Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt an OTTO Protocol, 21618-21629 [2024-06573]
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
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transactions would not place a burden
on competition. These proposed
changes work together with the
proposed margin segregation changes
discussed above, and FICC believes that
the combination of these proposed
changes would allow Netting Members
to offer greater varieties of possible
clearing arrangements to indirect
participants. With respect to the specific
changes around separately and
independently calculating, collecting,
and holding margin for proprietary and
indirect transactions, FICC further
believes that such changes would serve
to ensure that a Netting Member’s
margin requirement separately accounts
for the risk profiles of its proprietary
portfolio of transactions and the
transactions it submits to FICC on behalf
of indirect participants. These changes
should not give particular Netting
Members an advantage over one another
or disadvantage indirect participants
relative to one another. Instead, they
would simply serve to limit the risk to
FICC of such transactions and provide
FICC with a better understanding of the
source of potential risk arising from the
transactions that it clears.
Lastly, FICC believes that the
proposed changes to redefine Brokered
Transactions as those entered into by an
Inter-Dealer Broker Netting Member on
its own trading platform would promote
competition by limiting the scope of
transactions eligible for uniquely
favorable loss allocation treatment. Such
limitations would ensure that similarly
situated Netting Members are subject to
similar requirements with regard to
similar transactions and that only
transactions that present relatively
lower levels of risk are eligible for
appropriately differential treatment.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
FICC has not received or solicited any
written comments relating to this
proposal. If any written comments are
received, they will be publicly filed as
an Exhibit 2 to this filing, as required by
Form 19b–4 and the General
Instructions thereto.
Persons submitting comments are
cautioned that, according to Section IV
(Solicitation of Comments) of the
Exhibit 1A in the General Instructions to
Form 19b–4, the Commission does not
edit personal identifying information
from comment submissions.
Commenters should submit only
information that they wish to make
available publicly, including their
name, email address, and any other
identifying information.
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All prospective commenters should
follow the Commission’s instructions on
how to submit comments, available at
www.sec.gov/regulatory-actions/how-tosubmit-comments. General questions
regarding the rule filing process or
logistical questions regarding this filing
should be directed to the Main Office of
the SEC’s Division of Trading and
Markets at tradingandmarkets@sec.gov
or 202–551–5777.
FICC reserves the right not to respond
to any comments received.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
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–
FICC–2024–007 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to file
number SR–FICC–2024–007. 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
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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 FICC
and on DTCC’s website (https://
dtcc.com/legal/sec-rule-filings.aspx). 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–FICC–2024–007 and
should be submitted on or before April
18, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.80
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–06577 Filed 3–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99840; File No. SR–BX–
2024–011]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Adopt an OTTO
Protocol
March 22, 2024.
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 March 19,
2024, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
80 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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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
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 adopt a
new protocol, ‘‘Ouch to Trade Options’’
or ‘‘OTTO’’ and establish pricing for this
new protocol.3
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
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1. Purpose
BX proposes to offer a new order
entry protocol called OTTO. Today, BX
Participants may enter orders into the
Exchange through the ‘‘Financial
Information eXchange’’ or ‘‘FIX.’’ 4 The
proposed new OTTO protocol is
identical to the OTTO protocol offered
today on 3 Nasdaq affiliated exchanges,
Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq
GEMX, LLC (‘‘GEMX’’) and Nasdaq
MRX, LLC (‘‘MRX’’).
The OTTO protocol is a proprietary
protocol of Nasdaq, Inc. The Exchange
3 The Exchange will withdraw SR–BX–2024–006,
which contains pricing for BX OTTO, on March 19,
2024 and replace it with this rule change.
4 FIX is an interface that allows Participants and
their Sponsored Customers to connect, send, and
receive messages related to orders and auction
orders and responses to and from the Exchange.
Features include the following: (1) execution
messages; (2) order messages; and (3) risk protection
triggers and cancel notifications. In addition, a BX
Participant may elect to utilize FIX to send a
message and PRISM Order, as defined within
Options 3, Section 13, to all BX Participants that
opt in to receive Requests for PRISM requesting that
it submit the sender’s PRISM Order with
responder’s Initiating Order, as defined within
Options 3, Section 13, into the Price Improvement
Auction (‘‘PRISM’’) mechanism, pursuant to
Options 3, Section 13 (‘‘Request for PRISM’’). See
Options 3, Section 7(e)(1)(A).
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continues to innovate and modernize
technology so that it may continue to
compete among options markets. The
ability to continue to innovate with
technology and offer new products to
market participants allows BX to remain
competitive in the options space which
currently has seventeen options markets
and potential new entrants.
OTTO Protocol
As proposed, OTTO would allow
Participants and their Sponsored
Customers 5 to connect, send, and
receive messages related to orders,
auction orders, and auction responses to
the Exchange. OTTO features would
include the following: (1) options
symbol directory messages (e.g.,
underlying and complex instruments);
(2) System 6 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) order messages; (6) risk
protection triggers and cancel
notifications; (7) auction notifications;
(8) auction responses; and (9) post trade
allocation messages. The Exchange
notes that unlike FIX, which offers
routing capability, OTTO does not
permit routing. The Exchange proposes
to include this description of OTTO in
new Options 3, Section 7(e)(1)(B) and
re-letter current ‘‘B’’ as ‘‘C’’.
Only one order protocol is required
for a BX Participant to submit orders
into BX. Only BX Participants may
utilize ports on BX. Any market
participant that sends orders to a BX
Participant would not need to utilize a
port. The BX Participant may send all
orders, proprietary and agency, through
one port to BX. Participants may elect
to obtain multiple ports to organize their
business,7 however only one port is
5 General 2, Section 22 describes Sponsored
Access arrangements.
6 The term ‘‘System’’ or ‘‘Trading System’’ means
the automated system for order execution and trade
reporting owned and operated by BX as the BX
Options market. The BX Options market comprises:
(A) an order execution service that enables
Participants to automatically execute transactions
in option series; and provides Participants with
sufficient monitoring and updating capability to
participate in an automated execution environment;
(B) a trade reporting service that submits ‘‘lockedin’’ trades for clearing to a registered clearing
agency for clearance and settlement; transmits lastsale reports of transactions automatically to the
Options Price Reporting Authority for
dissemination to the public and industry; and
provides participants with monitoring and risk
management capabilities to facilitate participation
in a ‘‘locked-in’’ trading environment; and (C) the
data feeds described in Options 3, Section 23. See
BX Options 1, Section 1(a)(59).
7 For example, a Participant may desire to utilize
multiple FIX or OTTO Ports for accounting
purposes, to measure performance, for regulatory
reasons, segregating order flow among different
trading desks, or other determinations that are
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necessary for a Participant to enter
orders on BX.
Participants may elect to enter their
orders through FIX, OTTO, or both
protocols, although both protocols are
not necessary. Participants may prefer
one protocol as compared to another
protocol, for example, the ability to
route may cause a Participant to utilize
FIX and a Participant that desires to
execute an order locally may prefer
OTTO. Also, the OTTO Port offers lower
latency as compared to the FIX Port,
which may be attractive to Participants
depending on their trading behavior.
Nasdaq believes that the addition of
OTTO will provide BX Participants with
additional choice when submitting
orders to BX.
While the Exchange has no way of
predicting with certainty the amount or
type of OTTO Ports market participants
will in fact purchase, the Exchange
anticipates that some Participants will
subscribe to multiple OTTO Ports in
combination with FIX Ports. The
Exchange notes that Options
Participants may use varying number of
OTTO ports based on their business
needs.
Other Amendments
In connection with offering OTTO,
the Exchange proposes to amend other
rules within Options 3. Each
amendment is described below.
Options 3, Section 7
BX proposes to amend Options 3,
Section 7, Types of Orders and Quote
Protocols. Specifically, BX proposes to
amend Options 3, Section 7 (b)(2) that
describes the Immediate-or-Cancel’’ or
‘‘IOC’’ order. Today, Options 3, Section
7(b)(2)(B) notes that an IOC order may
be entered through FIX or SQF,
provided that an IOC Order entered by
a Market Maker through SQF is not
subject to the Order Price Protection, the
Market Order Spread Protection, or Size
Limitation in Options 3, Section
15(a)(1), (a)(2), and (b)(2), respectively.
The Exchange proposes to add ‘‘OTTO’’
to the list of protocols to note that an
IOC order may also be entered through
OTTO.
