order; (2) indicate the risk
protections that are applicable to On the
Open Orders and Immediate or Cancel
orders; and (3) remove references to an
outdated OTTO protocol; and (4) make
technical corrections. The Exchange
also proposes to update a rule citation
within General 1, Section 1, Definitions,
and add and reserve certain sections
within the Equity Rules. Each change is
described below.
Options 3, Section 15
The Exchange proposes to amend
Options 3, Section 15, Risk Protections,
to add a new section (b)(2) to describe
within its rules a current limitation that
exists today as to the number of
contracts an incoming order or quote
may specify. Specifically, the maximum
number of contracts, which shall not be
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less than 10,000, is established by the
Exchange from time-to-time. Orders or
quotes that exceed the maximum
number of contracts are rejected. This
System limitation is the same on all
Nasdaq affiliated exchanges.3 Today,
Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq
GEMX, LLC (‘‘GEMX’’) and Nasdaq
MRX, LLC (‘‘MRX’’) describe this
limitation within those rules at Options
3, Section 15(a)(2)(B). NOM proposes to
similarly describe this limitation in its
rules.
Options 3, Section 7
The Exchange proposes to amend
Options 3, Section 7, Types of Orders
and Order and Quote Protocols, to (1)
remove the ‘‘One-Cancels-the-Other
Order’’ order type; (2) indicate the risk
protections that are applicable to On the
Open Orders or ‘‘OPG’’ orders and
Immediate or Cancel orders; (3) remove
references to an outdated OTTO
protocol; and (4) make technical
corrections.
The Exchange proposes to remove the
‘‘One-Cancels-the-Other Order’’
currently located within Options 3,
Section 7(a)(8). A One-Cancels-theOther Order is an order entered by a
Market Maker that consists of a buy
order and a sell order treated as a unit;
the full execution of one of the orders
causes the other to be canceled. This
order type was adopted in 2011 4 and
was to be implemented on or about
August 1, 2011 by issuance of an Option
Trader Alert as part of a larger
implementation related to a technology
migration.5 The One-Cancels-the-Other
Order was never implemented on NOM
as part of that migration. No Participant
was able to utilize this order type as it
was not available on NOM’s System.
The Exchange proposes to remove the
order type at this time. The order type
was intended to permit Market Makers
to submit a two-sided order consisting
of both a bid and an offer. Today,
Market Makers may submit two-sided
quotes utilizing NOM’s Specialized
Quote Feed or ‘‘SQF’’ 6 quoting protocol.
3 The Exchange will propose a similar rule change
to Nasdaq Phlx LLC (‘‘Phlx’’) and Nasdaq BX, Inc.
(‘‘BX’’).
4 See Securities Exchange Act Release No. 64406
(May 4, 2011), 76 FR 27134 (May 10, 2011) (SR–
NASDAQ–2011–065) (The NASDAQ Stock Market
LLC; Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Adopt a Two-Sided
Order for NOM Market Makers).
5 Id.
6 SQF is an interface that allows Market Makers
to connect, send, and receive messages related to
quotes and Immediate-or- Cancel Orders into and
from the Exchange. Features include the following:
(1) Options symbol directory messages (e.g,
underlying instruments); (2) system event messages
(e.g., start of trading hours messages and start of
opening); (3) trading action messages (e.g., halts and
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The Exchange would file a rule change
with the Commission if it decides to
offer this order type in the future. The
Exchange proposes to renumber current
Options 3, Section 7(a)(9) and (10) new
Options 3, Section 7(a)(8) and (9).
The Exchange proposes to amend
Options 3, Section 7(b)(1) which
describes an On the Open Order or
‘‘OPG’’ order. Today, an OPG order can
only be executed in the Opening Cross
pursuant to Options 3, Section 8.
Further, if after entry into the System,
the order is not fully executed in its
entirety during the Opening Cross, the
order, or any unexecuted portion of
such order, will be cancelled back to the
entering participant. OPG orders may
not route. OPG orders are entered
during the Opening Cross utilizing
‘‘Financial Information eXchange’’ or
‘‘FIX’’.7 OPG orders are currently not
subject to any protections listed in
Options 3, Section 15 describing risk
protections, except Size Limitation.8
Options 3, Section 7(b)(1) is currently
silent on the application of risk
protections. At this time, the Exchange
proposes to state that this order type is
not subject to any protections listed in
Options 3, Section 15, except Size
Limitation. With the proposed addition
of Size Limitation to proposed new
Options 3, Section 15(b)(2), the
Exchange proposes to note in the
proposed new text within Options 3,
Section 7(b)(1) that OPG orders are
subject to Size Limitation. The
Exchange notes that the Opening Cross
itself has boundaries within which
orders will be executed.9 Also, any
participant may enter an Opening Only
Order. Typically Market Makers submit
Valid Width NBBOs, as provided for
within Options 3, Section 8, during the
Opening Cross. Nasdaq BX’s OPG
Orders are also not subject to any risk
protections aside from Size
Limitation.10
resumes); (4) execution messages; (5) quote
messages; (6) Immediate-or-Cancel Order messages;
(7) risk protection triggers and purge notifications;
and (8) opening imbalance messages. The SQF
Purge Interface only receives and notifies of purge
request from the Market Maker. Market Makers may
only enter interest into SQF in their assigned
options series. Immediate-or-Cancel Orders entered
into SQF are not subject to the Order Price
Protection or the Market Order Spread Protection in
Options 3, Section 15(a)(1) and (a)(2), respectively.
7 FIX is an interface that allows Participants and
their Sponsored Customers to connect, send, and
receive messages related to orders to and from the
Exchange. Features include the following: (1)
Execution messages; (2) order messages; and (3) risk
protection triggers and cancel notifications. See
Options 3, Section 7(e)(1)(A).
8 See Options 3, Section 7(b)(1).
9 See Options 3, Section 8(b).
10 See BX Options 3, Section 7(b)(1) which
currently provides that an OPG order is not subject
to any protections listed in Options 3, Section 15.
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The Exchange proposes to amend
Options 3, Section 7(b)(2) which
describes an Immediate-or-Cancel Order
or ‘‘IOC’’ order. Today, the Exchange
describes an IOC order as a Market
Order or Limit Order to be executed in
whole or in part upon receipt. Any
portion not so executed is cancelled
and/or routed pursuant to the
Participant’s instruction.11 The rule text
currently also provides that ‘‘IOC orders
may be entered through FIX, OTTO or
SQF; IOC Orders entered through OTTO
or SQF may not route.’’ The Exchange
previously filed to remove its ‘‘Ouch to
Trade Options’’ or ‘‘OTTO’’ protocol
from its rules.12 The citations to OTTO
within Options 3, Section 7 were
inadvertently not removed. At this time,
the Exchange proposes to remove those
remaining references to OTTO within
Options 3, Section 7 from the
descriptions of IOC orders and DAY
orders.13
The Exchange also proposes to note,
similar to Phlx and BX, that an IOC
order entered by a Market Maker
through Specialized Quote Feed or
‘‘SQF’’ 14 is not subject to certain risk
protections noted within Options 3,
Section 15. Today, an IOC order entered
through SQF is not subject to the Order
Price Protection or Market Order Spread
Protections noted within Options 3,
Section 15(a)(1) and (a)(2), respectively.
