Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, Section 15 (Risk Protections) To Adopt an Active Quote Protection, 58373-58378 [2023-18301]

Download as PDF Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A)(iii) of the Act 29 and subparagraph (f)(6) of Rule 19b–4 thereunder.30 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: ddrumheller on DSK120RN23PROD with NOTICES1 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– ISE–2023–18 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–ISE–2023–18. This file 29 15 U.S.C. 78s(b)(3)(A)(iii). 30 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. VerDate Sep<11>2014 18:23 Aug 24, 2023 Jkt 259001 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–ISE–2023–18 and should be submitted on or before September 15, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–18304 Filed 8–24–23; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98179; File No. SR–BX– 2023–019] Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, Section 15 (Risk Protections) To Adopt an Active Quote Protection August 21, 2023. 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 August 31 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 Frm 00140 Fmt 4703 11, 2023, Nasdaq BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared 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 15 (Risk Protections) to adopt an active quote protection. 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 BILLING CODE 8011–01–P PO 00000 58373 Sfmt 4703 The purpose of the proposed rule change is to adopt an active risk counter functionality called active quote protection (‘‘Active Quote Protection’’) in Options 3, Section 15. The Exchange intends to begin implementation prior to December 20, 2024, and will provide prior notice of the implementation date to Members in an Options Trader Alert. The Exchange proposes to offer an optional active risk counter functionality called Active Quote Protection, which will be available to Market Makers as an alternative to existing passive risk counter functionality described in Options 3, Section 15(c)(2)(A) (i.e., ‘‘Quotation Adjustments’’).3 The proposed Active 3 As described below, the Exchange will specifically define this passive risk counter functionality as ‘‘Rapid Fire’’ within this Rule. E:\FR\FM\25AUN1.SGM 25AUN1 58374 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Quote Protection functionality will be similar to existing active risk counter functionality on another options exchange, which currently allows exchange users to actively decrement the risk counter by a specified amount at any time, rather than waiting until a risk limit is reached or the user otherwise sends a specific instruction to the exchange to completely reset the counting program.4 Today, the Exchange requires Market Makers to configure risk exposure thresholds based on either percentage of executed quotes (‘‘Percentage Threshold’’) or total number of executed contracts (‘‘Volume Threshold’’). The Exchange also offers two optional risk exposure thresholds based on the absolute value of the difference between long and short positions (‘‘Delta Threshold’’), and absolute value of the difference between contracts bought and contracts sold (‘‘Vega Threshold’’) (collectively, ‘‘Thresholds’’).5 As set forth in Options 3, Section 15(c)(2)(A), the System tracks each Threshold with a corresponding risk counter over a Market Maker-specified rolling time period not to exceed 30 seconds. Furthermore, Section 15(c)(2)(A) describes that when a risk counter exceeds the corresponding Threshold during the specified time period, the System would automatically remove the Market Maker’s quotes in all series of the applicable options class (each, a ‘‘Purge Event’’). As a result of a Purge Event, the corresponding risk counter and Threshold would reset upon such removal. The Exchange also notes that pursuant to Section 15(c)(2)(D) today, the Thresholds and risk counters can be completely reset if the Market Maker specifically requests the System to remove quotes in all options series in an underlying issue. This risk protection is passive in that the risk counters wait to reset until the expiry of a specified time period, a Purge Event, or when the Market Maker otherwise sends a specific 4 See MEMX LLC (‘‘MEMX’’) Rule 21.16(b) (Active Risk Counter). See also Securities Exchange Act Release No. 95445 (August 8, 2022), 87 FR 49894 (August 12, 2022) (SR–MEMX–2022–10). Similar to the proposed Active Quote Protection, the active risk counter on MEMX is voluntary and offers a way for users to proactively manage their risk. The MEMX risk protection, however, allows the user to actively manage all the risk limits specified in MEMX’s rule (e.g., executed contracts, notional value, etc.) whereas the Exchange’s proposal would allow Market Makers to actively manage executed contracts only, as discussed later in this filing. In addition, the Exchange’s proposal will only apply to quotes whereas MEMX’s functionality applies to both orders and quotes. 5 The Thresholds are described in detail in Options 3, Section 15(c)(2)(A)(i)–(iv). If a Market Maker does not provide a parameter for each Threshold, the Exchange will apply default parameters announced to Members. VerDate Sep<11>2014 18:23 Aug 24, 2023 Jkt 259001 instruction to the Exchange to remove quotes to completely reset the counters. The Exchange now proposes to introduce a new risk protection called Active Quote Protection that would enable Market Makers to actively manage their executed contract limit (‘‘Contract Limit’’) by sending an electronic instruction to the Exchange to decrement their executed contract limit counter (‘‘Limit Counter’’) by a specified amount at any time, rather than waiting until the expiry of a defined time period, when the risk limit is exceeded (like a Purge Event), or when the Market Maker otherwise sends a specific instruction to purge quotes to completely reset the risk counter.6 The Contract Limit, as set by the Market Maker, would apply for the duration of the trading day. Once the Market Maker’s Limit Counter exceeds the Contract Limit set by the Market Maker, the System would automatically remove quotes in all series of the applicable options class submitted through the Exchange’s Specialized Quote Feed protocol,7 identical to how the quote removal mechanism works for a Purge Event today.8 Today, Purge Events are triggered under the existing Quotation Adjustments on the first execution that exceeds the applicable Threshold. Once an execution occurs, the System checks all Thresholds to see if they have been exceeded. If exceeded, the Market Maker’s quote would be purged pursuant to Options 3, Section 15(c)(2)(D). In order to remain consistent with the firm quote obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS, any marketable orders or quotes that are executable against a Market Maker’s quotes that are received 9 prior to the time the applicable Threshold is triggered will be automatically executed up to the size of the Market Maker’s quote, regardless of whether the execution would cause the Market Maker to exceed their pre-set Percentage Threshold, Volume Threshold, Delta Threshold, or Vega Threshold.10 6 If the Market Maker opting to use Active Quote Protection does not provide a Contract Limit at the outset, the Exchange will apply a default parameter for the Active Quote Protection Contract Limit (which would be announced to Participants). The Exchange will initially set the default Contract Limit at 100 contracts. 7 Specialized Quote Feed or ‘‘SQF’’ is an interface that only Market Makers may use to submit quotes to the Exchange. See Options 3, Section 7(e)(1)(B). 8 See Options 3, Section 15(c)(2)(C) (renumbered as Section 15(c)(2)(D) under this proposal, as noted below). 9 The time of receipt for an order or quote is the time such message is processed by the Exchange’s order book. 10 See current Options 3, Section 15(c)(2)(C)(ii). The Exchange will renumber this as Section PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 Under Active Quote Protection, the System would similarly handle the Market Maker’s quote in that the quote could be filled one execution over the Contract Limit before the Market Maker’s remaining quotes are cancelled by the System in order to be consistent with the firm quote obligations under Rule 602 of Regulation NMS. Specifically, the Exchange notes that any marketable orders or quotes that are executable against a Market Maker’s quotes that are received 11 prior to the time the Contract Limit is triggered will be automatically executed up to the size of the Market Maker’s quote, regardless of whether the execution would cause the Market Maker to exceed the Contract Limit.12 Additionally, under Active Quote Protection, Market Makers will be able to submit a request (i) to decrement their Limit Counter by a specified number of contracts, or (ii) to fully decrement their Limit Counter to zero.13 Market Makers that elect to use the proposed Active Quote Protection on a badge 14 will not be able to use the existing Threshold risk protections described above on the same badge (i.e., the active and passive risk counter functionality would be mutually exclusive per badge) given that it would be unnecessarily complex to implement from a technology standpoint. Market Makers may be associated with multiple badges today, so if they want to use both risk protections for their activity on the Exchange, they will be able to set either the active or passive risk counter functionality on each one. To effectuate the foregoing changes, the Exchange proposes to set forth the new risk protection in paragraph (B) of Options 3, Section 15(c)(2), as follows: 15 15(c)(2)(D)(ii) and clarify this provision in the manner described later in this filing. 