BX also proposes to amend the
‘‘DAY’’ order in Options 3, Section
7(b)(3) that currently provides that a
Day order may be entered through FIX.
specific to that Participant. A market participant
may utilize multiple ports in some cases to send
multiple orders through different ports to avoid any
latency or queuing of orders. The Exchange notes
that to the extent that different OTTO Ports are used
to send multiple orders as compared to sending
multiple orders through one OTTO Port the
difference from a latency standpoint would be in
nanoseconds.
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With the addition of OTTO, a Day order
may also be entered through OTTO.
BX also proposes to amend the ‘‘Good
Til Cancelled’’ or ‘‘GTC’’ order which
currently does not specify that a GTC
order may be entered through FIX. GTC
orders would only be able to be entered
through FIX and not OTTO. The
Exchange proposes to amend Options 3,
Section 7(b)(4) to add a sentence to note
that GTC orders may be entered through
FIX.
Options 3, Section 8
BX proposes to amend Options 3,
Section 8, Options Opening Process. BX
proposes to amend Options 3, Section
8(l) that describes the Opening Process
Cancel Timer. The Opening Process
Cancel Timer represents a period of
time since the underlying market has
opened. If an option series has not
opened before the conclusion of the
Opening Process Cancel Timer, a
Participant may elect to have orders
returned by providing written
notification to the Exchange. Today,
these orders include all non-Good Til
Cancelled Orders received over the FIX
protocol. The Exchange proposes to add
the OTTO protocol as well to the rule
text language in that paragraph.
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Options 3, Section 12
The Exchange proposes to amend the
Options 3, Section 12, Crossing Orders.
Specifically, the Exchange proposes to
amend Customer Crossing Orders in
Options 3, Section 12(a) that currently
provides Public Customer-to-Public
Customer Cross Orders are
automatically executed upon entry
provided that the execution is at or
between the best bid and offer on the
Exchange and (i) is not at the same price
as a Public Customer Order on the
Exchange’s limit order book and (ii) will
not trade through the NBBO. Public
Customer-to-Public Customer Cross
Orders must be entered through FIX.
The Exchange proposes to remove the
sentence that provides that Public
Customer-to-Public Customer Cross
Orders must be entered through FIX
because they will be able to be entered
through both FIX and OTTO.
Options 3, Section 17
The Exchange proposes to amend the
Kill Switch at Options 3, Section 17.
The Kill Switch provides Participants
with an optional risk management tool
to promptly cancel and restrict orders.
With the introduction of OTTO, the
Exchange proposes to align its Kill
Switch rule text with MRX’s Kill
Switch.8 The Exchange proposes to note
8 See
MRX Options 3, Section 17.
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in Options 3, Section 17(a) that BX
Participants may initiate a message(s) to
the System to promptly cancel and
restrict their order activity on the
Exchange, as is the case today, as
described in section (a)(1). This
amendment simply rewords the rule
text without a substantive amendment
to the rule text.
The Exchange proposes to renumber
Options 3, Section 17(a)(i) and (ii) as
(a)(1) and (2). Current Options 3,
Section 17(a)(i) states, ‘‘If orders are
cancelled by the BX Participant utilizing
the Kill Switch, it will result in the
cancellation of all orders requested for
the Identifier(s). The BX Participant will
be unable to enter additional orders for
the affected Identifier(s) until re-entry
has been enabled pursuant to section
(a)(ii).’’ The Exchange proposes to
instead provide, ‘‘A BX Participant may
submit a request to the System through
FIX or OTTO to cancel all existing
orders and restrict entry of additional
orders for the requested Identifier(s) on
a user level on the Exchange.’’ With the
addition of OTTO, the Exchange notes
that both FIX and OTTO orders may be
cancelled. Further, today, BX
Participants utilize an interface to send
a message to the Exchange to initiate a
Kill Switch.9 The Exchange notes that in
lieu of the interface, BX Participants
will only be able to initiate a
cancellation of their orders by sending
a mass purge request through FIX or
OTTO. This change will align the Kill
Switch functionality to that of ISE,
GEMX and MRX Options 3, Section 17
and will enable BX Participants to
initiate the Kill Switch more seamlessly
without the need to utilize a separate
interface. When initiating a cancellation
of their orders by sending a mass purge
request through FIX or OTTO,
Participants will be able to submit a Kill
Switch request on a user level only.
This is a change from the ability to
cancel orders on either a user or group
level 10 with the interface. The Exchange
proposes to amend Options 3, Section
17(a) to note this change by removing
the words ‘‘or group’’ and the following
sentence that applies to a group.11
9 See Securities Exchange Act Release No. 76116
(October 8, 2015), 80 FR 62147 (October 15, 2015)
(SR–BX–2015–050) (Order Approving Proposed
Rule Change To Adopt a Kill Switch).
10 A permissible group could include all badges
associated with a Market Maker. Today, a
Participant is able to set up these groups in the
interface to include all or some of the Identifiers
associated with the Participant firm so that a GUI
Kill Switch request could apply to this pre-defined
group.
11 The Exchange proposes to remove this
sentence, ‘‘Permissible groups must reside within a
single broker-dealer’’ as the group option would no
longer exist.
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Finally, the Exchange proposes to
amend proposed Options 3, Section
17(a)(2) to align to MRX’s rule text by
providing ‘‘Once a BX Participant
initiates a Kill Switch pursuant to (a)(1)
above. . .’’ in the first sentence. This
amendment simply rewords the rule
text without a substantive amendment
to the rule text.
Options 3, Section 18
The Exchange proposes to amend
Options 3, Section 18, Detection of Loss
of Communication. The Exchange
proposes to add OTTO to Options 3,
Section 18 as OTTO would also be
subject to this rule. Today, when the
SQF Port or the FIX Port detects the loss
of communication with a Participant’s
Client Application because the
Exchange’s server does not receive a
Heartbeat message for a certain time
period, the Exchange will automatically
logoff the Participant’s affected Client
Application and automatically cancel
all of the Participant’s open quotes
through SQF and open orders through
FIX. Quotes and orders are cancelled
across all Client Applications that are
associated with the same BX Options
Market Maker ID and underlying issues.
At this time, the Exchange proposes to
permit orders entered through OTTO to
be cancelled similar to FIX orders when
the Exchange’s server does not receive
a Heartbeat message for a certain time
period. The Exchange is proposing to
amend Options 3, Section 18 to also
rearrange the rule text to add the word
‘‘Definitions’’ next to ‘‘a’’ and move the
rule text in current ‘‘a’’ to ‘‘b’’ and reletter the other paragraphs accordingly.
Also, the Exchange proposes to define
‘‘Session of Connectivity’’ for purposes
of this rule to mean each time the
Participant connects to the Exchange’s
System. Further, each new connection,
intra-day or otherwise, is a new Session
of Connectivity. The Exchange proposes
to use the new definition throughout
Options 3, Section 18.
Similar to FIX, when the OTTO Port
detects the loss of communication with
a Participant’s Client Application
because the Exchange’s server does not
receive a Heartbeat message for a certain
time period, the Exchange will
automatically logoff the Participant’s
affected Client Application and
automatically cancel all of the
Participant’s open orders through
OTTO. Orders would be cancelled
across all Client Applications that are
associated with the same BX Options
Market Maker ID and underlying issues.
The Exchange proposes to update
Options 3, Section 18 to provide in
proposed Options 3, Section 18(a)(3)
that the OTTO Port is the Exchange’s
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proprietary System component through
which Participants communicate their
orders from the Client Application.
Further, the Exchange would note in
proposed Options 3, Section 18(c) that
when the OTTO Port detects the loss of
communication with a Participant’s
Client Application because the
Exchange’s server does not receive a
Heartbeat message for a certain time
period (‘‘nn’’ seconds), the Exchange
will automatically logoff the
Participant’s affected Client Application
and if the Participant has elected to
have its orders cancelled pursuant to
proposed Section 18(f), automatically
cancel all orders. Proposed Options 3,
Section 18(f) would provide that the
default period of ‘‘nn’’ seconds for
OTTO Ports would be fifteen (15)
seconds for the disconnect and, if
elected, the removal of orders. A
Participant may determine another time
period of ‘‘nn’’ seconds of no technical
connectivity, as required in proposed
paragraph (c), to trigger the disconnect
and, if so elected, the removal of orders
and communicate that time to the
Exchange. The period of ‘‘nn’’ seconds
may be modified to a number between
one hundred (100) milliseconds and
99,999 milliseconds for OTTO Ports
prior to each Session of Connectivity to
the Exchange. This feature may be
disabled for the removal of orders,
however the Participant will be
disconnected.