Further, with the addition of Size
Limitation to proposed new Options 3,
Section 15(b)(2), the Exchange also
proposes to note that SQF orders are not
subject to Size Limitation. The addition
of this rule text will bring greater clarity
to the order type.
The Exchange notes that while only
orders are entered into FIX, SQF is a
quote protocol which also permits
Market Makers to enter IOC orders that
do not rest on the order book. The
Exchange has not elected to utilize
Order Price Protection, Market Order
Spread Protection, and Size Limitation
on SQF orders, as it did for FIX, because
Market Makers only utilize SQF to enter
IOC orders and Market Makers are
professional traders with their own risk
The Exchange is in the process of filing a rule
change to indicate that BX OPG orders are subject
to Size Limitation. See also SR–BX–2021–020.
11 See NOM Options 3, Section 7(b)(2).
12 See Securities Exchange Act Release No. 84084
(December 17, 2020), 85 FR 84084 (December 23,
2020) (SR–NASDAQ–2020–089) (‘‘Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change To No Longer Implement the OTTO
Protocol’’).
13 ‘‘DAY’’ is an order entered with a TIF of ‘‘Day’’
that expires at the end of the day on which it was
entered, if not executed. All orders by their terms
are Day Orders unless otherwise specified. Day
orders may be entered through FIX. See proposed
Options 3, Section 7(b)(3).
14 See supra note 6.
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settings. FIX, on the other hand, is
utilized by all market participants who
may not have their own risk settings,
unlike Market Makers.
Market Makers utilize IOC orders to
trade out of accumulated positions and
manage their risk when providing
liquidity on the Exchange. Proper risk
management, including using these IOC
orders to offload risk, is vital for Market
Makers, and allows them to maintain
tight markets and meet their quoting
and other obligations to the market.
Market Makers handle a large amount of
risk when quoting and in addition to the
risk protections required by the
Exchange, Market Makers utilize their
own risk management parameters when
entering orders, minimizing the
likelihood of a Market Maker’s
erroneous order from being entered. The
Exchange believes that Market Makers,
unlike other market participants, have
the ability to manage their risk when
submitting IOC orders through SQF and
should be permitted to elect this method
of order entry to obtain efficiency and
speed of order entry, particularly in
light of the continuous quoting
obligations the Exchange imposes on
these participants.
The Exchange believes that allowing
Market Makers to submit IOC orders
through their preferred protocol
increases their efficiency in submitting
such orders and thereby allows them to
maintain quality markets to the benefit
of all market participants that trade on
the Exchange. Further, unlike other
market participants, Market Makers
provide liquidity to the market place
and have obligations.15 Thus, the
Exchange opted to not offer Order Price
Protection, Market Order Spread
Protection, and Size Limitation for IOC
orders entered through SQF because
Market Makers have more sophisticated
infrastructures than other market
participants and are able to manage
their risk.
The Exchange proposes to amend the
description of Specialized Quote Feed
within Options 3, Section 7(e)(1)(B) to
make plural the word ‘‘request’’ and
also add an ‘‘.,’’ after an e.g to conform
the punctuation in the paragraph.
General 1, Section 1
The Exchange proposes to update a
rule citation within General 1, Section
1 to Options 3, Section 20. The rule text
currently cites Options 3, Section 4, but
that citation was incorrectly updated in
a prior rule change.16 The original
15 Market Makers have intra-day quoting
obligations as specified in Options 2, Section 5.
16 See Securities Exchange Act Release No. 87779
(December 17, 2019), 84 FR 70590 (December 23,
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citation was to Chapter V, Section 6,
Nullification and Adjustment of Options
Transactions including Obvious Errors.
This rule was relocated to Options 3,
Section 20 within that Relocation Rule
Change.
Equity Rules
Nasdaq proposes to amend the
Rulebook shell to add a new Equity 3A
and Equity 8A and reserve those
sections. Equity 3A will be utilized by
BX Rulebook and the Exchange
proposes to reserve that section in this
Rulebook to demonstrate the section
does not exist for the Nasdaq equity
market.17 Equity 8A is utilized by
Nasdaq Phlx within its Rulebook and
the Exchange proposes to reserve that
section in this Rulebook to demonstrate
the section does not exist for the Nasdaq
equity market.18 Also, Nasdaq proposes
to add Sections 15–23 within Equity 9
and reserve those sections to harmonize
the numbering of Nasdaq equity rules
across its affiliated markets.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,19 in general, and furthers the
objectives of Section 6(b)(5) of the Act,20
in particular, in that it is designed to
promote just and equitable principles of
trade and to protect investors and the
public interest.
Options 3, Section 15
The Exchange’s proposal to amend
Options 3, Section 15, Risk Protections,
to add a new section (b)(2) is consistent
with the Act. The proposed amendment
is intended to describe a current
limitation that exists today as to the
number of contracts an incoming order
or quote may specify. Specifically, the
maximum number of contracts, which
shall not be less than 10,000, is
established by the Exchange from timeto-time. Orders or quotes that exceed the
maximum number of contracts are
rejected. This System limitation is the
same on all Nasdaq affiliated
exchanges.21 Today, ISE, GEMX and
MRX describe this limitation within
those rules at Options 3, Section
2019) (SR–NASDAQ–2019–098) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
Change To Relocate Rules From Its Current
Rulebook Into Its New Rulebook Shell) (‘‘Relocation
Rule Change’’).
17 BX will file a proposed rule change to add and
reserve Equity 3A.
18 See Phlx Equity 8A Unlisted Trading
Privileges; Proxy and Other Rules.
19 15 U.S.C. 78f(b).
20 15 U.S.C. 78f(b)(5).
21 See supra note 3.
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26755
15(a)(2)(B). NOM proposes to similarly
describe this limitation in its rules.
Options 3, Section 7
The Exchange’s proposal to remove
the ‘‘One-Cancels-the-Other Order’’
currently located within Options 3,
Section 7(a)(8) is consistent with the
Act. This order type was adopted in
2011 22 and was to be implemented on
or about August 1, 2011 by issuance of
an Option Trader Alert as part of a
larger implementation related to a
technology migration,23 however, the
new order type was never implemented
on NOM as part of that migration. No
Participant was able to utilize this order
type on NOM’s System to date. The
Exchange’s proposal to remove the order
type protects investors and the public
interest by making clear that the order
type is not available. Further, the order
type was intended to permit Market
Makers to submit a two-sided order
consisting of both a bid and an offer.
Today, Market Makers may submit twosided quotes utilizing NOMs SQF 24
quoting protocol.