11 See supra note 9. 12 For both the current Quotation Adjustments and proposed Active Quote Protection, the System will execute marketable interest up to the size of the Market Maker’s quote, but cannot guarantee interest will be fully executed, as is the case with any execution in the Exchange’s order book. There is always the possibility that the Market Maker’s quote size (and/or Market Maker’s quote plus other interest on the order book) may not be sufficient volume to fill the incoming interest. 13 As discussed later in this filing, in order to reenter the System after their quotes are purged pursuant to the Active Quote Protection, Market Makers will need to submit the same request to fully decrement their Limit Counter to zero. 14 The term ‘‘badge’’ means an account number, which may contain letters and/or numbers, assigned to BX Market Makers. A BX Market Maker account may be associated with multiple badges. See Options 1, Section 1(a)(6). 15 As a result, the Exchange will also renumber existing paragraphs (C)–(F) as proposed paragraphs (D)–(G). E:\FR\FM\25AUN1.SGM 25AUN1 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices In lieu of Rapid Fire, a Market Maker may provide an executed contract limit (‘‘Contract Limit’’) that, if exceeded, the System will automatically remove the Market Maker’s quotes in all series of an options class submitted through SQF. The System will apply the Contract Limit for the duration of the trading day. For each class of options, the System will maintain an active limit counter that will track the current number of contracts executed through the Market Maker’s quotes (‘‘Limit Counter’’). If the Limit Counter exceeds the Contract Limit established by the Market Maker, the System will automatically remove the Market Maker’s quotes as described in paragraph (D) below. Market Makers may submit a request (i) to decrement their Limit Counter by a specified number of contracts, or (ii) to fully decrement their Limit Counter to zero, including to re-enter the System as described in paragraph (F) below. The Exchange also proposes to amend current paragraph (F) (renumbered to paragraph (G) under this proposal) of Options 3, Section 15(c)(2) to specify that the active and passive risk counter functionality will be mutually exclusive per badge). As amended, proposed paragraph (G) will provide: ddrumheller on DSK120RN23PROD with NOTICES1 The Exchange will require BX Market Makers to utilize the Percentage Threshold, the Volume Threshold, or the Contract Limit. For Market Makers that elect to utilize the Contract Limit, the Percentage Threshold, Volume Threshold, Delta Threshold, and Vega Threshold will not be available for use on the Market Maker’s badge. The Delta, Vega and Multi-Trigger Thresholds are optional. As described above, once the Limit Counter exceeds the Contract Limit set by the Market Maker under the proposed Active Quote Protection, the System would automatically remove quotes in the same manner as currently specified for a Purge Event in proposed paragraph (D) of Options 3, Section 15(c)(2). Accordingly, the Exchange proposes to add Active Quote Protection’s Contract Limit throughout this Rule. Specifically, proposed paragraph (D) will provide that the System will automatically remove quotes in all series of an options class in an underlying security when the Percentage Threshold, Volume Threshold, Delta Threshold, Vega Threshold, or the Contract Limit has been exceeded. The System will automatically remove quotes in all series of an option class in all underlying securities when the MultiTrigger Threshold 16 has been exceeded. 16 Multi-Trigger Threshold is defined in current paragraph (B) (proposed paragraph (D)) of Section 15(c)(2) as the number of allowable triggers by which the Exchange will automatically remove quotes in all options series in all underlying issues submitted through designated BX protocols as specified by the Exchange. This threshold is part of the Exchange’s Multi-Trigger risk protection. VerDate Sep<11>2014 18:23 Aug 24, 2023 Jkt 259001 The System will send a Purge Notification Message to the BX Market Maker for all affected options when the above thresholds have been exceeded. Proposed subparagraph (D)(i) will provide that the Percentage Threshold, Volume Threshold, Delta Threshold, Vega Threshold, Contract Limit, and Multi-Trigger Threshold are considered independently of each other. Further, as discussed above, any marketable orders or quotes that are executable against a Market Maker’s quotes that are received 17 prior to the time the applicable Threshold or Contract Limit is triggered will be automatically executed up to the size of the Market Maker’s quote, even if such execution would cause the Market Maker to exceed any of their pre-set risk limits with respect to any of the foregoing risk parameters. The Exchange notes that the current related Rule in sub-paragraph (C)(ii) only mentions that quotes will execute up to the Market Maker’s size, and is silent on marketable orders. In addition, the current Rule does not specify the time of receipt of such marketable interest that is executable against the size of the Market Maker’s quote. As such, the Exchange proposes to add this specificity in proposed sub-paragraph (D)(ii) to better describe how the System operates today for Quotation Adjustments and how the System will operate for proposed Active Quote Protection. In particular, subparagraph (D)(ii) will provide: The System will execute any marketable orders or quotes that are executable against a Market Maker’s quote and received prior to the time the Percentage Threshold, Volume Threshold, Delta Threshold, Vega Threshold, or Contract Limit is triggered up to the size of the Market Maker’s quote, even if such execution results in executions in excess of the Market Maker’s applicable Threshold or Contract Limit with respect to any parameter. In addition, when the System removes quotes as a result of exceeding the Contract Limit under Active Quote Protection, the Exchange proposes to require the Market Maker to submit a request to re-enter the System. This request will be the same type of message as the request described in proposed paragraph (B) where the Market Maker must request to fully decrement their Limit Counter back to zero in order to re-enter the System. This requirement will be added in proposed paragraph (F) of Options 3, Section 15(c)(2), and will be similar to how the existing quote purge mechanism works for the Thresholds today, except the Market Maker needs to send a separate message (i.e., a re-entry indicator) to re-enter the 17 See PO 00000 supra note 9. Frm 00142 Fmt 4703 Sfmt 4703 58375 System when their quotes are purged as a result of exceeding any of the existing Thresholds. The Exchange also proposes that the new Active Quote Protection would leverage the existing multi-trigger (‘‘Multi-Trigger’’) functionality currently set forth in Options 3, Section 15(c)(2)(B) (renumbered as Section 15(c)(2)(C) under this proposal). Today, Multi-Trigger is a risk protection offered alongside the current Quotation Adjustments. A BX Market Maker or BX Market Maker Group, which is defined as multiple affiliated BX Market Makers,18 may provide the specified time period and number of allowable Purge Events by which the Exchange will automatically remove quotes in all options series in all underlying issues submitted through designated BX protocols as specified by the Exchange (‘‘Multi-Trigger Threshold’’). MultiTrigger is triggered when during a time period established by the Market Maker not to exceed 30 seconds, the total number of Quotation Adjustment Purge Events exceeds the Multi-Trigger Threshold provided to the Exchange by the BX Market Maker or BX Market Maker Group. When Multi-Trigger is triggered, the System automatically purges all of the Market Maker’s or Group’s quotes in all options series in an underlying issue. As set forth in current Options 3, Section 15(c)(2)(E) (renumbered