Proposed Options 3, Section 18(f)(1)
would provide that if the Participant
changes the default number of ‘‘nn’’
seconds, that new setting shall be in
effect throughout the current Session of
Connectivity and will then default back
to fifteen seconds. The Participant may
change the default setting prior to each
Session of Connectivity. Finally, as
proposed in Options 3, Section 18(f)(2),
if the time period is communicated to
the Exchange by calling Exchange
operations, the number of ‘‘nn’’ seconds
selected by the Participant will persist
for each subsequent Session of
Connectivity until the Participant either
contacts Exchange operations by phone
and changes the setting or the
Participant selects another time period
through the Client Application prior to
the next Session of Connectivity. The
trigger for OTTO Ports is event and
Client Application specific. The
automatic cancellation of the BX
Options Market Maker’s open orders for
OTTO Ports entered into the respective
OTTO Ports via a particular Client
Application will neither impact nor
determine the treatment of orders of the
same or other Participants entered into
the OTTO Ports via a separate and
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distinct Client Application. The
proposed amendments for OTTO mirror
the manner in which FIX Ports are
treated when the Exchange’s server does
not receive a Heartbeat message for a
certain time period for a FIX Port.12
Pricing
BX proposes to amend its Pricing
Schedule at Options 7, Section 3, BX
Options Market—Ports and other
Services, to add pricing for the new
OTTO protocol. Specifically, BX
proposes to offer Participants the first
OTTO Port at no cost. The one OTTO
Port would permit BX Participants to
submit orders into BX. Today, only one
account number 13 is necessary to
transact an options business on BX and
account numbers are available to
Participants at no cost. The Exchange
proposes to note in the Pricing Schedule
at Options 7, Section 3 that BX does not
assess a fee for an account number to
provide greater transparency to
Participants.
The Exchange proposes to assess an
OTTO Port Fee of $650 per port, per
month, per account number for each
subsequent port beyond the first port.
This is the same fee assessed for OTTO
Ports on MRX and GEMX.14 Additional
OTTO Ports beyond the first OTTO Port
would be optional for Participants to
utilize as the Exchange is offering the
first OTTO order protocol, per
Participant, at no cost and only one port
is necessary to enter orders into BX.15
Implementation
The Exchange will implement this
rule change on or before December 20,
2025. The Exchange will announce the
operative date to Participants in an
Options Trader Alert.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with section 6(b)
of the Act,16 in general, and furthers the
objectives of section 6(b)(5) of the Act,17
in particular, in that it is designed to
12 The Exchange proposes to update internal
cross-references to accommodate relocated text.
13 An ‘‘account number’’ means a number
assigned to a Participant. Participants may have
more than one account number. See Options 1,
Section 1(a)(2).
14 See MRX Options 7, Section 6 and GEMX
Options 7, Section 6, C. MRX and GEMX do not
offer an OTTO Port at no cost. MRX offers the first
FIX Port at no cost. The Exchange notes that OTTO
Ports on GEMX and MRX are subject to a monthly
cap. On GEMX and MRX, OTTO Ports, CTI Ports,
FIX Ports, FIX Drop Ports and Disaster Recovery
Ports are capped at $7,500 a month.
15 The Exchange proposes to renumber the SQF
Port Fee and SQF Purge Port Fee in Options 7,
Section 3(i).
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(5).
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21621
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.
Additionally, the Exchange believes that
its proposal furthers the objectives of
sections 6(b)(4) and 6(b)(5) of the Act,18
in particular, in that it provides for the
equitable allocation of reasonable dues,
fees, and other charges among members
and issuers and other persons using any
facility, and is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
OTTO Protocol
The Exchange’s proposal to adopt
OTTO is consistent with the Act
because OTTO would provide BX
Participants with an alternative protocol
to submit orders to the Exchange. As
proposed, BX would offer the first
OTTO Port at no cost to submit orders
into BX, which would remove
impediments to and perfect the
mechanism of a free and open market.
While BX Participants may elect to
obtain multiple ports to organize their
business,19 only one order port is
necessary for a Participant to enter
orders on BX. A BX Participant may
send all orders, proprietary and agency,
through one port to BX without
incurring any cost with this proposal. In
the alternative, BX Participants may
elect to obtain multiple ports to organize
their business.20
With the addition of OTTO, a BX
Participant may elect to enter their
orders through FIX, OTTO, or both
protocols, although both protocols are
not necessary. Each BX Participant
would receive one OTTO Port at no
cost, thereby promoting just and
equitable principles of trade. The
Exchange notes that Participants may
prefer one order protocol as compared
to another order protocol, for example,
the ability to route an order may cause
a Participant to utilize FIX and a
Participant that desires to execute an
order locally may utilize OTTO. Also,
the OTTO Port offers lower latency as
compared to the FIX Port, which may be
attractive to Participants depending on
their trading behavior. With this
proposal, BX Participant may organize
18 See
15 U.S.C. 78f(b)(4) and (5).
example, a Participant may desire to utilize
multiple FIX or OTTO Ports for accounting
purposes, to measure performance, for regulatory
reasons or other determinations that are specific to
that Participant.
20 For example, a Participant may desire to utilize
multiple FIX or OTTO Ports for accounting
purposes, to measure performance, for regulatory
reasons or other determinations that are specific to
that Participant.
19 For
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
their business as they chose with the
ability to send orders to BX at no cost.
The proposed new OTTO protocol is
identical to the OTTO protocol offered
today on ISE, GEMX, MRX.
Other Amendments
ddrumheller on DSK120RN23PROD with NOTICES1
In connection with offering OTTO,
the Exchange proposes to amend other
rules within Options 3 to make clear
where the FIX and OTTO protocols may
be utilized. IOC Orders may be entered
through FIX, OTTO or SQF. A Day order
may be entered through FIX or OTTO.
A GTC order may only be entered
through FIX. A Public Customer-toPublic Customer Cross Order may be
entered through FIX or OTTO. Other
processes such the Opening Cancel
Timer would impact FIX and OTTO
equally.
The Exchange’s proposal to amend
the Kill Switch at Options 3, Section 17
to align its rule text in proposed Options
3, Section 17(a) and (a)(2) with MRX’s
Options 3, Section 17 is consistent with
the Act because it does not
substantively amend the functionality
beyond removing the group level cancel
capability. The Exchange’s proposal to
amend proposed Options 3, Section
17(a)(2) to specify that FIX and OTTO
orders may be cancelled is consistent
with the Act as it will make clear that
all orders entered on BX may be purged
through the Kill Switch. Finally,
allowing BX Participants to send a mass
purge request through FIX or OTTO, in
lieu of an interface, is consistent with
Act and the protection of investors and
the general public because it will enable
BX Participants to initiate the Kill
Switch more seamlessly without the
need to utilize a separate interface.
Further, utilizing the order protocols
directly, in lieu of the interface, will
align the Kill Switch functionality to
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that of ISE, GEMX and MRX. When
initiating a cancellation of their orders
by sending a mass purge request
through FIX or OTTO, Participants will
be able to submit a Kill Switch request
on a user level only because the purge
will be specific to a FIX or OTTO user
for these ports.
Finally, the Detection of Loss of
Communication would apply equally to
FIX and OTTO. The Exchange believes
that its proposal is consistent with the
Act and protects investors as the
Exchange is making clear what types of
order types and other mechanisms may
utilize OTTO. Today, BX Participants
utilize FIX to enter their orders. Despite
the fact that OTTO would not be
available for the GTC Time-In-Force
modifier, the Exchange notes that one
OTTO Port is being provided to
Participants at no cost. Today, FIX is the
only manner in which to enter orders
into BX.
Pricing
BX’s proposal to amend its Pricing
Schedule at Options 7, Section 3 will
offer BX Participants the first OTTO
Port at no cost to submit orders into BX.
Only BX Participants may utilize ports
on BX. A Participant can send all
orders, proprietary and agency, through
one port to BX. Only one order entry
protocol is required for BX Participants
to submit orders into BX to meet its
regulatory requirements.21 Additional
ports beyond one port are not required
for a BX Participant to meet its
regulatory obligations. Participants may
elect to obtain multiple account
21 BX Participants have trade-through
requirements under Regulation NMS as well as
broker-dealers’ best execution obligations. See Rule
611 of Regulation NMS; 17 CFR 242.611 and FINRA
Rule 5310.
PO 00000
Frm 00140
Fmt 4703
Sfmt 4703
numbers to organize their business,
however only one account number is
necessary to transact options business
on BX and account numbers are
available to Participants at no cost.