The Exchange’s proposal to amend
OPG orders within Options 3, Section
7(b)(1) to make clear that OPG orders are
currently not subject to any protections
listed in Options 3, Section 15
describing risk protections,25 except
Size Limitation is consistent with the
Act and will bring greater clarity to the
order type. Options 3, Section 7(b)(1) is
currently silent on the application of
risk protections. Today, OPG orders are
not subject to any protections listed in
Options 3, Section 15, except Size
Limitation. With the proposed addition
of Size Limitation to proposed new
Options 3, Section 15(b)(2), the
Exchange proposes to note in the
proposed new text within Options 3,
Section 7(b)(1) that OPG orders are
subject to Size Limitation. The
Exchange believes that it is consistent
with the Act to not apply any risk
protections during the Opening Cross as
the Opening Cross itself has boundaries
within which orders will be executed.26
Any participant may enter an Opening
Only Order. Typically Market Makers
submit Valid Width NBBOs, as provided
for within Options 3, Section 8, during
the Opening Cross. Nasdaq BX’s OPG
Orders are also not subject to any risk
protections aside from Size
Limitation.27
22 See
supra note 4.
23 Id.
24 See
supra note 6.
Options 3, Section 7(b)(1).
26 See Options 3, Section 8(b).
27 See supra note 10.
25 See
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The Exchange’s proposal to amend
Options 3, Section 7(b)(2) and (b)(3),
which describes IOC orders and DAY
orders, to remove outdated citations to
OTTO within Options 3, Section 7 that
were inadvertently not removed is
consistent with the Act. These
amendments are non-substantive and
will add clarity to these rules.
The Exchange’s proposal to note,
similar to Phlx and BX, that an IOC
order entered by a Market Maker
through SQF is not subject to certain
risk protections noted within Options 3,
Section 15 is consistent with the Act.
Today, an IOC order entered through
SQF is not subject to the Order Price
Protection or Market Order Spread
Protections noted within Options 3,
Section 15(a)(1) and (a)(2), respectively.
Further, with the addition of Size
Limitation to proposed new Options 3,
Section 15(b)(2), the Exchange also
proposes to note that SQF orders are not
subject to Size Limitation. The addition
of this rule text will bring greater clarity
to the order type.
The Exchange notes that while only
orders are entered into FIX, SQF is a
quote protocol which also permits
Market Makers to enter IOC orders that
do not rest on the order book. The
Exchange has not elected to utilize
Order Price Protection, Market Order
Spread Protection, and Size Limitation
on SQF orders, as it did for FIX, because
Market Makers only utilize SQF to enter
IOC orders and Market Makers are
professional traders with their own risk
settings. FIX, on the other hand, is
utilized by all market participants who
may not have their own risk settings,
unlike Market Makers.
Market Makers utilize IOC orders to
trade out of accumulated positions and
manage their risk when providing
liquidity on the Exchange. Proper risk
management, including using these IOC
orders to offload risk, is vital for Market
Makers, and allows them to maintain
tight markets and meet their quoting
and other obligations to the market.
Market Makers handle a large amount of
risk when quoting and in addition to the
risk protections required by the
Exchange, Market Makers utilize their
own risk management parameters when
entering orders, minimizing the
likelihood of a Market Maker’s
erroneous order from being entered. The
Exchange believes that Market Makers,
unlike other market participants, have
the ability to manage their risk when
submitting IOC orders through SQF and
should be permitted to elect this method
of order entry to obtain efficiency and
speed of order entry, particularly in
light of the continuous quoting
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18:56 May 14, 2021
Jkt 253001
obligations the Exchange imposes on
these participants.
The Exchange believes that allowing
Market Makers to submit IOC orders
through their preferred protocol
increases their efficiency in submitting
such orders and thereby allows them to
maintain quality markets to the benefit
of all market participants that trade on
the Exchange. Further, unlike other
market participants, Market Makers
provide liquidity to the market place
and have obligations.28 The Exchange
believes not offering Order Price
Protection, Market Order Spread
Protection, and Size Limitation for IOC
orders entered through SQF is
consistent with the Act because Market
Makers have more sophisticated
infrastructures than other market
participants and are able to manage
their risk.
Finally, the Exchange’s proposal to
amend the description of Specialized
Quote Feed within Options 3, Section
7(e)(1)(B) to make plural the word
‘‘request’’ and also add an ‘‘.,’’ after an
e.g to conform the punctuation in the
paragraph is consistent with the Act.
These changes are non-substantive.
General 1, Section 1
The Exchange’s proposal to update an
incorrect rule citation within General 1,
Section 1 to Options 3, Section 20 is
consistent with the Act. The rule text
currently cites Options 3, Section 4, but
that citation was incorrectly updated in
a prior rule change.29 The original
citation was to Chapter V, Section 6,
Nullification and Adjustment of Options
Transactions including Obvious Errors.
This rule was relocated to Options 3,
Section 20 within that Relocation Rule
Change. This amendment will bring
clarity to this rule.
Equity Rules
Nasdaq’s proposal to amend the
Rulebook shell to add a new Equity 3A
and Equity 8A and reserve those
sections is consistent with the Act.
Equity 3A will be utilized by the BX
Rulebook and the Exchange proposes to
reserve that section in this Rulebook to
demonstrate the section does not exist
for the Nasdaq equity market.30 Equity
8A is utilized by Phlx within its
Rulebook and the Exchange proposes to
reserve that section in this Rulebook to
demonstrate the section does not exist
for the Nasdaq equity market.31 Also,
Nasdaq proposes to add Sections 15–23
28 See
supra note 15.
supra note 16.
30 See supra note 17.
31 See Phlx Equity 8A Unlisted Trading
Privileges; Proxy and Other Rules.
29 See
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Sfmt 4703
within Equity 9 and reserve those
sections to harmonize the numbering of
Nasdaq equity rules across its affiliated
markets.
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.
Options 3, Section 15
The Exchange’s proposal to amend
Options 3, Section 15, Risk Protections,
to add a new section (b)(2) does not
impose an undue burden on
competition. The proposed amendment
is intended to describe a current
limitation that exists today as to the
number of contracts an incoming order
or quote may specify. This System
limitation is the same on all Nasdaq
affiliated exchanges.32 Today, ISE,
GEMX and MRX describe this limitation
within its rules at Options 3, Section
15(a)(2)(B). NOM proposes to similarly
describe this limitation in its rules.
Options 3, Section 7
The Exchange’s proposal to remove
the ‘‘One-Cancels-the-Other Order’’
currently located within Options 3,
Section 7(a)(8) does not impose an
undue burden on competition. No
Participant was able to utilize this order
type on NOM’s System to date. The
Exchange’s proposal to remove the order
type will make clear that the order type
is not available. Further, the order type
was intended to permit Market Makers
to submit a two-sided order consisting
of both a bid and an offer. Today,
Market Makers may submit two-sided
quotes utilizing NOM’s SQF 33 quoting
protocol.
The Exchange’s proposal to amend
Options 3, Section 7(b)(1) to make clear
that Size Limitation applies to OPG
orders and the remainder of the risk
protections noted within Options 3,
Section 15 do not apply to OPG orders
does not impose an undue burden on
competition. The proposed rule text will
clarify the manner in which risk
protections interact with this order type.