to Section 15(c)(2)(F) under this proposal), when the System removes quotes as a result of the MultiTrigger Threshold, the Market Maker must manually request re-entry to the System by contacting the Exchange. Exchange staff must then set a re-entry indicator in this case to enable re-entry, which will cause the System to send a Reentry Notification Message to the BX Market Maker or Group for all options series in all underlying issues. The Market Maker’s Clearing Firm will be notified regarding the trigger and reentry into the System after quotes are removed as a result of the Multi-Trigger Threshold, provided the Market Maker’s Clearing Firm has requested to receive such notification. Today, Multi-Trigger is meant to provide Market Makers or a Group with protection from the risk of multiple executions across multiple series of an option or across multiple options. This risk protection recognizes that risk to 18 This would be more than one BX Market Maker, but does not require the aggregation of all of the Participant’s Market Makers. A Group would be comprised of BX Market Makers affiliated with one Participant (i.e., one BX options member firm). The Participant would be required to define a Group by providing a list of such affiliated BX Market Makers to the Exchange. E:\FR\FM\25AUN1.SGM 25AUN1 58376 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Market Makers is not limited to a single series in an option or even to all series in an option; Market Makers that quote in multiple series of multiple options have significant exposure, requiring them to offset or hedge their overall positions. Market Makers are required to continuously quote in assigned options, and quoting across many series in an option or multiple options creates the possibility of executions that can create large, unintended principal positions that could expose Market Makers to unnecessary risk. Multi-Trigger is therefore intended to assist Market Makers or Groups in managing their market risk by tracking the number of Purge Events relative to the MultiTrigger Threshold set by the Market Maker or Group. The Exchange believes that tracking the number of Active Quote Protection Purge Events for a Market Maker or Group against its Multi-Trigger Threshold would be similarly useful for managing market risk. To that end, the Exchange proposes to update Multi-Trigger to add purge events under Active Quote Protection to the Multi-Trigger counter such that Active Quote Protection purge events and Purge Events under the current Quotation Adjustments will be aggregated together as counting toward the specified Multi-Trigger Threshold. Accordingly, the Exchange proposes to add references to the Active Quote Protection rule (i.e., proposed paragraph (B) of Options 3, Section 15(c)(2)) throughout the Multi-Trigger rule in proposed paragraph (C), specifically: A BX Market Maker or BX Market Maker Group (multiple affiliated BX Market Makers is a ‘‘Group’’ as defined by a BX Participant and provided by such Participant to the Exchange) may provide a specified time period and number of allowable triggers by which the Exchange will automatically remove quotes in all options series in all underlying issues submitted through designated BX protocols as specified by the Exchange (‘‘Multi-Trigger Threshold’’). During a specified time period established by the BX Market Maker not to exceed 30 seconds (‘‘Multi-Trigger Specified Time Period’’), the number of times the System automatically removes the BX Market Maker’s or Group’s quotes in all options series will be based on the number of triggers of the Percentage Threshold described in paragraph (A)(i) above, the Volume Threshold described in paragraph (A)(ii) above, the Delta Threshold described in paragraph (A)(iii) above, the Vega Threshold described in paragraph (A)(iv) above, and the Contract Limit described in paragraph (B) above. Once the System determines that the number of triggers exceeds a number established by either the BX Market Maker or Group, during a Multi-Trigger Specified Time Period, the System will automatically remove VerDate Sep<11>2014 18:23 Aug 24, 2023 Jkt 259001 all quotes in all options series in all underlying issues for that BX Market Maker or Group. A trigger is defined as the event which causes the System to automatically remove quotes in all options series in an underlying issue. A Multi-Trigger Specified Time Period will commence after every trigger of the Percentage Threshold, Volume Threshold, Delta Threshold, Vega Threshold, or Contract Limit, and will continue until the System removes quotes as described in paragraph (D) below or the Multi-Trigger Specified Time Period expires. The System counts triggers within the Multi-Trigger Specified Time Period across all triggers for the BX Market Maker or Group. A MultiTrigger Specified Time Period operates on a rolling basis in that there may be multiple Multi-Trigger Specified Time Periods occurring simultaneously and such MultiTrigger Specified Time Periods may overlap. The following example illustrates the proposed behavior of the Active Quote Protection risk protection: Market Maker AAPL Contract Limit: 100 • Market Maker trades a transaction for 10 contracts in AAPL; Limit Counter goes from 0 to 10. • Market Maker sends a request to decrement its Limit Counter in AAPL for 10 contracts; Limit Counter goes from 10 to 0. • Market Maker trades a transaction for 20 contracts in AAPL; Limit Counter goes from 0 to 20. • Market Maker trades a transaction for 50 contracts in AAPL; Limit Counter goes from 20 to 70. • Market Maker sends a request to decrement its Limit Counter in AAPL for 20 contracts; Limit Counter goes from 70 to 50. • Market Maker trades a transaction for 60 contracts in AAPL; Limit Counter goes from 50 to 110 and all Market Maker quotes in AAPL are automatically purged after the execution because the Limit Counter exceeded the Market Maker’s Contract Limit of 100 executed contracts. • At this point, the Market Maker must send a request to fully decrement its Limit Counter in AAPL back to zero in order to begin quoting again. The following example illustrates how Multi-Trigger will work with the proposed Active Quote Protection functionality: • Assume Market Maker in AAPL and SPY has Quotation Adjustments set for AAPL and Active QP set for SPY. • Market Maker sets its Multi-Trigger Threshold so that it is triggered at 25 purge events within a 20 second time period. • On a given trading day, if an Active Quote Protection Purge Event is triggered 15 times in SPY and a PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 Quotation Adjustment Purge Event is triggered 10 times in AAPL, all within 20 seconds, then the Exchange will automatically remove all of the Market Maker’s quotes AAPL and SPY. Technical Amendments The Exchange proposes a few technical, non-substantive amendments in Options 3, Section 15(c)(2). With the addition of the new Active Quote Protection rule in proposed paragraph (B), the Exchange proposes to renumber existing paragraphs (B)–(F) as proposed paragraphs (C)–(G) and make related changes to update existing cross-cites within Section 15(c)(2). The Exchange also proposes in paragraph (A) to correct the current cross-cites to paragraphs (B) and (C) to paragraphs (D) and (E) because the Exchange originally intended to refer to how the System removes quotes either pursuant to a Purge Event (which is governed by proposed paragraph (D)) or pursuant to a Market Maker specifically requesting the System to remove quotes in all series of an underlying issue (which is governed by proposed paragraph (E)). The Exchange proposes to reword the rule text within proposed Options 3, Section 15(c)(2)(D) to replace the term ‘‘options’’ with the words ‘‘series of an options class’’ to conform the wording in this paragraph to other rule text with Options 3, Section 15. Additionally, the Exchange proposes to add the words ‘‘or Group’’ to Options 3, Section 15(c)(2)(F) because a Group may also request reentry pursuant to proposed Options 3, Section 15(c)(2)(C) and would receive a Reentry Notification Message. Lastly, the Exchange proposes to title paragraph (A) as ‘‘Rapid Fire’’ and paragraph (C) as ‘‘Multi-Trigger’’ to more clearly identify which rules apply to which risk protections. 