The Exchange’s proposal is
reasonable, equitable and not unfairly
discriminatory as BX is providing
Participants the first OTTO Port to
submit orders at no cost. One OTTO
Port would allow a BX Participant to
meet its regulatory requirements.
Additional OTTO Ports, beyond the first
port which is being offered at no cost,
are not required for a BX Participant to
meet its regulatory obligations. For the
foregoing reasons, the Exchange believes
that it is reasonable to assess no fee for
the first OTTO Port obtained by a BX
Participant as a BX Participant is able to
meet its regulatory requirements with
one OTTO Port. Additionally, the OTTO
protocol is a proprietary protocol of
Nasdaq, Inc. The Exchange continues to
innovate and modernize technology so
that it may continue to compete among
options markets. The ability to continue
to innovate with technology and offer
new products to market participants
allows BX to remain competitive in the
options space which currently has
seventeen options markets and potential
new entrants.
Today, a Member on ISE, GEMX, or
MRX may utilize either a FIX or an
OTTO Port to submit orders to the
respective exchange. In analyzing the
data provided below for ISE, GEMX and
MRX, it is important to note that 30%
of members on ISE subscribe to 1 OTTO
Port and 24% of members subscribe to
1 FIX Port. ISE had a market share of
5.90% in 2023. Below are charts which
display the number of members that
subscribe to OTTO and FIX Ports on
MRX.
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
21623
MRX OTTO Ports
• 1 port
• 2-4ports
• S•lOports
111
Morethan10
MRX FIX Ports
• 1 port
• 2-4 ports
!!
S-10ports
"'Mae than 10
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Fmt 4703
Sfmt 4703
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28MRN1
EN28MR24.015</GPH>
ddrumheller on DSK120RN23PROD with NOTICES1
Below are charts which display the
number of members that subscribe to
OTTO and FIX Ports on GEMX.
21624
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
GEMX OTTO Ports
1111 port
• 2-4 ports
~
5-lOports
"' Morethan 10
GEMX FIX Ports
• 1 port
Ill
2-4ports
• 5-lOports
i!I
More than 10
EN28MR24.018</GPH>
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28MRN1
EN28MR24.017</GPH>
ddrumheller on DSK120RN23PROD with NOTICES1
Below are charts which display the
number of members that subscribe to
OTTO and FIX Ports on ISE.
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
21625
ISE OTTO Ports
• 1 port
• 2-4 ports
• 5-10ports
111
Morethan 10
i
I
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _.,_.____j
ISE FIX Ports
• 1 port
• 2-4 ports
lill
5•10ports
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choosing the additional ports to
accommodate their business model. For
example, a Participant may purchase
one or more OTTO Ports for its market
making business, and then purchase
separate OTTO Ports for proprietary
trading or customer facing businesses,
allowing the firm to send multiple
messages into the Exchange’s System in
parallel rather than sequentially. Some
Participants that provide direct market
access to their customers may also
choose to purchase separate ports for
different clients. While a smaller
Participant may choose to subscribe to
two OTTO Ports, a larger market
participant with a substantial and
diversified U.S. options business may
opt to purchase multiple OTTO Ports to
support both the volume and types of
activity that they conduct on the
Exchange. While the Exchange has no
way of predicting with certainty the
PO 00000
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Fmt 4703
Sfmt 4703
amount of OTTO Ports market
participants will in fact purchase, the
Exchange anticipates that some
Participants will subscribe to multiple
OTTO Ports. The Exchange believes that
the proposed OTTO Port fees beyond
the first port are reasonable because
these ports are not required for a
member to meet its regulatory
requirements. Additionally, the
proposed OTTO Port fee of $650 per
port, per month, per account number is
the same fee charged for OTTO Ports on
MRX and GEMX.22 Unlike BX, GEMX
and MRX cap their OTTO Port.23 The
Exchange believes that it is reasonable
to not cap OTTO Ports because unlike
22 See MRX Options 7, Section 6 and GEMX
Options 7, Section 6, C. MRX and GEMX do not
offer an OTTO Port at no cost. MRX offers the first
FIX Port at no cost.
23 On GEMX and MRX, OTTO Ports, CTI Ports,
FIX Ports, FIX Drop Ports and Disaster Recovery
Ports are capped at $7,500 a month.
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EN28MR24.020</GPH>
Further it is equitable and not unfairly
discriminatory to assess no fee for the
first OTTO Port to a BX Participant as
all BX Participants would be entitled to
the first OTTO Port at no cost. With this
proposal, BX Participants may organize
their business in such a way as to
submit orders to BX at no cost.
The Exchange’s proposal to assess BX
Participants $650 per port, per month,
per account number for OTTO Ports
beyond the first port is reasonable
because these ports are not required for
a member to meet its regulatory
requirements. BX Participants only
require one order entry port to submit
orders to BX. The Exchange is offering
Participants one free OTTO Port.
Participants that subscribe to FIX could
utilize their FIX Port to submit orders
and would not need to utilize an OTTO
Port. Participants electing to subscribe
to more than one OTTO Port are
EN28MR24.019</GPH>
ddrumheller on DSK120RN23PROD with NOTICES1
""More than 10
21626
Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
MRX and GEMX where the OTTO Ports
have existed on those exchanges for a
number of years, the OTTO Port is new
to BX. The Exchange is offering
Participants an alternative to the current
FIX Port with this new proprietary port.
Unlike BX’s FIX Port, the Exchange is
offering the first OTTO port at no cost.
At this time, BX is not capping the port
fee for OTTO, similar to other options
exchanges.24 If Participants elect to
acquire a number of OTTO Ports, the
Exchange may consider capping OTTO
Ports at a later date.
The Exchange’s proposal to assess BX
Participants $650 per port, per month,
per account number for OTTO Ports
beyond the first port is equitable and
not unfairly discriminatory because any
BX Participant may elect to subscribe to
additional OTTO Ports, however BX
Participants only require one order
entry port to submit orders to BX. The
Exchange is offering Participants one
free OTTO Port. Participants that
subscribe to FIX could utilize their FIX
Port to submit orders and would not
need to utilize an OTTO Port. As noted
herein, all BX Participants would be
subject to the same fees for OTTO Ports.
Also, as noted herein, account numbers
are available on BX at no cost. The
Exchange believes that it is equitable
and not unfairly discriminatory to not
cap OTTO Ports because the Exchange
is offering the first OTTO Port at no cost
and, currently, FIX Ports, CTI Ports, FIX
DROP Ports, BX Depth Ports and BX
TOP Ports are capped at $7,500 a
month.
Unlike ISE, GEMX and MRX, BX only
offers its Participants a FIX Port to
submit orders to BX. As noted herein,
the proposed OTTO Port Fee for
additional ports is comparable to GEMX
and MRX, which markets assess an
OTTO Port Fee of $650 per port, per
month, per account number.25 GEMX
and MRX do not offer the first OTTO
Port at no cost, however MRX offers the
first FIX Port at no cost.26 Additionally,
MRX and GEMX cap their OTTO
Ports.27 Cboe offers more than one order
entry port. Cboe port fees 28 are within
the range of the proposed fees. Cboe
does not offer a free order entry port and
24 See note 27 below. Other options exchanges
tier their ports but do not cap them. See notes 29,
30 and 32 below.
25 See GEMX Options 7, Section 6.C and MRX
Options 7, Section 6.
26 See GEMX Options 7, Section 6.C and MRX
Options 7, Section 6.
27 On GEMX and MRX, OTTO Ports, CTI Ports,
FIX Ports, FIX Drop Ports and Disaster Recovery
Ports are capped at $7,500 a month.
28 Cboe assesses a fee of $750 per port up to 5
BOE/FIX Logical Ports, and $800 per port for over
5 BOE/FIX Logical Ports. Cboe does not cap its
ports. See Cboe’s Fees Schedule.
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tiers its BOE and FIX Logical ports so
that each subsequent port fee is higher
than BX’s port fees. Additionally, Cboe
limits usage on each port and assesses
fees for incremental usage 29 thereby
increasing the expense for ports if the
usage is exceeded and potentially
requiring market participants to acquire
additional ports to avoid additional
costs. BOX port fees 30 are within the
range of the proposed fees. While BOX
does not offer an order entry port at no
cost, it tiers its FIX and SAIL port fees
and each subsequent port fee is lower.
MIAX port fees 31 are within the range
of the proposed fees. MIAX Port users
are allocated two (2) Full Service MEI
Ports and two (2) Limited Service MEI
Ports per matching engine to which they
connect.32 NYSE Arca port fees 33 are
within the range of the proposed fees.