The Opening Cross itself has boundaries
within which orders will be executed.
Any participant may enter an Opening
Only Order. Typically Market Makers
submit Valid Width NBBOs, as provided
for within Options 3, Section 8, during
the Opening Cross.
The Exchange’s proposal to amend
Options 3, Section 7(b)(2) and (b)(3),
32 See
33 See
E:\FR\FM\17MYN1.SGM
supra note 3.
supra note 6.
17MYN1
Federal Register / Vol. 86, No. 93 / Monday, May 17, 2021 / Notices
which describes IOC orders and DAY
orders, to remove outdated citations to
OTTO within Options 3, Section 7 that
were inadvertently not removed does
not impose an undue burden on
competition. These amendments are
non-substantive and will add clarity to
these rules.
The Exchange’s proposal to note,
similar to Phlx and BX, that an IOC
order entered by a Market Maker
through SQF is not subject to certain
risk protections noted within Options 3,
Section 15 does not impose an undue
burden on competition. Today, an IOC
order entered through SQF is not subject
to the Order Price Protection or Market
Order Spread Protections noted within
Options 3, Section 15(a)(1) and (a)(2),
respectively. Further, with the addition
of Size Limitation to proposed new
Options 3, Section 15(b)(2), the
Exchange also proposes to note that SQF
orders are not subject to Size Limitation.
The addition of this rule text will bring
greater clarity to the order type.
The Exchange notes that while only
orders are entered into FIX, SQF is a
quote protocol which also permits
Market Makers to enter IOC orders that
do not rest on the order book. The
Exchange has not elected to utilize
Order Price Protection, Market Order
Spread Protection, and Size Limitation
on SQF orders, as it did for FIX, because
Market Makers only utilize SQF to enter
IOC orders and Market Makers are
professional traders with their own risk
settings. FIX, on the other hand, is
utilized by all market participants who
may not have their own risk settings,
unlike Market Makers.
The Exchange believes that Market
Makers, unlike other market
participants, have the ability to manage
their risk when submitting IOC orders
through SQF and should be permitted to
elect this method of order entry to
obtain efficiency and speed of order
entry, particularly in light of the
continuous quoting obligations the
Exchange imposes on these participants.
Further, unlike other market
participants, Market Makers provide
liquidity to the market place and have
obligations.34
Finally, the Exchange’s proposal to
amend the description of Specialized
Quote Feed within Options 3, Section
7(e)(1)(B) to make plural the word
‘‘request’’ and also add an ‘‘.,’’ after an
e.g to conform the punctuation in the
paragraph does not impose an undue
burden on competition. These changes
are non-substantive.
34 See
supra note 15.
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18:56 May 14, 2021
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General 1, Section 1
The Exchange’s proposal to update an
incorrect rule citation within General 1,
Section 1 to Options 3, Section 20 does
not impose an undue burden on
competition. The rule text currently
cites Options 3, Section 4, but that
citation was incorrectly updated in a
prior rule change.35 The original citation
was to Chapter V, Section 6,
Nullification and Adjustment of Options
Transactions including Obvious Errors.
This rule was relocated to Options 3,
Section 20 within that Relocation Rule
Change. This amendment will bring
clarity to this rule.
Equity Rules
Nasdaq’s proposal to amend the
Rulebook shell to add a new Equity 3A
and Equity 8A and reserve those
sections does not impose an undue
burden on competition. Equity 3A will
be utilized by the BX Rulebook and the
Exchange proposes to reserve that
section in this Rulebook to demonstrate
the section does not exist for the Nasdaq
equity market.36 Equity 8A is utilized by
Phlx within its Rulebook and the
Exchange proposes to reserve that
section in this Rulebook to demonstrate
the section does not exist for the Nasdaq
equity market.37 Also, Nasdaq proposes
to add Sections 15–23 within Equity 9
and reserve those sections to harmonize
the numbering of Nasdaq equity rules
across its affiliated markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 38 and
subparagraph (f)(6) of Rule 19b–4
thereunder.39
35 See
supra note 16.
36 See supra note 17.
37 See Phlx Equity 8A Unlisted Trading
Privileges; Proxy and Other Rules.
38 15 U.S.C. 78s(b)(3)(A).
39 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
PO 00000
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Fmt 4703
Sfmt 4703
26757
The Exchange has requested that the
Commission waive the 30-day operative
delay. The Commission notes that other
exchanges have substantively similar
rules regarding size limitation for
certain incoming orders or quotes.40 In
addition, removing references to an
order type and protocol that are not
available on the Exchange will bring
greater clarity to NOM’s rules, as will
the non-substantive amendments, which
correct typographical errors, remove
duplicative text, and align the
Exchange’s rulebook numbering with
that of an affiliated exchange. Thus, the
Commission believes waiver of the 30day operative delay is consistent with
the protection of investors and the
public interest. The Commission
therefore waives the 30-day operative
delay and designates this proposal
operative upon filing.41
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.
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–
NASDAQ–2021–030 on the subject line.
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2021–030. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
40 See ISE, GEMX and MRX rules at Options 3,
Section 15(a)(2)(B).
41 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
E:\FR\FM\17MYN1.SGM
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Federal Register / Vol. 86, No. 93 / Monday, May 17, 2021 / Notices
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2021–030 and
should be submitted on or before June
7, 2021.
In the event that the time, date, or
location of this meeting changes, an
announcement of the change, along with
the new time, date, and/or place of the
meeting will be posted on the
Commission’s website at https://
www.sec.gov.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matters at the closed meeting.
The subject matter of the closed
meeting will consist of the following
topics:
Institution and settlement of injunctive
actions;
Institution and settlement of
administrative proceedings;
Resolution of litigation claims; and
Other matters relating to examinations
and enforcement proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting agenda items that
may consist of adjudicatory,
examination, litigation, or regulatory
matters.
CONTACT PERSON FOR MORE INFORMATION:
For further information; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
J. Matthew DeLesDernier,
Assistant Secretary.
Dated: May 13, 2021.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021–10457 Filed 5–13–21; 4:15 pm]
BILLING CODE 8011–01–P
[FR Doc. 2021–10274 Filed 5–14–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–305, OMB Control No.
3235–0346]
Sunshine Act Meetings
TIME AND DATE:
2 p.m. on Thursday, May
20, 2021.
The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will be closed to
the public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
PLACE:
42 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:42 May 14, 2021
Jkt 253001
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Rule 34b–1
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
approved collection of information
discussed below.
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
Rule 34b–1 under the Investment
Company Act (17 CFR 270.34b–1)
governs sales material that accompanies
or follows the delivery of a statutory
prospectus (‘‘sales literature’’). Rule
34b–1 deems to be materially
misleading any investment company
(‘‘fund’’) sales literature required to be
filed with the Securities and Exchange
Commission (‘‘Commission’’) by Section
24(b) of the Investment Company Act
(15 U.S.C. 80a–24(b)) that includes
performance data, unless the sales
literature also includes the appropriate
uniformly computed data and the
legend disclosure required in
investment company advertisements by
rule 482 under the Securities Act of
1933 (17 CFR 230.482). Requiring the
inclusion of such standardized
performance data in sales literature is
designed to prevent misleading
performance claims by funds and to
enable investors to make meaningful
comparisons among funds.