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, 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. The Exchange believes that the proposed Active Quote Protection risk protection is consistent with the Act because it will enhance the risk protection tools available to Market Makers and Groups by introducing a 19 15 20 15 E:\FR\FM\25AUN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 25AUN1 ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices new method of establishing and monitoring for risk parameters that will be offered as an alternative to existing Rapid Fire risk parameters, thereby supporting a Market Maker’s ability to manage their risk on the Exchange, and also providing them with flexibility to use additional tools to manage risk. As noted above, while the passive (Rapid Fire) and active (Active QP) risk counter functionality will be mutually exclusive on each badge, Market Makers will still be able to use both to cover their activity on the Exchange by getting multiple badges and setting each risk counter by badge. The Exchange believes that offering more risk management tools to Market Makers would mitigate their exposure to excessive risk. The Exchange further believes that having the new Active Quote Protection functionality leverage the existing Multi-Trigger functionality will similarly support a Market Maker’s ability to manage their risk on the Exchange by including Active Quote Protection purge events to the MultiTrigger counter. As noted above, the risk to Market Makers is not limited to a single series in an option or even multiple series in an option as Market Makers that quote in multiple series of multiple options have significant exposure, requiring them to offset or hedge their overall positions. Market Makers are required to continuously quote in assigned options, and quoting across many series in an option or multiple options creates the possibility of executions that can create large, unintended principal positions that could expose Market Makers to unnecessary risk. Today, Multi-Trigger is designed to assist Market Makers or a Group in managing their market risk by tracking the number of Purge Events relative to the market-wide parameter set by the Market Maker or the Group. The Exchange therefore believes that tracking the number of Active Quote Protection purge events for a Market Maker against its Multi-Trigger Threshold would be similarly useful for managing market risk so that they can provide deep and liquid markets to the benefit of all investors. Ultimately, the Exchange believes that providing Market Makers with additional tools in the manner described above to manage their risk parameters serves to perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest because Market Makers will be better able to manage risks with these tools. With regard to the impact of this proposal on system capacity, the VerDate Sep<11>2014 18:23 Aug 24, 2023 Jkt 259001 Exchange notes that it has analyzed its capacity and represents that it and the Options Price Reporting Authority have the necessary systems capacity to handle any potential additional traffic associated with the proposed rule change. The Exchange believes that its members will not have a capacity issue as a result of this proposal. The Exchange further represents that its proposal will continue to operate consistently with the firm quote obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS. Specifically, any marketable interest that is executable against a Market Maker’s quotes that are received 21 by the Exchange prior to the time this functionality is triggered will be automatically executed at the price up to the Market Maker’s size, regardless of whether such execution results in executions in excess of the Market Maker’s pre-set Contract Limit.22 As discussed above, this is also in line with how current Rapid Fire operates today. The Exchange believes that the proposed changes in proposed subparagraph (D)(ii) to specify that this Rule will apply to marketable orders and quotes (currently silent on marketable orders), and to specify the time of receipt of such marketable interest that is executable against the size of the Market Maker’s quote, will promote clarity in how the System currently operates for Rapid Fire and will operate for Active Quote Protection. As noted above, the proposed Active Quote Protection functionality is similar to existing active risk counter functionality on another options exchange, which currently allows users to actively decrement the risk counter by a specified amount at any time, rather than waiting until a risk limit is reached or the user otherwise sends a specific instruction to the exchange to completely reset the counting program.23 Technical Amendments The Exchange believes that the technical amendments in Options 3, Section 15(c)(2) described above are consistent with the Act because they will promote clarity in the rules and make the Rulebook easier to navigate for market participants by updating rule numbering and existing cross-cites as described above. Furthermore, the Exchange also believes that adding the defined terms for Rapid Fire and MultiTrigger in the rule text will promote supra note 9. proposed subparagraph (D)(ii) of Options 3, Section 15(c)(2). 23 See supra note 4. clarity so that Members can more easily locate the relevant functionalities in the Rulebook. Rewording the rule text within proposed Options 3, Section 15(c)(2)(D) to replace the term ‘‘options’’ with the words ‘‘series of an options class’’ will conform the wording in this paragraph to other rule text with Options 3, Section 15. Finally, adding the words ‘‘or Group’’ to Options 3, Section 15(c)(2)(F) will make the sentence more accurate because a Group may also request re-entry pursuant to proposed Options 3, Section 15(c)(2)(C) and would receive a Reentry Notification Message. 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 does not believe that the proposed Active Quote Protection functionality will impose any undue burden on intra-market competition as it is aimed at mitigating exposure to excessive risk when trading on the Exchange. While the Exchange will offer the proposed functionality to Market Makers only, the proposed risk protection is intended to provide Market Makers with an additional tool to manage their risk parameters in a manner they deem appropriate. As such, the Exchange believes that the proposed functionality may facilitate Market Makers’ provision of liquidity on the Exchange, thereby benefitting all market participants through additional execution opportunities at potentially improved prices. The Exchange also believes that its Active Quote Protection proposal does not impose an undue burden on intermarket competition as the proposed risk protection is similar to an existing risk protection on MEMX 24 as described above, and any options market could adopt similar rules. Lastly, the Exchange does not believe that the proposed technical amendments in Options 3, Section 15(c)(2) will impose an undue burden on competition as these are nonsubstantive changes to promote clarity in the rules and make the Rulebook easier to navigate for market participants. 21 See 22 See PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 58377 24 See E:\FR\FM\25AUN1.SGM supra note 4. 25AUN1 58378 Federal Register / Vol. 88, No. 164 / Friday, August 25, 2023 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A)(iii) of the Act 25 and subparagraph (f)(6) of Rule 19b–4 thereunder.26 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: ddrumheller on DSK120RN23PROD with NOTICES1 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–2023–019 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–2023–019. This file 25 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 26 17 VerDate Sep<11>2014 18:23 Aug 24, 2023 Jkt 259001 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–BX–2023–019 and should be submitted on or before September 15, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–18301 Filed 8–24–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98173; File No. SR–MIAX– 2023–30] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule To Modify Certain Connectivity and Port Fees August 21, 2023. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 27 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 notice is hereby given that on August 8, 2023, Miami International Securities Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the MIAX Options Exchange Fee Schedule (‘‘Fee Schedule’’) to amend certain connectivity and port fees. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, 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 the Fee Schedule as follows: (1) increase the fees for a 10 gigabit (‘‘Gb’’) ultra-low latency (‘‘ULL’’) fiber connection for Members 3 and non-Members; and (2) amend the fees for Limited Service MIAX Express Interface (‘‘MEI’’) Ports 4 available to Market Makers.5 The 3 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights associated with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 4 The MIAX Express Interface (‘‘MEI’’) is a connection to MIAX systems that enables Market Makers to submit simple and complex electronic quotes to MIAX. See Fee Schedule, note 26. 5 The term ‘‘Market Makers’’ refers to Lead Market Makers (‘‘LMMs’’), Primary Lead Market Makers (‘‘PLMMs’’), and Registered Market Makers (‘‘RMMs’’) collectively. See Exchange Rule 100. For E:\FR\FM\25AUN1.SGM 25AUN1