For each order/quote entry port utilized,
NYSE Arca Market Makers may utilize,
free of charge, one port dedicated to
quote cancellation or ‘‘quote takedown,’’
which port(s) will not be included in
29 Each Cboe BOE or FIX Logical Port incur the
logical port fee indicated when used to enter up to
70,000 orders per trading day per logical port as
measured on average in a single month. For each
incremental usage of up to 70,000 per day per
logical port will incur an additional logical port fee
of $800 per month. See Cboe’s Fees Schedule.
30 BOX assesses tiered FIX Port Fees as follows:
$500 per port per month for the first FIX Port, $250
per port per month for FIX Ports 2–5 and $150 per
port per month for over 5 FIX Ports. BOX assesses
$1000 per month for all SAIL Ports for Market
Making and $500 per month per port up to 5 ports
for order entry and $150 per month for each
additional port. See BOX’s Fee Schedule.
31 MIAX tiers its FIX Port fees as follows: $550
per month for the 1st FIX Port, $350 per month per
port for the FIX Ports 2 through 5 and $150 per
month for over 5 FIX Ports. MIAX tiers its MEI Port
Fees and assesses fees per number of classes and
as a percentage of National Average Daily Volume.
MEI Port fees range from $5,000 to $20,500 per
month. The applicable fee rate is the lesser of either
the per class basis or percentage of total national
average daily volume measurement. However, if the
Market Maker’s total monthly executed volume
during the relevant month is less than 0.060% of
the total monthly executed volume reported by The
Options Clearing Corporation in the market maker
account type for MIAX-listed option classes for that
month, then the fee will be $14,500 instead of the
fee otherwise applicable. MIAX will assess monthly
MEI Port Fees on Market Makers in each month the
Member has been credentialed to use the MEI Port
in the production environment and has been
assigned to quote in at least one class. See MIAX’s
Fee Schedule.
32 MEI Port Fees include MEI Ports at the Primary,
Secondary and Disaster Recovery data centers.
MIAX Market Makers may request additional
Limited Service MEI Ports for which MIAX will
assess MIAX Market Makers $100 per month per
additional Limited Service MEI Port for each
engine. See MIAX’s Fee Schedule.
33 NYSE Arca assesses a tiered order/quote entry
port fee of $450 for the first 40 ports and $150 per
port per month for the 41 ports or greater. For
purpose of calculating the number of order/quote
entry ports and quote takedown ports, NYSE Arca
aggregates the ports of affiliates. See NYSE Arca
Options Fees and Charges.
PO 00000
Frm 00144
Fmt 4703
Sfmt 4703
the count of order/quote entry ports
utilized.34
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 OTTO protocol is a proprietary
protocol of Nasdaq, Inc. The Exchange
continues to innovate and modernize
technology so that it may continue to
compete among options markets. The
ability to continue to innovate with
technology and offer new products to
market participants allows BX to remain
competitive in the options space which
currently has seventeen options markets
and potential new entrants. If BX were
unable to offer and price new protocols,
it would result in an undue burden on
competition as BX would not have the
ability to innovate and modernize its
technology to compete effectively in the
options space. BX’s ability to offer
OTTO will enable it to compete with
other options markets that provide its
market participants a choice as to the
type of order entry protocols that may
be utilized. BX’s ability to offer and
price new and innovative products and
continue to modernize its technology,
similar to other options markets,
supports intermarket competition.
OTTO Protocol
The Exchange’s proposal to adopt an
OTTO Protocol does not impose an
undue burden on intramarket
competition. Today, all BX Participants
utilize FIX to send orders to BX. The
Exchange would offer each BX
Participant the first OTTO Port at no
cost with this proposal. With the
addition of OTTO Ports, a BX
Participant may elect to enter their
orders through FIX, OTTO, or both
protocols, although both protocols are
not necessary. The Exchange’s proposal
to adopt an OTTO Protocol does not
impose an undue burden on intermarket
competition as other options exchanges
offer multiple protocols today such as
ISE, GEMX and MRX.
Other Amendments
The Exchange’s proposal to amend
other rules within Options 3 to make
clear where the FIX and OTTO
protocols may be utilized does not
impose an undue burden on intramarket
competition as these rules will apply in
34 Any quote takedown port utilized by a NYSE
Arca Market Maker that is in excess of the number
of order/quote entry ports utilized will be counted
and charged as an order/quote entry port. See NYSE
Arca Options Fees and Charges.
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
the same manner to all Participants. The
Exchange’s proposal to amend other
rules within Options 3 to make clear
where the FIX and OTTO protocols may
be utilized does not impose an undue
burden on intermarket competition as
other options exchanges may elect to
utilize their order entry protocols in
different ways.
ddrumheller on DSK120RN23PROD with NOTICES1
Pricing
Nothing in the proposal burdens
intermarket competition because BX’s
proposal to offer the first OTTO Port for
free permits BX to set fees, similar to
other options markets, while continuing
to allow BX Participants to meet their
regulatory obligations. BX’s proposal
would permit BX Participants the ability
to submit orders to BX at no cost
through OTTO. Additional OTTO Ports
are not required for BX Participants to
meet their regulatory obligations. The
proposed port fees are similar to port
fees assessed by other options markets
as noted in this proposal. Further, the
Exchange does not believe that the
proposed rule change would place
certain market participants at the
Exchange at a relative disadvantage
compared to other market participants
or affect the ability of such market
participants to compete. The Exchange
notes that while the manner in which an
order is sent to the Exchange may have
an impact on latency, the difference
from a latency standpoint would be in
nanoseconds, and it would depend on
the manner in which the order is being
sent to the Exchange. A market
participant sending 30 sequential orders
through an OTTO Port may experience
a slight latency of certain nanoseconds
(less than a few nanoseconds) to permit
serialized processing in the port and the
match engine per order in certain cases.
This is compared to a BX participant
who submits 30 orders through multiple
OTTO Ports at the same time. This
distinction exists today on other options
exchanges that offer market participants
the ability to submit order flow in
bulk,35 which results in a larger number
of orders being sent to the exchange’s
match engine in a quicker timeframe as
35 Cboe offers BOE Bulk Logical Ports. See Cboe’s
Fee Schedule. See Securities Exchange Act Release
No. 90333 (November 4, 2020), 85 FR 71666
(November 10, 2020) (SR–CBOE–2020–105). Cboe
amended access and connectivity fees, including
port fees. Specifically, Cboe adopted certain logical
ports to allow for the delivery and/or receipt of
trading messages—i.e., orders, accepts, cancels,
transactions, etc. Cboe established tiered pricing for
BOE/FIX Logical Ports, with the lowest tier starting
at $750 per port, per month for 1 to 5 ports, and
for BOE Bulk Logical Ports with separate tiered
pricing starting at $1,5000 per port, per month for
1 to 5 ports. Cboe also established flat prices for
DROP, Purge Ports, GRP Ports and Multicast
PITCH/Top Spin Server Ports.
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compared to market participants that
utilize a port that does not support bulk
orders. Also, as noted herein, OTTO
Orders do not route and therefore have
a lower latency as compared to orders
sent via a FIX Port. The Exchange notes
that other factors may also contribute to
the time it takes for an order to be
executed. For example, on an exchange
that offers complex orders, such orders
with a stock component, may take
additional time to execute as compared
to a market order. In short, while
latency may play a very small factor in
the quantity of ports that are being
utilized to send an order to the
Exchange, all market participants may
elect how their order is sent to an
exchange. The Exchange notes that there
is no correlation between the number of
orders executed on the Exchange by a
Participant and the number of ports
subscribed to by a Participant. There are
Participants that subscribe to a larger
number of ports that have lower
executed volumes on BX than those
with half of the number of ports. Also,
not all ports subscribed to by a
Participant are active. Further, all
Participants are entitled to obtain
additional OTTO Ports or a mix of
OTTO and FIX Ports. The Exchange is
providing each Participant the first
OTTO Port at no cost. To the extent
Participants elect to utilize different
technologies and connections to the
Exchange, including different numbers
and combinations of ports, the Exchange
believes that the combinations may
result in varying latencies as is the case
on all other options exchanges today.
Finally, the Exchange’s proposal to not
cap OTTO Ports does not create an
undue burden on competition because
the Exchange is offering the first OTTO
Port at no cost and, currently, FIX Ports,
CTI Ports, FIX DROP Ports, BX Depth
Ports and BX TOP Ports are capped at
$7,500 a month.