The Commission estimates that on
average approximately 351 respondents
file 7,362 1 responses that include the
information required by rule 34b–1 each
year. The burden resulting from the
collection of information requirements
of rule 34b–1 is estimated to be 6 hours
per response. The total hourly burden
for rule 34b–1 is approximately 46,278
hours per year in the aggregate.2
The collection of information under
rule 34b–1 is mandatory. The
information provided under rule 34b–1
is not kept confidential. An agency may
not conduct or sponsor, and a person is
not required to respond to, a collection
of information unless it displays a
currently valid control number. The
public may view background
documentation for this information
collection at the following website:
www.reginfo.gov. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function. Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to (i) www.reginfo.gov/public/do/
PRAMain and (ii) David Bottom,
Director/Chief Information Officer,
Securities and Exchange Commission, c/
o Cynthia Roscoe, 100 F Street NE,
Washington, DC 20549, or by sending an
email to: PRA_Mailbox@sec.gov.
1 The estimated number of responses to rule 34b–
1 is composed of 7362 responses filed with FINRA
and 351 responses filed with the Commission in
2019.
2 7713 responses × 6 hours per response = 46,278
hours.
E:\FR\FM\17MYN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 93 (Monday, May 17, 2021)]
[Notices]
[Pages 26753-26758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10274]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91841; File No. SR- NASDAQ-2021-030]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Nasdaq Options Market LLC Rules at Options 3, Section 7,
Types of Orders and Order and Quote Protocols, and Options 3, Section
15, Risk Protections
May 11, 2021.
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 April 28, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' 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 The Nasdaq Options Market LLC
(``NOM'') Rules at Options 3, Section 7, Types of Orders and Order and
Quote Protocols, and Options 3, Section 15, Risk Protections.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/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 amend NOM's Rules at Options 3, Section
15, Risk Protections, to describe Size Limitation. The Exchange also
proposes to amend Options 3, Section 7, Types of Orders and Order and
Quote Protocols, to: (1) Remove the One-Cancels-the-Other Order; (2)
indicate the risk protections that are applicable to On the Open Orders
and Immediate or Cancel orders; and (3) remove references to an
outdated OTTO protocol; and (4) make technical corrections. The
Exchange also proposes to update a rule citation within General 1,
Section 1, Definitions, and add and reserve certain sections within the
Equity Rules. Each change is described below.
Options 3, Section 15
The Exchange proposes to amend Options 3, Section 15, Risk
Protections, to add a new section (b)(2) to describe within its rules a
current limitation that exists today as to the number of contracts an
incoming order or quote may specify. Specifically, the maximum number
of contracts, which shall not be
[[Page 26754]]
less than 10,000, is established by the Exchange from time-to-time.
Orders or quotes that exceed the maximum number of contracts are
rejected. This System limitation is the same on all Nasdaq affiliated
exchanges.\3\ Today, Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC
(``GEMX'') and Nasdaq MRX, LLC (``MRX'') describe this limitation
within those rules at Options 3, Section 15(a)(2)(B). NOM proposes to
similarly describe this limitation in its rules.
---------------------------------------------------------------------------
\3\ The Exchange will propose a similar rule change to Nasdaq
Phlx LLC (``Phlx'') and Nasdaq BX, Inc. (``BX'').
---------------------------------------------------------------------------
Options 3, Section 7
The Exchange proposes to amend Options 3, Section 7, Types of
Orders and Order and Quote Protocols, to (1) remove the ``One-Cancels-
the-Other Order'' order type; (2) indicate the risk protections that
are applicable to On the Open Orders or ``OPG'' orders and Immediate or
Cancel orders; (3) remove references to an outdated OTTO protocol; and
(4) make technical corrections.
The Exchange proposes to remove the ``One-Cancels-the-Other Order''
currently located within Options 3, Section 7(a)(8). A One-Cancels-the-
Other Order is an order entered by a Market Maker that consists of a
buy order and a sell order treated as a unit; the full execution of one
of the orders causes the other to be canceled. This order type was
adopted in 2011 \4\ and was to be implemented on or about August 1,
2011 by issuance of an Option Trader Alert as part of a larger
implementation related to a technology migration.\5\ The One-Cancels-
the-Other Order was never implemented on NOM as part of that migration.
No Participant was able to utilize this order type as it was not
available on NOM's System. The Exchange proposes to remove the order
type at this time. The order type was intended to permit Market Makers
to submit a two-sided order consisting of both a bid and an offer.
Today, Market Makers may submit two-sided quotes utilizing NOM's
Specialized Quote Feed or ``SQF'' \6\ quoting protocol. The Exchange
would file a rule change with the Commission if it decides to offer
this order type in the future. The Exchange proposes to renumber
current Options 3, Section 7(a)(9) and (10) new Options 3, Section
7(a)(8) and (9).
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 64406 (May 4, 2011),
76 FR 27134 (May 10, 2011) (SR-NASDAQ-2011-065) (The NASDAQ Stock
Market LLC; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Adopt a Two-Sided Order for NOM Market Makers).
\5\ Id.
\6\ SQF is an interface that allows Market Makers to connect,
send, and receive messages related to quotes and Immediate-or-
Cancel Orders into and from the Exchange. Features include the
following: (1) Options symbol directory messages (e.g, underlying
instruments); (2) system event messages (e.g., start of trading
hours messages and start of opening); (3) trading action messages
(e.g., halts and resumes); (4) execution messages; (5) quote
messages; (6) Immediate-or-Cancel Order messages; (7) risk
protection triggers and purge notifications; and (8) opening
imbalance messages. The SQF Purge Interface only receives and
notifies of purge request from the Market Maker. Market Makers may
only enter interest into SQF in their assigned options series.
Immediate-or-Cancel Orders entered into SQF are not subject to the
Order Price Protection or the Market Order Spread Protection in
Options 3, Section 15(a)(1) and (a)(2), respectively.
---------------------------------------------------------------------------
The Exchange proposes to amend Options 3, Section 7(b)(1) which
describes an On the Open Order or ``OPG'' order. Today, an OPG order
can only be executed in the Opening Cross pursuant to Options 3,
Section 8. Further, if after entry into the System, the order is not
fully executed in its entirety during the Opening Cross, the order, or
any unexecuted portion of such order, will be cancelled back to the
entering participant. OPG orders may not route. OPG orders are entered
during the Opening Cross utilizing ``Financial Information eXchange''
or ``FIX''.\7\ OPG orders are currently not subject to any protections
listed in Options 3, Section 15 describing risk protections, except
Size Limitation.\8\ Options 3, Section 7(b)(1) is currently silent on
the application of risk protections. At this time, the Exchange
proposes to state that this order type is not subject to any
protections listed in Options 3, Section 15, except Size Limitation.