Agencies

[Federal Register Volume 88, Number 164 (Friday, August 25, 2023)]
[Notices]
[Pages 58373-58378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18301]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98179; File No. SR-BX-2023-019]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, 
Section 15 (Risk Protections) To Adopt an Active Quote Protection

August 21, 2023.
    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 August 11, 2023, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Options 3, Section 15 (Risk 
Protections) to adopt an active quote protection.
    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 purpose of the proposed rule change is to adopt an active risk 
counter functionality called active quote protection (``Active Quote 
Protection'') in Options 3, Section 15. The Exchange intends to begin 
implementation prior to December 20, 2024, and will provide prior 
notice of the implementation date to Members in an Options Trader 
Alert.
    The Exchange proposes to offer an optional active risk counter 
functionality called Active Quote Protection, which will be available 
to Market Makers as an alternative to existing passive risk counter 
functionality described in Options 3, Section 15(c)(2)(A) (i.e., 
``Quotation Adjustments'').\3\ The proposed Active

[[Page 58374]]

Quote Protection functionality will be similar to existing active risk 
counter functionality on another options exchange, which currently 
allows exchange users to actively decrement the risk counter by a 
specified amount at any time, rather than waiting until a risk limit is 
reached or the user otherwise sends a specific instruction to the 
exchange to completely reset the counting program.\4\
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    \3\ As described below, the Exchange will specifically define 
this passive risk counter functionality as ``Rapid Fire'' within 
this Rule.
    \4\ See MEMX LLC (``MEMX'') Rule 21.16(b) (Active Risk Counter). 
See also Securities Exchange Act Release No. 95445 (August 8, 2022), 
87 FR 49894 (August 12, 2022) (SR-MEMX-2022-10). Similar to the 
proposed Active Quote Protection, the active risk counter on MEMX is 
voluntary and offers a way for users to proactively manage their 
risk. The MEMX risk protection, however, allows the user to actively 
manage all the risk limits specified in MEMX's rule (e.g., executed 
contracts, notional value, etc.) whereas the Exchange's proposal 
would allow Market Makers to actively manage executed contracts 
only, as discussed later in this filing. In addition, the Exchange's 
proposal will only apply to quotes whereas MEMX's functionality 
applies to both orders and quotes.
---------------------------------------------------------------------------

    Today, the Exchange requires Market Makers to configure risk 
exposure thresholds based on either percentage of executed quotes 
(``Percentage Threshold'') or total number of executed contracts 
(``Volume Threshold''). The Exchange also offers two optional risk 
exposure thresholds based on the absolute value of the difference 
between long and short positions (``Delta Threshold''), and absolute 
value of the difference between contracts bought and contracts sold 
(``Vega Threshold'') (collectively, ``Thresholds'').\5\ As set forth in 
Options 3, Section 15(c)(2)(A), the System tracks each Threshold with a 
corresponding risk counter over a Market Maker-specified rolling time 
period not to exceed 30 seconds. Furthermore, Section 15(c)(2)(A) 
describes that when a risk counter exceeds the corresponding Threshold 
during the specified time period, the System would automatically remove 
the Market Maker's quotes in all series of the applicable options class 
(each, a ``Purge Event''). As a result of a Purge Event, the 
corresponding risk counter and Threshold would reset upon such removal. 
The Exchange also notes that pursuant to Section 15(c)(2)(D) today, the 
Thresholds and risk counters can be completely reset if the Market 
Maker specifically requests the System to remove quotes in all options 
series in an underlying issue. This risk protection is passive in that 
the risk counters wait to reset until the expiry of a specified time 
period, a Purge Event, or when the Market Maker otherwise sends a 
specific instruction to the Exchange to remove quotes to completely 
reset the counters.
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    \5\ The Thresholds are described in detail in Options 3, Section 
15(c)(2)(A)(i)-(iv). If a Market Maker does not provide a parameter 
for each Threshold, the Exchange will apply default parameters 
announced to Members.
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    The Exchange now proposes to introduce a new risk protection called 
Active Quote Protection that would enable Market Makers to actively 
manage their executed contract limit (``Contract Limit'') by sending an 
electronic instruction to the Exchange to decrement their executed 
contract limit counter (``Limit Counter'') by a specified amount at any 
time, rather than waiting until the expiry of a defined time period, 
when the risk limit is exceeded (like a Purge Event), or when the 
Market Maker otherwise sends a specific instruction to purge quotes to 
completely reset the risk counter.\6\
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    \6\ If the Market Maker opting to use Active Quote Protection 
does not provide a Contract Limit at the outset, the Exchange will 
apply a default parameter for the Active Quote Protection Contract 
Limit (which would be announced to Participants). The Exchange will 
initially set the default Contract Limit at 100 contracts.
---------------------------------------------------------------------------

    The Contract Limit, as set by the Market Maker, would apply for the 
duration of the trading day. Once the Market Maker's Limit Counter 
exceeds the Contract Limit set by the Market Maker, the System would 
automatically remove quotes in all series of the applicable options 
class submitted through the Exchange's Specialized Quote Feed 
protocol,\7\ identical to how the quote removal mechanism works for a 
Purge Event today.\8\ Today, Purge Events are triggered under the 
existing Quotation Adjustments on the first execution that exceeds the 
applicable Threshold. Once an execution occurs, the System checks all 
Thresholds to see if they have been exceeded. If exceeded, the Market 
Maker's quote would be purged pursuant to Options 3, Section 
15(c)(2)(D). In order to remain consistent with the firm quote 
obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS, 
any marketable orders or quotes that are executable against a Market 
Maker's quotes that are received \9\ prior to the time the applicable 
Threshold is triggered will be automatically executed up to the size of 
the Market Maker's quote, regardless of whether the execution would 
cause the Market Maker to exceed their pre-set Percentage Threshold, 
Volume Threshold, Delta Threshold, or Vega Threshold.\10\
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    \7\ Specialized Quote Feed or ``SQF'' is an interface that only 
Market Makers may use to submit quotes to the Exchange. See Options 
3, Section 7(e)(1)(B).
    \8\ See Options 3, Section 15(c)(2)(C) (renumbered as Section 
15(c)(2)(D) under this proposal, as noted below).
    \9\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange's order book.
    \10\ See current Options 3, Section 15(c)(2)(C)(ii). The 
Exchange will renumber this as Section 15(c)(2)(D)(ii) and clarify 
this provision in the manner described later in this filing.
---------------------------------------------------------------------------

    Under Active Quote Protection, the System would similarly handle 
the Market Maker's quote in that the quote could be filled one 
execution over the Contract Limit before the Market Maker's remaining 
quotes are cancelled by the System in order to be consistent with the 
firm quote obligations under Rule 602 of Regulation NMS. Specifically, 
the Exchange notes that any marketable orders or quotes that are 
executable against a Market Maker's quotes that are received \11\ prior 
to the time the Contract Limit is triggered will be automatically 
executed up to the size of the Market Maker's quote, regardless of 
whether the execution would cause the Market Maker to exceed the 
Contract Limit.\12\
---------------------------------------------------------------------------

    \11\ See supra note 9.
    \12\ For both the current Quotation Adjustments and proposed 
Active Quote Protection, the System will execute marketable interest 
up to the size of the Market Maker's quote, but cannot guarantee 
interest will be fully executed, as is the case with any execution 
in the Exchange's order book. There is always the possibility that 
the Market Maker's quote size (and/or Market Maker's quote plus 
other interest on the order book) may not be sufficient volume to 
fill the incoming interest.
---------------------------------------------------------------------------