Nothing in the proposal burdens
intra-market competition because the
Exchange would uniformly assess the
OTTO Port fees to all BX Participants,
as applicable. Further, other exchanges
have increased or added port fees in
recent years. As recently as 2020, Cboe
amended its port fees.36 Specifically,
Cboe adopted certain logical ports to
allow for the delivery and/or receipt of
trading messages—i.e., orders, accepts,
cancels, transactions, etc. Cboe
established tiered pricing for BOE and
FIX logical ports, tiered pricing for BOE
Bulk ports, and flat prices for DROP,
Purge Ports, GRP Ports and Multicast
PITCH/Top Spin Server Ports. Cboe
argued in its fee proposal that the
proposed pricing more closely aligned
its access fees to those of its affiliated
exchanges, and reasonably so, as the
affiliated exchanges offer substantially
similar connectivity and functionality
and are on the same platform that Cboe
migrated to as part of its migration. Cboe
also justified its pricing by stating that,
‘‘. . . the Exchange believes
substitutable products and services are
in fact available to market participants,
including, among other things, other
options exchanges a market participant
may connect to in lieu of the Exchange,
indirect connectivity to the Exchange
via a third-party reseller of connectivity
and/or trading of any options product,
including proprietary products, in the
Over-the-Counter (OTC) markets.’’ 37
Cboe stated in its proposal that,
The rule structure for options exchanges
are also fundamentally different from those
of equities exchanges. In particular, options
market participants are not forced to connect
to (and purchase market data from) all
options exchanges. For example, there are
many order types that are available in the
equities markets that are not utilized in the
options markets, which relate to mid-point
pricing and pegged pricing which require
connection to the SIPs and each of the
equities exchanges in order to properly
execute those orders in compliance with best
execution obligations. Additionally, in the
options markets, the linkage routing and
trade through protection are handled by the
exchanges, not by the individual members.
Thus not connecting to an options exchange
or disconnecting from an options exchange
does not potentially subject a broker-dealer to
violate order protection requirements. Gone
are the days when the retail brokerage firms
(such as Fidelity, Schwab, and eTrade) were
members of the options exchanges—they are
not members of the Exchange or its affiliates,
they do not purchase connectivity to the
Exchange, and they do not purchase market
data from the Exchange. Accordingly, not
only is there not an actual regulatory
requirement to connect to every options
exchange, the Exchange believes there is also
no ‘‘de facto’’ or practical requirement as
well, as further evidenced by the recent
significant reduction in the number of
broker-dealers that are members of all
options exchanges.38
The proposal also referenced the
National Market System Plan Governing
the Consolidated Audit Trail (‘‘CAT
NMS Plan’’),39 wherein the Commission
discussed the existence of competition
in the marketplace generally, and
particularly for exchanges with unique
business models. The Commission
37 Id.
at 71676.
at 71677.
39 See Securities Exchange Act Release No. 86901
(September 9, 2019), 84 FR 48458 (September 13,
2019) (File No. S7–13–19).
38 Id.
36 See Securities Exchange Act Release No. 90333
(November 4, 2020), 85 FR 71666 (November 10,
2020) (SR–CBOE–2020–105).
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
acknowledged that, even if an exchange
were to exit the marketplace due to its
proposed fee-related change, it would
not significantly impact competition in
the market for exchange trading services
because these markets are served by
multiple competitors.40 Further, the
Commission explicitly stated that
‘‘[c]onsequently, demand for these
services in the event of the exit of a
competitor is likely to be swiftly met by
existing competitors.’’ 41 Finally, the
Commission recognized that while some
exchanges may have a unique business
model that is not currently offered by
competitors, a competitor could create
similar business models if demand were
adequate, and if a competitor did not do
so, the Commission believes it would be
likely that new entrants would do so if
the exchange with that unique business
model was otherwise profitable.42 Cboe
concluded that the Exchange is subject
to significant substitution-based
competitive forces in pricing its
connectivity and access fees.43 Cboe
stressed that the proof of competitive
constraints does not depend on showing
that members walked away, or
threatened to walk away, from a product
due to a pricing change. Rather, the very
absence of such negative feedback (in
and of itself, and particularly when
coupled with positive feedback) is
indicative that the proposed fees are, in
fact, reasonable and consistent with the
Exchange being subject to competitive
forces in setting fees.44
MRX recently filed to establish port
fees.45 In SR–MRX–2023–05, MRX
proposed to assess no fee for the first
FIX Port obtained by an MRX Member
and established fees for additional FIX
Ports of $650 per port, per month for
each subsequent port beyond the first
port. MRX noted in SR–MRX–2023–05
that:
ddrumheller on DSK120RN23PROD with NOTICES1
Only MRX Members may utilize ports on
MRX. Any market participant that sends
orders to a Member would not need to utilize
a port. The Member can send all orders,
proprietary and agency, through one port to
MRX. Members may elect to obtain multiple
account numbers to organize their business,
however only one account number and one
port for orders and one port for quotes is
necessary for a Member to trade on MRX. All
other ports offered by MRX are not required
for an MRX Member to meet its regulatory
obligations.
40 Id.
41 Id.
42 Id.
43 Id.
at 71679.
at 71680.
45 See Securities Exchange Act No.
96824(February 7, 2023), 88 FR 8975 (February 10,
2023) (SR–MRX–2023–05) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Amend MRX Options 7, Section 6).
44 Id.
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MRX also established fees for OTTO
Ports, which ports are identical to the
ports being offered on BX, and priced
them the same as the proposed OTTO
fees for BX. MRX assesses an OTTO Port
Fee of $650 per port, per month, per
account number but does not offer the
first OTTO Port at no cost because it
was offering one FIX Port at no cost for
order entry. Unlike BX, MRX caps its
OTTO Port.46 Unlike MRX, where the
OTTO Port has existed on MRX for a
number of years, the OTTO Port is new
to BX. The Exchange is offering
Participants an alternative to the current
FIX Port with this new proprietary port.
Unlike BX’s FIX Port, the Exchange is
offering the first OTTO port at no cost.
At this time, BX is not capping the port
fee for OTTO, similar to other options
exchanges.47 If Participants elect to
acquire a number of OTTO Ports, the
Exchange may consider capping OTTO
Ports at a later date.
If the Commission were to apply a
different standard of review to this
proposal than it applied to other
exchange fee filings, such as the Cboe or
MRX fee filings,48 it would create a
burden on competition such that it
would impair BX’s ability to innovate
new products, modernize its
technology, and compete with other
options 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)(iii) of the Act 49 and
subparagraph (f)(6) of Rule 19b–4
thereunder.50
46 On GEMX and MRX, OTTO Ports, CTI Ports,
FIX Ports, FIX Drop Ports and Disaster Recovery
Ports are capped at $7,500 a month.
47 See note 27 below. Other options exchanges
tier their ports but do not cap them. See notes 29,
30 and 32 below.
48 See notes 30 and 39 above.
49 15 U.S.C. 78s(b)(3)(A)(iii).
50 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
PO 00000
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At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
BX–2024–011 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–2024–011. 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
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
E:\FR\FM\28MRN1.SGM
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
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–2024–011 and should be
submitted on or before April 18, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.51
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–06573 Filed 3–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99846; File No. SR–
NASDAQ–2023–022]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment Nos. 2 and 3, To Create a
New, Non-Trading Limited Underwriter
Membership Class and Impose Related
Requirements for Principal
Underwriting Activity
ddrumheller on DSK120RN23PROD with NOTICES1
March 22, 2024.
I. Introduction
On July 12, 2023, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to create a new, non-trading
limited underwriter membership class
and impose related requirements for
principal underwriting activity in
connection with a company applying for
initial listing on the exchange with a
transaction involving an underwriter.