With the proposed addition of Size Limitation to proposed new Options
3, Section 15(b)(2), the Exchange proposes to note in the proposed new
text within Options 3, Section 7(b)(1) that OPG orders are subject to
Size Limitation. The Exchange notes that the Opening Cross itself has
boundaries within which orders will be executed.\9\ Also, any
participant may enter an Opening Only Order. Typically Market Makers
submit Valid Width NBBOs, as provided for within Options 3, Section 8,
during the Opening Cross. Nasdaq BX's OPG Orders are also not subject
to any risk protections aside from Size Limitation.\10\
---------------------------------------------------------------------------
\7\ FIX is an interface that allows Participants and their
Sponsored Customers to connect, send, and receive messages related
to orders to and from the Exchange. Features include the following:
(1) Execution messages; (2) order messages; and (3) risk protection
triggers and cancel notifications. See Options 3, Section
7(e)(1)(A).
\8\ See Options 3, Section 7(b)(1).
\9\ See Options 3, Section 8(b).
\10\ See BX Options 3, Section 7(b)(1) which currently provides
that an OPG order is not subject to any protections listed in
Options 3, Section 15. The Exchange is in the process of filing a
rule change to indicate that BX OPG orders are subject to Size
Limitation. See also SR-BX-2021-020.
---------------------------------------------------------------------------
The Exchange proposes to amend Options 3, Section 7(b)(2) which
describes an Immediate-or-Cancel Order or ``IOC'' order. Today, the
Exchange describes an IOC order as a Market Order or Limit Order to be
executed in whole or in part upon receipt. Any portion not so executed
is cancelled and/or routed pursuant to the Participant's
instruction.\11\ The rule text currently also provides that ``IOC
orders may be entered through FIX, OTTO or SQF; IOC Orders entered
through OTTO or SQF may not route.'' The Exchange previously filed to
remove its ``Ouch to Trade Options'' or ``OTTO'' protocol from its
rules.\12\ The citations to OTTO within Options 3, Section 7 were
inadvertently not removed. At this time, the Exchange proposes to
remove those remaining references to OTTO within Options 3, Section 7
from the descriptions of IOC orders and DAY orders.\13\
---------------------------------------------------------------------------
\11\ See NOM Options 3, Section 7(b)(2).
\12\ See Securities Exchange Act Release No. 84084 (December 17,
2020), 85 FR 84084 (December 23, 2020) (SR-NASDAQ-2020-089)
(``Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To No Longer Implement the OTTO Protocol'').
\13\ ``DAY'' is an order entered with a TIF of ``Day'' that
expires at the end of the day on which it was entered, if not
executed. All orders by their terms are Day Orders unless otherwise
specified. Day orders may be entered through FIX. See proposed
Options 3, Section 7(b)(3).
---------------------------------------------------------------------------
The Exchange also proposes to note, similar to Phlx and BX, that an
IOC order entered by a Market Maker through Specialized Quote Feed or
``SQF'' \14\ is not subject to certain risk protections noted within
Options 3, Section 15. Today, an IOC order entered through SQF is not
subject to the Order Price Protection or Market Order Spread
Protections noted within Options 3, Section 15(a)(1) and (a)(2),
respectively. Further, with the addition of Size Limitation to proposed
new Options 3, Section 15(b)(2), the Exchange also proposes to note
that SQF orders are not subject to Size Limitation. The addition of
this rule text will bring greater clarity to the order type.
---------------------------------------------------------------------------
\14\ See supra note 6.
---------------------------------------------------------------------------
The Exchange notes that while only orders are entered into FIX, SQF
is a quote protocol which also permits Market Makers to enter IOC
orders that do not rest on the order book. The Exchange has not elected
to utilize Order Price Protection, Market Order Spread Protection, and
Size Limitation on SQF orders, as it did for FIX, because Market Makers
only utilize SQF to enter IOC orders and Market Makers are professional
traders with their own risk
[[Page 26755]]
settings. FIX, on the other hand, is utilized by all market
participants who may not have their own risk settings, unlike Market
Makers.
Market Makers utilize IOC orders to trade out of accumulated
positions and manage their risk when providing liquidity on the
Exchange. Proper risk management, including using these IOC orders to
offload risk, is vital for Market Makers, and allows them to maintain
tight markets and meet their quoting and other obligations to the
market. Market Makers handle a large amount of risk when quoting and in
addition to the risk protections required by the Exchange, Market
Makers utilize their own risk management parameters when entering
orders, minimizing the likelihood of a Market Maker's erroneous order
from being entered. The Exchange believes that Market Makers, unlike
other market participants, have the ability to manage their risk when
submitting IOC orders through SQF and should be permitted to elect this
method of order entry to obtain efficiency and speed of order entry,
particularly in light of the continuous quoting obligations the
Exchange imposes on these participants.
The Exchange believes that allowing Market Makers to submit IOC
orders through their preferred protocol increases their efficiency in
submitting such orders and thereby allows them to maintain quality
markets to the benefit of all market participants that trade on the
Exchange. Further, unlike other market participants, Market Makers
provide liquidity to the market place and have obligations.\15\ Thus,
the Exchange opted to not offer Order Price Protection, Market Order
Spread Protection, and Size Limitation for IOC orders entered through
SQF because Market Makers have more sophisticated infrastructures than
other market participants and are able to manage their risk.
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\15\ Market Makers have intra-day quoting obligations as
specified in Options 2, Section 5.
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The Exchange proposes to amend the description of Specialized Quote
Feed within Options 3, Section 7(e)(1)(B) to make plural the word
``request'' and also add an ``.,'' after an e.g to conform the
punctuation in the paragraph.
General 1, Section 1
The Exchange proposes to update a rule citation within General 1,
Section 1 to Options 3, Section 20. The rule text currently cites
Options 3, Section 4, but that citation was incorrectly updated in a
prior rule change.\16\ The original citation was to Chapter V, Section
6, Nullification and Adjustment of Options Transactions including
Obvious Errors. This rule was relocated to Options 3, Section 20 within
that Relocation Rule Change.
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\16\ See Securities Exchange Act Release No. 87779 (December 17,
2019), 84 FR 70590 (December 23, 2019) (SR-NASDAQ-2019-098) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To
Relocate Rules From Its Current Rulebook Into Its New Rulebook
Shell) (``Relocation Rule Change'').
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Equity Rules
Nasdaq proposes to amend the Rulebook shell to add a new Equity 3A
and Equity 8A and reserve those sections. Equity 3A will be utilized by
BX Rulebook and the Exchange proposes to reserve that section in this
Rulebook to demonstrate the section does not exist for the Nasdaq
equity market.\17\ Equity 8A is utilized by Nasdaq Phlx within its
Rulebook and the Exchange proposes to reserve that section in this
Rulebook to demonstrate the section does not exist for the Nasdaq
equity market.\18\ Also, Nasdaq proposes to add Sections 15-23 within
Equity 9 and reserve those sections to harmonize the numbering of
Nasdaq equity rules across its affiliated markets.
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\17\ BX will file a proposed rule change to add and reserve
Equity 3A.