    Additionally, under Active Quote Protection, Market Makers will be 
able to submit a request (i) to decrement their Limit Counter by a 
specified number of contracts, or (ii) to fully decrement their Limit 
Counter to zero.\13\ Market Makers that elect to use the proposed 
Active Quote Protection on a badge \14\ will not be able to use the 
existing Threshold risk protections described above on the same badge 
(i.e., the active and passive risk counter functionality would be 
mutually exclusive per badge) given that it would be unnecessarily 
complex to implement from a technology standpoint. Market Makers may be 
associated with multiple badges today, so if they want to use both risk 
protections for their activity on the Exchange, they will be able to 
set either the active or passive risk counter functionality on each 
one.
---------------------------------------------------------------------------

    \13\ As discussed later in this filing, in order to re-enter the 
System after their quotes are purged pursuant to the Active Quote 
Protection, Market Makers will need to submit the same request to 
fully decrement their Limit Counter to zero.
    \14\ The term ``badge'' means an account number, which may 
contain letters and/or numbers, assigned to BX Market Makers. A BX 
Market Maker account may be associated with multiple badges. See 
Options 1, Section 1(a)(6).
---------------------------------------------------------------------------

    To effectuate the foregoing changes, the Exchange proposes to set 
forth the new risk protection in paragraph (B) of Options 3, Section 
15(c)(2), as follows: \15\
---------------------------------------------------------------------------

    \15\ As a result, the Exchange will also renumber existing 
paragraphs (C)-(F) as proposed paragraphs (D)-(G).


[[Page 58375]]


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    In lieu of Rapid Fire, a Market Maker may provide an executed 
contract limit (``Contract Limit'') that, if exceeded, the System 
will automatically remove the Market Maker's quotes in all series of 
an options class submitted through SQF. The System will apply the 
Contract Limit for the duration of the trading day. For each class 
of options, the System will maintain an active limit counter that 
will track the current number of contracts executed through the 
Market Maker's quotes (``Limit Counter''). If the Limit Counter 
exceeds the Contract Limit established by the Market Maker, the 
System will automatically remove the Market Maker's quotes as 
described in paragraph (D) below. Market Makers may submit a request 
(i) to decrement their Limit Counter by a specified number of 
contracts, or (ii) to fully decrement their Limit Counter to zero, 
including to re-enter the System as described in paragraph (F) 
below.

    The Exchange also proposes to amend current paragraph (F) 
(renumbered to paragraph (G) under this proposal) of Options 3, Section 
15(c)(2) to specify that the active and passive risk counter 
functionality will be mutually exclusive per badge). As amended, 
proposed paragraph (G) will provide:

    The Exchange will require BX Market Makers to utilize the 
Percentage Threshold, the Volume Threshold, or the Contract Limit. 
For Market Makers that elect to utilize the Contract Limit, the 
Percentage Threshold, Volume Threshold, Delta Threshold, and Vega 
Threshold will not be available for use on the Market Maker's badge. 
The Delta, Vega and Multi-Trigger Thresholds are optional.

    As described above, once the Limit Counter exceeds the Contract 
Limit set by the Market Maker under the proposed Active Quote 
Protection, the System would automatically remove quotes in the same 
manner as currently specified for a Purge Event in proposed paragraph 
(D) of Options 3, Section 15(c)(2). Accordingly, the Exchange proposes 
to add Active Quote Protection's Contract Limit throughout this Rule. 
Specifically, proposed paragraph (D) will provide that the System will 
automatically remove quotes in all series of an options class in an 
underlying security when the Percentage Threshold, Volume Threshold, 
Delta Threshold, Vega Threshold, or the Contract Limit has been 
exceeded. The System will automatically remove quotes in all series of 
an option class in all underlying securities when the Multi-Trigger 
Threshold \16\ has been exceeded. The System will send a Purge 
Notification Message to the BX Market Maker for all affected options 
when the above thresholds have been exceeded. Proposed subparagraph 
(D)(i) will provide that the Percentage Threshold, Volume Threshold, 
Delta Threshold, Vega Threshold, Contract Limit, and Multi-Trigger 
Threshold are considered independently of each other.
---------------------------------------------------------------------------

    \16\ Multi-Trigger Threshold is defined in current paragraph (B) 
(proposed paragraph (D)) of Section 15(c)(2) as the number of 
allowable triggers by which the Exchange will automatically remove 
quotes in all options series in all underlying issues submitted 
through designated BX protocols as specified by the Exchange. This 
threshold is part of the Exchange's Multi-Trigger risk protection.
---------------------------------------------------------------------------

    Further, as discussed above, any marketable orders or quotes that 
are executable against a Market Maker's quotes that are received \17\ 
prior to the time the applicable Threshold or Contract Limit is 
triggered will be automatically executed up to the size of the Market 
Maker's quote, even if such execution would cause the Market Maker to 
exceed any of their pre-set risk limits with respect to any of the 
foregoing risk parameters. The Exchange notes that the current related 
Rule in sub-paragraph (C)(ii) only mentions that quotes will execute up 
to the Market Maker's size, and is silent on marketable orders. In 
addition, the current Rule does not specify the time of receipt of such 
marketable interest that is executable against the size of the Market 
Maker's quote. As such, the Exchange proposes to add this specificity 
in proposed sub-paragraph (D)(ii) to better describe how the System 
operates today for Quotation Adjustments and how the System will 
operate for proposed Active Quote Protection. In particular, sub-
paragraph (D)(ii) will provide:
---------------------------------------------------------------------------

    \17\ See supra note 9.

    The System will execute any marketable orders or quotes that are 
executable against a Market Maker's quote and received prior to the 
time the Percentage Threshold, Volume Threshold, Delta Threshold, 
Vega Threshold, or Contract Limit is triggered up to the size of the 
Market Maker's quote, even if such execution results in executions 
in excess of the Market Maker's applicable Threshold or Contract 
---------------------------------------------------------------------------
Limit with respect to any parameter.