The proposed rule change was
published for comment in the Federal
Register on July 31, 2023.3
On September 12, 2023, pursuant to
section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
51 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 97985
(July 25, 2023), 88 FR 49508 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
1 15
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20:27 Mar 27, 2024
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determine whether to disapprove the
proposed rule change.5 On September
29, 2023, the Commission instituted
proceedings under section 19(b)(2)(B) of
the Act 6 to determine whether to
approve or disapprove the proposed
rule change.7 On September 29, 2023,
the Exchange filed Amendment No. 1 to
the proposed rule change, which
amended and replaced the proposed
rule change in its entirety.8 On January
22, 2024, the Exchange filed
Amendment No. 2 to the proposed rule
change which amended and replaced
the proposed rule change, as modified
by Amendment No. 1, in its entirety.9
On January 26, 2024, the Commission
extended the time period for approving
or disapproving the proposal to March
27, 2024.10 The proposed rule change,
as modified by Amendment No. 2, was
published for comment in the Federal
5 See Securities Exchange Act Release No. 98366,
88 FR 63999 (Sept. 18, 2023). The Commission
designated October 29, 2023, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 98606,
88 FR 68894 (Oct. 4, 2023).
8 Amendment No. 1 is available at https://
www.sec.goc/comments/sr-nasdaq-2023-022/
srnasdaq2023022-267740-644342.pdf
(‘‘Amendment No. 1’’). In Amendment No. 1, the
Exchange, among other things: (i) removed a
proposed exemption from registration for certain
investment banking representatives associated
solely with Limited Underwriting Members; (ii)
removed proposed rule language from proposed
General 3, Section 1032(a), which provided that any
person shall be eligible to become associated
persons of a Limited Underwriting Member; (iii)
removed General 4 from the list of rules applicable
to Limited Underwriting Members in proposed
General 3, Section 1031(c)(1); and (iv) revised
proposed General 3, Section 1031(c)(2) to clarify
that associated persons of Limited Underwriting
Members shall at all times be properly qualified and
registered under the Financial Industry Regulatory
Authority (‘‘FINRA’’) rules. Further, the Exchange
provided additional reasons it is not proposing to
apply certain existing rules to Limited
Underwriting Members.
9 Amendment No. 2 is available at https://
www.sec.goc/comments/sr-nasdaq-2023-022/
srnasdaq2023022-414859-982462.pdf. In
Amendment No. 2, the Exchange, among other
things: (i) updated the numbering in Listing Rule
5210 to account for recently added rule language
and a related reference to Listing Rule 5210 in
proposed General 3, Section 1031(b); (ii) excluded
General 3, Section 1032 from the rules the Exchange
proposes to apply to Limited Underwriting
Members (see infra note 14 and accompanying text)
under proposed General 3, Section 1031(c)(1); (iii)
added General 9, Section 21 to the rules the
Exchange proposes to apply to Limited
Underwriting Members under proposed General 3,
Section 1031(c)(1); (iv) updated Equity 7, Section 10
to reflect a recent change in the membership fee;
and (v) added a statutory basis for the imposition
of fees. Amendment No. 2 superseded Amendment
No. 1, so the changes made in Amendment No. 1,
unless otherwise amended, are incorporated into
Amendment No. 2. See supra note 8.
10 See Securities Exchange Act Release No. 99433,
89 FR 6559 (Feb. 1, 2024).
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21629
Register on February 23, 2024.11 On
March 18, 2024, the Exchange filed
Amendment No. 3 to the proposed rule
change.12 The Commission has received
no comment letters on the proposed rule
change. The Commission is publishing
this notice to solicit comments on
Amendment No. 3 from interested
persons and is approving the proposed
rule change, as modified by Amendment
Nos. 2 and 3, on an accelerated basis.
II. Description of the Proposed Rule
Change, as Modified by Amendment
Nos. 2 and 3
The Exchange is proposing to amend
its rules to create a new limited
membership class for underwriters that
are FINRA members seeking only to
serve as a principal underwriter for a
company applying to list on the
Exchange (and not seeking access to
transact on the Exchange) and require a
company applying for initial listing in
connection with a transaction involving
an underwriter to have a principal
underwriter that is a Member 13 or a
broker or dealer admitted to limited
underwriting membership in the
Exchange (‘‘Limited Underwriting
Member’’).14 The Exchange states that
11 See Securities Exchange Act Release No. 99557
(Feb. 16, 2024), 89 FR 13779 (‘‘Amendment No. 2’’).
12 Amendment No. 3 is available at https://
www.sec.gov/comments/sr-nasdaq-2023-022/
srnasdaq2023022-447779-1145462.pdf
(‘‘Amendment No. 3’’). In Amendment No. 3, the
Exchange modified the proposal by: (i) adding back
proposed rule language from the original proposal
to General 3, Section 1031(a)(2) about eligibility to
become an associated person and modifying the
title of General 3, Section 1031(a) to reflect that
change; (ii) adding back language from the original
proposal to include General 4 (Registration
Requirements), which includes registration,
qualification, and continuing education
requirements, to the list of rules applicable to
Limited Underwriting Members in General 3,
Section 1031(c)(1); and (iii) excluding General 5,
Rule 9400 from the list of rules applicable to
Limited Underwriting Members in General 3,
Section 1031(c)(1) for the reasons described below.
Amendment No. 3 also updated the purpose section
to reflect the changes described above, made other
clarifying changes, and added a statutory basis
explanation for consistency with section 6(b)(2) of
the Act.
13 The Exchange defines the term ‘‘member’’ or
‘‘Nasdaq Member’’ (hereinafter referred to as
‘‘Member’’) to mean any registered broker or dealer
that has been admitted to membership in the
Exchange. See Nasdaq General 1, Section 1(b)(11).
See also Nasdaq Listing Rule 5005(a)(24) (defining
‘‘Member’’ to mean a broker or dealer admitted to
membership in Nasdaq).
14 See infra note 23. The Exchange states that
‘‘principal underwriter’’ will have the same
definition used in Rule 405 promulgated under the
Securities Act of 1933 (‘‘Securities Act’’), which is
an underwriter in privity of contract with the issuer
of the securities as to which he is underwriter, and
that such definition provides that the term ‘‘issuer’’
in the definition of ‘‘principal underwriter’’ has the
meaning given in Sections 2(4) and 2(11) of the
Securities Act. 17 CFR 230.405. The Exchange
E:\FR\FM\28MRN1.SGM
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28MRN1
]]>Agencies
[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21618-21629]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06573]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99840; File No. SR-BX-2024-011]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt an OTTO
Protocol
March 22, 2024.
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 March 19, 2024, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III, below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to
[[Page 21619]]
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 adopt a new protocol, ``Ouch to Trade
Options'' or ``OTTO'' and establish pricing for this new protocol.\3\
---------------------------------------------------------------------------
\3\ The Exchange will withdraw SR-BX-2024-006, which contains
pricing for BX OTTO, on March 19, 2024 and replace it with this rule
change.
---------------------------------------------------------------------------
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
BX proposes to offer a new order entry protocol called OTTO. Today,
BX Participants may enter orders into the Exchange through the
``Financial Information eXchange'' or ``FIX.'' \4\ The proposed new
OTTO protocol is identical to the OTTO protocol offered today on 3
Nasdaq affiliated exchanges, Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX,
LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'').
---------------------------------------------------------------------------
\4\ FIX is an interface that allows Participants and their
Sponsored Customers to connect, send, and receive messages related
to orders and auction orders and responses to and from the Exchange.
Features include the following: (1) execution messages; (2) order
messages; and (3) risk protection triggers and cancel notifications.
In addition, a BX Participant may elect to utilize FIX to send a
message and PRISM Order, as defined within Options 3, Section 13, to
all BX Participants that opt in to receive Requests for PRISM
requesting that it submit the sender's PRISM Order with responder's
Initiating Order, as defined within Options 3, Section 13, into the
Price Improvement Auction (``PRISM'') mechanism, pursuant to Options
3, Section 13 (``Request for PRISM''). See Options 3, Section
7(e)(1)(A).
---------------------------------------------------------------------------
The OTTO protocol is a proprietary protocol of Nasdaq, Inc. The
Exchange continues to innovate and modernize technology so that it may
continue to compete among options markets. The ability to continue to
innovate with technology and offer new products to market participants
allows BX to remain competitive in the options space which currently
has seventeen options markets and potential new entrants.
OTTO Protocol
As proposed, OTTO would allow Participants and their Sponsored
Customers \5\ to connect, send, and receive messages related to orders,
auction orders, and auction responses to the Exchange. OTTO features
would include the following: (1) options symbol directory messages
(e.g., underlying and complex instruments); (2) System \6\ 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) order messages; (6) risk protection triggers and cancel
notifications; (7) auction notifications; (8) auction responses; and
(9) post trade allocation messages. The Exchange notes that unlike FIX,
which offers routing capability, OTTO does not permit routing. The
Exchange proposes to include this description of OTTO in new Options 3,
Section 7(e)(1)(B) and re-letter current ``B'' as ``C''.
---------------------------------------------------------------------------
\5\ General 2, Section 22 describes Sponsored Access
arrangements.