\18\ See Phlx Equity 8A Unlisted Trading Privileges; Proxy and
Other Rules.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\19\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\20\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
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Options 3, Section 15
The Exchange's proposal to amend Options 3, Section 15, Risk
Protections, to add a new section (b)(2) is consistent with the Act.
The proposed amendment is intended to describe a current limitation
that exists today as to the number of contracts an incoming order or
quote may specify. Specifically, the maximum number of contracts, which
shall not be less than 10,000, is established by the Exchange from
time-to-time. Orders or quotes that exceed the maximum number of
contracts are rejected. This System limitation is the same on all
Nasdaq affiliated exchanges.\21\ Today, ISE, GEMX and MRX describe this
limitation within those rules at Options 3, Section 15(a)(2)(B). NOM
proposes to similarly describe this limitation in its rules.
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\21\ See supra note 3.
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Options 3, Section 7
The Exchange's proposal to remove the ``One-Cancels-the-Other
Order'' currently located within Options 3, Section 7(a)(8) is
consistent with the Act. This order type was adopted in 2011 \22\ and
was to be implemented on or about August 1, 2011 by issuance of an
Option Trader Alert as part of a larger implementation related to a
technology migration,\23\ however, the new order type was never
implemented on NOM as part of that migration. No Participant was able
to utilize this order type on NOM's System to date. The Exchange's
proposal to remove the order type protects investors and the public
interest by making clear that the order type is not available. Further,
the order type was intended to permit Market Makers to submit a two-
sided order consisting of both a bid and an offer. Today, Market Makers
may submit two-sided quotes utilizing NOMs SQF \24\ quoting protocol.
---------------------------------------------------------------------------
\22\ See supra note 4.
\23\ Id.
\24\ See supra note 6.
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The Exchange's proposal to amend OPG orders within Options 3,
Section 7(b)(1) to make clear that OPG orders are currently not subject
to any protections listed in Options 3, Section 15 describing risk
protections,\25\ except Size Limitation is consistent with the Act and
will bring greater clarity to the order type. Options 3, Section
7(b)(1) is currently silent on the application of risk protections.
Today, OPG orders are not subject to any protections listed in Options
3, Section 15, except Size Limitation. With the proposed addition of
Size Limitation to proposed new Options 3, Section 15(b)(2), the
Exchange proposes to note in the proposed new text within Options 3,
Section 7(b)(1) that OPG orders are subject to Size Limitation. The
Exchange believes that it is consistent with the Act to not apply any
risk protections during the Opening Cross as the Opening Cross itself
has boundaries within which orders will be executed.\26\ Any
participant may enter an Opening Only Order. Typically Market Makers
submit Valid Width NBBOs, as provided for within Options 3, Section 8,
during the Opening Cross. Nasdaq BX's OPG Orders are also not subject
to any risk protections aside from Size Limitation.\27\
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\25\ See Options 3, Section 7(b)(1).
\26\ See Options 3, Section 8(b).
\27\ See supra note 10.
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[[Page 26756]]
The Exchange's proposal to amend Options 3, Section 7(b)(2) and
(b)(3), which describes IOC orders and DAY orders, to remove outdated
citations to OTTO within Options 3, Section 7 that were inadvertently
not removed is consistent with the Act. These amendments are non-
substantive and will add clarity to these rules.
The Exchange's proposal to note, similar to Phlx and BX, that an
IOC order entered by a Market Maker through SQF is not subject to
certain risk protections noted within Options 3, Section 15 is
consistent with the Act. Today, an IOC order entered through SQF is not
subject to the Order Price Protection or Market Order Spread
Protections noted within Options 3, Section 15(a)(1) and (a)(2),
respectively. Further, with the addition of Size Limitation to proposed
new Options 3, Section 15(b)(2), the Exchange also proposes to note
that SQF orders are not subject to Size Limitation. The addition of
this rule text will bring greater clarity to the order type.
The Exchange notes that while only orders are entered into FIX, SQF
is a quote protocol which also permits Market Makers to enter IOC
orders that do not rest on the order book. The Exchange has not elected
to utilize Order Price Protection, Market Order Spread Protection, and
Size Limitation on SQF orders, as it did for FIX, because Market Makers
only utilize SQF to enter IOC orders and Market Makers are professional
traders with their own risk settings. FIX, on the other hand, is
utilized by all market participants who may not have their own risk
settings, unlike Market Makers.
Market Makers utilize IOC orders to trade out of accumulated
positions and manage their risk when providing liquidity on the
Exchange. Proper risk management, including using these IOC orders to
offload risk, is vital for Market Makers, and allows them to maintain
tight markets and meet their quoting and other obligations to the
market. Market Makers handle a large amount of risk when quoting and in
addition to the risk protections required by the Exchange, Market
Makers utilize their own risk management parameters when entering
orders, minimizing the likelihood of a Market Maker's erroneous order
from being entered. The Exchange believes that Market Makers, unlike
other market participants, have the ability to manage their risk when
submitting IOC orders through SQF and should be permitted to elect this
method of order entry to obtain efficiency and speed of order entry,
particularly in light of the continuous quoting obligations the
Exchange imposes on these participants.
The Exchange believes that allowing Market Makers to submit IOC
orders through their preferred protocol increases their efficiency in
submitting such orders and thereby allows them to maintain quality
markets to the benefit of all market participants that trade on the
Exchange. Further, unlike other market participants, Market Makers
provide liquidity to the market place and have obligations.\28\ The
Exchange believes not offering Order Price Protection, Market Order
Spread Protection, and Size Limitation for IOC orders entered through
SQF is consistent with the Act because Market Makers have more
sophisticated infrastructures than other market participants and are
able to manage their risk.
---------------------------------------------------------------------------
\28\ See supra note 15.
---------------------------------------------------------------------------
Finally, the Exchange's proposal to amend the description of
Specialized Quote Feed within Options 3, Section 7(e)(1)(B) to make
plural the word ``request'' and also add an ``.,'' after an e.g to
conform the punctuation in the paragraph is consistent with the Act.
These changes are non-substantive.
General 1, Section 1
The Exchange's proposal to update an incorrect rule citation within
General 1, Section 1 to Options 3, Section 20 is consistent with the
Act. The rule text currently cites Options 3, Section 4, but that
citation was incorrectly updated in a prior rule change.\29\ The
original citation was to Chapter V, Section 6, Nullification and
Adjustment of Options Transactions including Obvious Errors. This rule
was relocated to Options 3, Section 20 within that Relocation Rule
Change. This amendment will bring clarity to this rule.
---------------------------------------------------------------------------
\29\ See supra note 16.
---------------------------------------------------------------------------
Equity Rules
Nasdaq's proposal to amend the Rulebook shell to add a new Equity
3A and Equity 8A and reserve those sections is consistent with the Act.