    In addition, when the System removes quotes as a result of 
exceeding the Contract Limit under Active Quote Protection, the 
Exchange proposes to require the Market Maker to submit a request to 
re-enter the System. This request will be the same type of message as 
the request described in proposed paragraph (B) where the Market Maker 
must request to fully decrement their Limit Counter back to zero in 
order to re-enter the System. This requirement will be added in 
proposed paragraph (F) of Options 3, Section 15(c)(2), and will be 
similar to how the existing quote purge mechanism works for the 
Thresholds today, except the Market Maker needs to send a separate 
message (i.e., a re-entry indicator) to re-enter the System when their 
quotes are purged as a result of exceeding any of the existing 
Thresholds.
    The Exchange also proposes that the new Active Quote Protection 
would leverage the existing multi-trigger (``Multi-Trigger'') 
functionality currently set forth in Options 3, Section 15(c)(2)(B) 
(renumbered as Section 15(c)(2)(C) under this proposal). Today, Multi-
Trigger is a risk protection offered alongside the current Quotation 
Adjustments. A BX Market Maker or BX Market Maker Group, which is 
defined as multiple affiliated BX Market Makers,\18\ may provide the 
specified time period and number of allowable Purge Events by which the 
Exchange will automatically remove quotes in all options series in all 
underlying issues submitted through designated BX protocols as 
specified by the Exchange (``Multi-Trigger Threshold''). Multi-Trigger 
is triggered when during a time period established by the Market Maker 
not to exceed 30 seconds, the total number of Quotation Adjustment 
Purge Events exceeds the Multi-Trigger Threshold provided to the 
Exchange by the BX Market Maker or BX Market Maker Group. When Multi-
Trigger is triggered, the System automatically purges all of the Market 
Maker's or Group's quotes in all options series in an underlying issue. 
As set forth in current Options 3, Section 15(c)(2)(E) (renumbered to 
Section 15(c)(2)(F) under this proposal), when the System removes 
quotes as a result of the Multi-Trigger Threshold, the Market Maker 
must manually request re-entry to the System by contacting the 
Exchange. Exchange staff must then set a re-entry indicator in this 
case to enable re-entry, which will cause the System to send a Reentry 
Notification Message to the BX Market Maker or Group for all options 
series in all underlying issues. The Market Maker's Clearing Firm will 
be notified regarding the trigger and re-entry into the System after 
quotes are removed as a result of the Multi-Trigger Threshold, provided 
the Market Maker's Clearing Firm has requested to receive such 
notification.
---------------------------------------------------------------------------

    \18\ This would be more than one BX Market Maker, but does not 
require the aggregation of all of the Participant's Market Makers. A 
Group would be comprised of BX Market Makers affiliated with one 
Participant (i.e., one BX options member firm). The Participant 
would be required to define a Group by providing a list of such 
affiliated BX Market Makers to the Exchange.
---------------------------------------------------------------------------

    Today, Multi-Trigger is meant to provide Market Makers or a Group 
with protection from the risk of multiple executions across multiple 
series of an option or across multiple options. This risk protection 
recognizes that risk to

[[Page 58376]]

Market Makers is not limited to a single series in an option or even to 
all series in an option; Market Makers that quote in multiple series of 
multiple options have significant exposure, requiring them to offset or 
hedge their overall positions. Market Makers are required to 
continuously quote in assigned options, and quoting across many series 
in an option or multiple options creates the possibility of executions 
that can create large, unintended principal positions that could expose 
Market Makers to unnecessary risk. Multi-Trigger is therefore intended 
to assist Market Makers or Groups in managing their market risk by 
tracking the number of Purge Events relative to the Multi-Trigger 
Threshold set by the Market Maker or Group. The Exchange believes that 
tracking the number of Active Quote Protection Purge Events for a 
Market Maker or Group against its Multi-Trigger Threshold would be 
similarly useful for managing market risk.
    To that end, the Exchange proposes to update Multi-Trigger to add 
purge events under Active Quote Protection to the Multi-Trigger counter 
such that Active Quote Protection purge events and Purge Events under 
the current Quotation Adjustments will be aggregated together as 
counting toward the specified Multi-Trigger Threshold. Accordingly, the 
Exchange proposes to add references to the Active Quote Protection rule 
(i.e., proposed paragraph (B) of Options 3, Section 15(c)(2)) 
throughout the Multi-Trigger rule in proposed paragraph (C), 
specifically:

    A BX Market Maker or BX Market Maker Group (multiple affiliated 
BX Market Makers is a ``Group'' as defined by a BX Participant and 
provided by such Participant to the Exchange) may provide a 
specified time period and number of allowable triggers by which the 
Exchange will automatically remove quotes in all options series in 
all underlying issues submitted through designated BX protocols as 
specified by the Exchange (``Multi-Trigger Threshold''). During a 
specified time period established by the BX Market Maker not to 
exceed 30 seconds (``Multi-Trigger Specified Time Period''), the 
number of times the System automatically removes the BX Market 
Maker's or Group's quotes in all options series will be based on the 
number of triggers of the Percentage Threshold described in 
paragraph (A)(i) above, the Volume Threshold described in paragraph 
(A)(ii) above, the Delta Threshold described in paragraph (A)(iii) 
above, the Vega Threshold described in paragraph (A)(iv) above, and 
the Contract Limit described in paragraph (B) above. Once the System 
determines that the number of triggers exceeds a number established 
by either the BX Market Maker or Group, during a Multi-Trigger 
Specified Time Period, the System will automatically remove all 
quotes in all options series in all underlying issues for that BX 
Market Maker or Group. A trigger is defined as the event which 
causes the System to automatically remove quotes in all options 
series in an underlying issue. A Multi-Trigger Specified Time Period 
will commence after every trigger of the Percentage Threshold, 
Volume Threshold, Delta Threshold, Vega Threshold, or Contract 
Limit, and will continue until the System removes quotes as 
described in paragraph (D) below or the Multi-Trigger Specified Time 
Period expires. The System counts triggers within the Multi-Trigger 
Specified Time Period across all triggers for the BX Market Maker or 
Group. A Multi-Trigger Specified Time Period operates on a rolling 
basis in that there may be multiple Multi-Trigger Specified Time 
Periods occurring simultaneously and such Multi-Trigger Specified 
Time Periods may overlap.

    The following example illustrates the proposed behavior of the 
Active Quote Protection risk protection:
Market Maker AAPL
Contract Limit: 100

     Market Maker trades a transaction for 10 contracts in 
AAPL; Limit Counter goes from 0 to 10.
     Market Maker sends a request to decrement its Limit 
Counter in AAPL for 10 contracts; Limit Counter goes from 10 to 0.
     Market Maker trades a transaction for 20 contracts in 
AAPL; Limit Counter goes from 0 to 20.
     Market Maker trades a transaction for 50 contracts in 
AAPL; Limit Counter goes from 20 to 70.
     Market Maker sends a request to decrement its Limit 
Counter in AAPL for 20 contracts; Limit Counter goes from 70 to 50.
     Market Maker trades a transaction for 60 contracts in 
AAPL; Limit Counter goes from 50 to 110 and all Market Maker quotes in 
AAPL are automatically purged after the execution because the Limit 
Counter exceeded the Market Maker's Contract Limit of 100 executed 
contracts.
     At this point, the Market Maker must send a request to 
fully decrement its Limit Counter in AAPL back to zero in order to 
begin quoting again.
    The following example illustrates how Multi-Trigger will work with 
the proposed Active Quote Protection functionality:
     Assume Market Maker in AAPL and SPY has Quotation 
Adjustments set for AAPL and Active QP set for SPY.
     Market Maker sets its Multi-Trigger Threshold so that it 
is triggered at 25 purge events within a 20 second time period.
     On a given trading day, if an Active Quote Protection 
Purge Event is triggered 15 times in SPY and a Quotation Adjustment 
Purge Event is triggered 10 times in AAPL, all within 20 seconds, then 
the Exchange will automatically remove all of the Market Maker's quotes 
AAPL and SPY.
Technical Amendments
    The Exchange proposes a few technical, non-substantive amendments 
in Options 3, Section 15(c)(2). With the addition of the new Active 
Quote Protection rule in proposed paragraph (B), the Exchange proposes 
to renumber existing paragraphs (B)-(F) as proposed paragraphs (C)-(G) 
and make related changes to update existing cross-cites within Section 
15(c)(2). The Exchange also proposes in paragraph (A) to correct the 
current cross-cites to paragraphs (B) and (C) to paragraphs (D) and (E) 
because the Exchange originally intended to refer to how the System 
removes quotes either pursuant to a Purge Event (which is governed by 
proposed paragraph (D)) or pursuant to a Market Maker specifically 
requesting the System to remove quotes in all series of an underlying 
issue (which is governed by proposed paragraph (E)). The Exchange 
proposes to reword the rule text within proposed Options 3, Section 
15(c)(2)(D) to replace the term ``options'' with the words ``series of 
an options class'' to conform the wording in this paragraph to other 
rule text with Options 3, Section 15. Additionally, the Exchange 
proposes to add the words ``or Group'' to Options 3, Section 
15(c)(2)(F) because a Group may also request re-entry pursuant to 
proposed Options 3, Section 15(c)(2)(C) and would receive a Reentry 
Notification Message.
    Lastly, the Exchange proposes to title paragraph (A) as ``Rapid 
Fire'' and paragraph (C) as ``Multi-Trigger'' to more clearly identify 
which rules apply to which risk protections.
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, 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed Active Quote Protection 
risk protection is consistent with the Act because it will enhance the 
risk protection tools available to Market Makers and Groups by 
introducing a