Equity 3A will be utilized by the BX Rulebook and the Exchange proposes
to reserve that section in this Rulebook to demonstrate the section
does not exist for the Nasdaq equity market.\30\ Equity 8A is utilized
by Phlx within its Rulebook and the Exchange proposes to reserve that
section in this Rulebook to demonstrate the section does not exist for
the Nasdaq equity market.\31\ Also, Nasdaq proposes to add Sections 15-
23 within Equity 9 and reserve those sections to harmonize the
numbering of Nasdaq equity rules across its affiliated markets.
---------------------------------------------------------------------------
\30\ See supra note 17.
\31\ See Phlx Equity 8A Unlisted Trading Privileges; Proxy and
Other Rules.
---------------------------------------------------------------------------
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.
Options 3, Section 15
The Exchange's proposal to amend Options 3, Section 15, Risk
Protections, to add a new section (b)(2) does not impose an undue
burden on competition. The proposed amendment is intended to describe a
current limitation that exists today as to the number of contracts an
incoming order or quote may specify. This System limitation is the same
on all Nasdaq affiliated exchanges.\32\ Today, ISE, GEMX and MRX
describe this limitation within its rules at Options 3, Section
15(a)(2)(B). NOM proposes to similarly describe this limitation in its
rules.
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\32\ See supra note 3.
---------------------------------------------------------------------------
Options 3, Section 7
The Exchange's proposal to remove the ``One-Cancels-the-Other
Order'' currently located within Options 3, Section 7(a)(8) does not
impose an undue burden on competition. No Participant was able to
utilize this order type on NOM's System to date. The Exchange's
proposal to remove the order type will make clear that the order type
is not available. Further, the order type was intended to permit Market
Makers to submit a two-sided order consisting of both a bid and an
offer. Today, Market Makers may submit two-sided quotes utilizing NOM's
SQF \33\ quoting protocol.
---------------------------------------------------------------------------
\33\ See supra note 6.
---------------------------------------------------------------------------
The Exchange's proposal to amend Options 3, Section 7(b)(1) to make
clear that Size Limitation applies to OPG orders and the remainder of
the risk protections noted within Options 3, Section 15 do not apply to
OPG orders does not impose an undue burden on competition. The proposed
rule text will clarify the manner in which risk protections interact
with this order type. The Opening Cross itself has boundaries within
which orders will be executed. Any participant may enter an Opening
Only Order. Typically Market Makers submit Valid Width NBBOs, as
provided for within Options 3, Section 8, during the Opening Cross.
The Exchange's proposal to amend Options 3, Section 7(b)(2) and
(b)(3),
[[Page 26757]]
which describes IOC orders and DAY orders, to remove outdated citations
to OTTO within Options 3, Section 7 that were inadvertently not removed
does not impose an undue burden on competition. These amendments are
non-substantive and will add clarity to these rules.
The Exchange's proposal to note, similar to Phlx and BX, that an
IOC order entered by a Market Maker through SQF is not subject to
certain risk protections noted within Options 3, Section 15 does not
impose an undue burden on competition. Today, an IOC order entered
through SQF is not subject to the Order Price Protection or Market
Order Spread Protections noted within Options 3, Section 15(a)(1) and
(a)(2), respectively. Further, with the addition of Size Limitation to
proposed new Options 3, Section 15(b)(2), the Exchange also proposes to
note that SQF orders are not subject to Size Limitation. The addition
of this rule text will bring greater clarity to the order type.
The Exchange notes that while only orders are entered into FIX, SQF
is a quote protocol which also permits Market Makers to enter IOC
orders that do not rest on the order book. The Exchange has not elected
to utilize Order Price Protection, Market Order Spread Protection, and
Size Limitation on SQF orders, as it did for FIX, because Market Makers
only utilize SQF to enter IOC orders and Market Makers are professional
traders with their own risk settings. FIX, on the other hand, is
utilized by all market participants who may not have their own risk
settings, unlike Market Makers.
The Exchange believes that Market Makers, unlike other market
participants, have the ability to manage their risk when submitting IOC
orders through SQF and should be permitted to elect this method of
order entry to obtain efficiency and speed of order entry, particularly
in light of the continuous quoting obligations the Exchange imposes on
these participants. Further, unlike other market participants, Market
Makers provide liquidity to the market place and have obligations.\34\
---------------------------------------------------------------------------
\34\ See supra note 15.
---------------------------------------------------------------------------
Finally, the Exchange's proposal to amend the description of
Specialized Quote Feed within Options 3, Section 7(e)(1)(B) to make
plural the word ``request'' and also add an ``.,'' after an e.g to
conform the punctuation in the paragraph does not impose an undue
burden on competition. These changes are non-substantive.
General 1, Section 1
The Exchange's proposal to update an incorrect rule citation within
General 1, Section 1 to Options 3, Section 20 does not impose an undue
burden on competition. The rule text currently cites Options 3, Section
4, but that citation was incorrectly updated in a prior rule
change.\35\ The original citation was to Chapter V, Section 6,
Nullification and Adjustment of Options Transactions including Obvious
Errors. This rule was relocated to Options 3, Section 20 within that
Relocation Rule Change. This amendment will bring clarity to this rule.
---------------------------------------------------------------------------
\35\ See supra note 16.
---------------------------------------------------------------------------
Equity Rules
Nasdaq's proposal to amend the Rulebook shell to add a new Equity
3A and Equity 8A and reserve those sections does not impose an undue
burden on competition. Equity 3A will be utilized by the BX Rulebook
and the Exchange proposes to reserve that section in this Rulebook to
demonstrate the section does not exist for the Nasdaq equity
market.\36\ Equity 8A is utilized by Phlx within its Rulebook and the
Exchange proposes to reserve that section in this Rulebook to
demonstrate the section does not exist for the Nasdaq equity
market.\37\ Also, Nasdaq proposes to add Sections 15-23 within Equity 9
and reserve those sections to harmonize the numbering of Nasdaq equity
rules across its affiliated markets.
---------------------------------------------------------------------------
\36\ See supra note 17.
\37\ See Phlx Equity 8A Unlisted Trading Privileges; Proxy and
Other Rules.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \38\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\39\
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\38\ 15 U.S.C. 78s(b)(3)(A).
\39\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission notes that other exchanges have
substantively similar rules regarding size limitation for certain
incoming orders or quotes.\40\ In addition, removing references to an
order type and protocol that are not available on the Exchange will
bring greater clarity to NOM's rules, as will the non-substantive
amendments, which correct typographical errors, remove duplicative
text, and align the Exchange's rulebook numbering with that of an
affiliated exchange. Thus, the Commission believes waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. The Commission therefore waives the 30-day operative
delay and designates this proposal operative upon filing.\41\
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\40\ See ISE, GEMX and MRX rules at Options 3, Section
15(a)(2)(B).
\41\ For purposes only of waiving the 30-day operative delay,
the Commission has also 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.
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-NASDAQ-2021-030 on the subject line.
Paper Comments
Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-NASDAQ-2021-030. This
file number should be included on the subject line if email is used. To
help the Commission process and review your
[[Page 26758]]
comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NASDAQ-2021-030 and should be submitted on or before June 7, 2021.
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\42\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10274 Filed 5-14-21; 8:45 am]
BILLING CODE 8011-01-P