[[Page 58377]]

new method of establishing and monitoring for risk parameters that will 
be offered as an alternative to existing Rapid Fire risk parameters, 
thereby supporting a Market Maker's ability to manage their risk on the 
Exchange, and also providing them with flexibility to use additional 
tools to manage risk. As noted above, while the passive (Rapid Fire) 
and active (Active QP) risk counter functionality will be mutually 
exclusive on each badge, Market Makers will still be able to use both 
to cover their activity on the Exchange by getting multiple badges and 
setting each risk counter by badge. The Exchange believes that offering 
more risk management tools to Market Makers would mitigate their 
exposure to excessive risk. The Exchange further believes that having 
the new Active Quote Protection functionality leverage the existing 
Multi-Trigger functionality will similarly support a Market Maker's 
ability to manage their risk on the Exchange by including Active Quote 
Protection purge events to the Multi-Trigger counter. As noted above, 
the risk to Market Makers is not limited to a single series in an 
option or even multiple series in an option as Market Makers that quote 
in multiple series of multiple options have significant exposure, 
requiring them to offset or hedge their overall positions. Market 
Makers are required to continuously quote in assigned options, and 
quoting across many series in an option or multiple options creates the 
possibility of executions that can create large, unintended principal 
positions that could expose Market Makers to unnecessary risk. Today, 
Multi-Trigger is designed to assist Market Makers or a Group in 
managing their market risk by tracking the number of Purge Events 
relative to the market-wide parameter set by the Market Maker or the 
Group. The Exchange therefore believes that tracking the number of 
Active Quote Protection purge events for a Market Maker against its 
Multi-Trigger Threshold would be similarly useful for managing market 
risk so that they can provide deep and liquid markets to the benefit of 
all investors. Ultimately, the Exchange believes that providing Market 
Makers with additional tools in the manner described above to manage 
their risk parameters serves to perfect the mechanism of a free and 
open market and a national market system, and, in general to protect 
investors and the public interest because Market Makers will be better 
able to manage risks with these tools.
    With regard to the impact of this proposal on system capacity, the 
Exchange notes that it has analyzed its capacity and represents that it 
and the Options Price Reporting Authority have the necessary systems 
capacity to handle any potential additional traffic associated with the 
proposed rule change. The Exchange believes that its members will not 
have a capacity issue as a result of this proposal.
    The Exchange further represents that its proposal will continue to 
operate consistently with the firm quote obligations of a broker-dealer 
pursuant to Rule 602 of Regulation NMS. Specifically, any marketable 
interest that is executable against a Market Maker's quotes that are 
received \21\ by the Exchange prior to the time this functionality is 
triggered will be automatically executed at the price up to the Market 
Maker's size, regardless of whether such execution results in 
executions in excess of the Market Maker's pre-set Contract Limit.\22\ 
As discussed above, this is also in line with how current Rapid Fire 
operates today. The Exchange believes that the proposed changes in 
proposed sub-paragraph (D)(ii) to specify that this Rule will apply to 
marketable orders and quotes (currently silent on marketable orders), 
and to specify the time of receipt of such marketable interest that is 
executable against the size of the Market Maker's quote, will promote 
clarity in how the System currently operates for Rapid Fire and will 
operate for Active Quote Protection.
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    \21\ See supra note 9.
    \22\ See proposed subparagraph (D)(ii) of Options 3, Section 
15(c)(2).
---------------------------------------------------------------------------

    As noted above, the proposed Active Quote Protection functionality 
is similar to existing active risk counter functionality on another 
options exchange, which currently allows users to actively decrement 
the risk counter by a specified amount at any time, rather than waiting 
until a risk limit is reached or the user otherwise sends a specific 
instruction to the exchange to completely reset the counting 
program.\23\
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    \23\ See supra note 4.
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Technical Amendments
    The Exchange believes that the technical amendments in Options 3, 
Section 15(c)(2) described above are consistent with the Act because 
they will promote clarity in the rules and make the Rulebook easier to 
navigate for market participants by updating rule numbering and 
existing cross-cites as described above. Furthermore, the Exchange also 
believes that adding the defined terms for Rapid Fire and Multi-Trigger 
in the rule text will promote clarity so that Members can more easily 
locate the relevant functionalities in the Rulebook. Rewording the rule 
text within proposed Options 3, Section 15(c)(2)(D) to replace the term 
``options'' with the words ``series of an options class'' will conform 
the wording in this paragraph to other rule text with Options 3, 
Section 15. Finally, adding the words ``or Group'' to Options 3, 
Section 15(c)(2)(F) will make the sentence more accurate because a 
Group may also request re-entry pursuant to proposed Options 3, Section 
15(c)(2)(C) and would receive a Reentry Notification Message.

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 does not believe that the proposed Active Quote 
Protection functionality will impose any undue burden on intra-market 
competition as it is aimed at mitigating exposure to excessive risk 
when trading on the Exchange. While the Exchange will offer the 
proposed functionality to Market Makers only, the proposed risk 
protection is intended to provide Market Makers with an additional tool 
to manage their risk parameters in a manner they deem appropriate. As 
such, the Exchange believes that the proposed functionality may 
facilitate Market Makers' provision of liquidity on the Exchange, 
thereby benefitting all market participants through additional 
execution opportunities at potentially improved prices.
    The Exchange also believes that its Active Quote Protection 
proposal does not impose an undue burden on inter-market competition as 
the proposed risk protection is similar to an existing risk protection 
on MEMX \24\ as described above, and any options market could adopt 
similar rules.
---------------------------------------------------------------------------

    \24\ See supra note 4.
---------------------------------------------------------------------------

    Lastly, the Exchange does not believe that the proposed technical 
amendments in Options 3, Section 15(c)(2) will impose an undue burden 
on competition as these are non-substantive changes to promote clarity 
in the rules and make the Rulebook easier to navigate for market 
participants.

[[Page 58378]]

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A)(iii) of the Act \25\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \26\ 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.
---------------------------------------------------------------------------

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-BX-2023-019 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-2023-019. 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-BX-2023-019 and should be 
submitted on or before September 15, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18301 Filed 8-24-23; 8:45 am]
BILLING CODE 8011-01-P
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