\6\ The term ``System'' or ``Trading System'' means the
automated system for order execution and trade reporting owned and
operated by BX as the BX Options market. The BX Options market
comprises: (A) an order execution service that enables Participants
to automatically execute transactions in option series; and provides
Participants with sufficient monitoring and updating capability to
participate in an automated execution environment; (B) a trade
reporting service that submits ``locked-in'' trades for clearing to
a registered clearing agency for clearance and settlement; transmits
last-sale reports of transactions automatically to the Options Price
Reporting Authority for dissemination to the public and industry;
and provides participants with monitoring and risk management
capabilities to facilitate participation in a ``locked-in'' trading
environment; and (C) the data feeds described in Options 3, Section
23. See BX Options 1, Section 1(a)(59).
---------------------------------------------------------------------------
Only one order protocol is required for a BX Participant to submit
orders into BX. Only BX Participants may utilize ports on BX. Any
market participant that sends orders to a BX Participant would not need
to utilize a port. The BX Participant may send all orders, proprietary
and agency, through one port to BX. Participants may elect to obtain
multiple ports to organize their business,\7\ however only one port is
necessary for a Participant to enter orders on BX.
---------------------------------------------------------------------------
\7\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons, segregating order flow among different
trading desks, or other determinations that are specific to that
Participant. A market participant may utilize multiple ports in some
cases to send multiple orders through different ports to avoid any
latency or queuing of orders. The Exchange notes that to the extent
that different OTTO Ports are used to send multiple orders as
compared to sending multiple orders through one OTTO Port the
difference from a latency standpoint would be in nanoseconds.
---------------------------------------------------------------------------
Participants may elect to enter their orders through FIX, OTTO, or
both protocols, although both protocols are not necessary. Participants
may prefer one protocol as compared to another protocol, for example,
the ability to route may cause a Participant to utilize FIX and a
Participant that desires to execute an order locally may prefer OTTO.
Also, the OTTO Port offers lower latency as compared to the FIX Port,
which may be attractive to Participants depending on their trading
behavior. Nasdaq believes that the addition of OTTO will provide BX
Participants with additional choice when submitting orders to BX.
While the Exchange has no way of predicting with certainty the
amount or type of OTTO Ports market participants will in fact purchase,
the Exchange anticipates that some Participants will subscribe to
multiple OTTO Ports in combination with FIX Ports. The Exchange notes
that Options Participants may use varying number of OTTO ports based on
their business needs.
Other Amendments
In connection with offering OTTO, the Exchange proposes to amend
other rules within Options 3. Each amendment is described below.
Options 3, Section 7
BX proposes to amend Options 3, Section 7, Types of Orders and
Quote Protocols. Specifically, BX proposes to amend Options 3, Section
7 (b)(2) that describes the Immediate-or-Cancel'' or ``IOC'' order.
Today, Options 3, Section 7(b)(2)(B) notes that an IOC order may be
entered through FIX or SQF, provided that an IOC Order entered by a
Market Maker through SQF is not subject to the Order Price Protection,
the Market Order Spread Protection, or Size Limitation in Options 3,
Section 15(a)(1), (a)(2), and (b)(2), respectively. The Exchange
proposes to add ``OTTO'' to the list of protocols to note that an IOC
order may also be entered through OTTO.
BX also proposes to amend the ``DAY'' order in Options 3, Section
7(b)(3) that currently provides that a Day order may be entered through
FIX.
[[Page 21620]]
With the addition of OTTO, a Day order may also be entered through
OTTO.
BX also proposes to amend the ``Good Til Cancelled'' or ``GTC''
order which currently does not specify that a GTC order may be entered
through FIX. GTC orders would only be able to be entered through FIX
and not OTTO. The Exchange proposes to amend Options 3, Section 7(b)(4)
to add a sentence to note that GTC orders may be entered through FIX.
Options 3, Section 8
BX proposes to amend Options 3, Section 8, Options Opening Process.
BX proposes to amend Options 3, Section 8(l) that describes the Opening
Process Cancel Timer. The Opening Process Cancel Timer represents a
period of time since the underlying market has opened. If an option
series has not opened before the conclusion of the Opening Process
Cancel Timer, a Participant may elect to have orders returned by
providing written notification to the Exchange. Today, these orders
include all non-Good Til Cancelled Orders received over the FIX
protocol. The Exchange proposes to add the OTTO protocol as well to the
rule text language in that paragraph.
Options 3, Section 12
The Exchange proposes to amend the Options 3, Section 12, Crossing
Orders. Specifically, the Exchange proposes to amend Customer Crossing
Orders in Options 3, Section 12(a) that currently provides Public
Customer-to-Public Customer Cross Orders are automatically executed
upon entry provided that the execution is at or between the best bid
and offer on the Exchange and (i) is not at the same price as a Public
Customer Order on the Exchange's limit order book and (ii) will not
trade through the NBBO. Public Customer-to-Public Customer Cross Orders
must be entered through FIX. The Exchange proposes to remove the
sentence that provides that Public Customer-to-Public Customer Cross
Orders must be entered through FIX because they will be able to be
entered through both FIX and OTTO.
Options 3, Section 17
The Exchange proposes to amend the Kill Switch at Options 3,
Section 17. The Kill Switch provides Participants with an optional risk
management tool to promptly cancel and restrict orders. With the
introduction of OTTO, the Exchange proposes to align its Kill Switch
rule text with MRX's Kill Switch.\8\ The Exchange proposes to note in
Options 3, Section 17(a) that BX Participants may initiate a message(s)
to the System to promptly cancel and restrict their order activity on
the Exchange, as is the case today, as described in section (a)(1).
This amendment simply rewords the rule text without a substantive
amendment to the rule text.
---------------------------------------------------------------------------
\8\ See MRX Options 3, Section 17.
---------------------------------------------------------------------------
The Exchange proposes to renumber Options 3, Section 17(a)(i) and
(ii) as (a)(1) and (2). Current Options 3, Section 17(a)(i) states,
``If orders are cancelled by the BX Participant utilizing the Kill
Switch, it will result in the cancellation of all orders requested for
the Identifier(s). The BX Participant will be unable to enter
additional orders for the affected Identifier(s) until re-entry has
been enabled pursuant to section (a)(ii).'' The Exchange proposes to
instead provide, ``A BX Participant may submit a request to the System
through FIX or OTTO to cancel all existing orders and restrict entry of
additional orders for the requested Identifier(s) on a user level on
the Exchange.'' With the addition of OTTO, the Exchange notes that both
FIX and OTTO orders may be cancelled. Further, today, BX Participants
utilize an interface to send a message to the Exchange to initiate a
Kill Switch.\9\ The Exchange notes that in lieu of the interface, BX
Participants will only be able to initiate a cancellation of their
orders by sending a mass purge request through FIX or OTTO. This change
will align the Kill Switch functionality to that of ISE, GEMX and MRX
Options 3, Section 17 and will enable BX Participants to initiate the
Kill Switch more seamlessly without the need to utilize a separate
interface. When initiating a cancellation of their orders by sending a
mass purge request through FIX or OTTO, Participants will be able to
submit a Kill Switch request on a user level only. This is a change
from the ability to cancel orders on either a user or group level \10\
with the interface. The Exchange proposes to amend Options 3, Section
17(a) to note this change by removing the words ``or group'' and the
following sentence that applies to a group.\11\
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\9\ See Securities Exchange Act Release No. 76116 (October 8,
2015), 80 FR 62147 (October 15, 2015) (SR-BX-2015-050) (Order
Approving Proposed Rule Change To Adopt a Kill Switch).
\10\ A permissible group could include all badges associated
with a Market Maker. Today, a Participant is able to set up these
groups in the interface to include all or some of the Identifiers
associated with the Participant firm so that a GUI Kill Switch
request could apply to this pre-defined group.
\11\ The Exchange proposes to remove this sentence,
``Permissible groups must reside within a single broker-dealer'' as
the group option would no longer exist.
---------------------------------------------------------------------------
Finally, the Exchange proposes to amend proposed Options 3, Section
17(a)(2) to align to MRX's rule text by providing ``Once a BX
Participant initiates a Kill Switch pursuant to (a)(1) above. . .'' in
the first sentence. This amendment simply rewords the rule text without
a substantive amendment to the rule text.
Options 3, Section 18
The Exchange proposes to amend Options 3, Section 18, Detection of
Loss of Communication. The Exchange proposes to add OTTO to Options 3,
Section 18 as OTTO would also be subject to this rule. Today, when the
SQF Port or the FIX Port detects the loss of communication with a
Participant's Client Application because the Exchange's server does not
receive a Heartbeat message for a certain time period, the Exchange
will automatically logoff the Participant's affected Client Application
and automatically cancel all of the Participant's open quotes through
SQF and open orders through FIX. Quotes and orders are cancelled across
all Client Applications that are associated with the same BX Options
Market Maker ID and underlying issues.
At this time, the Exchange proposes to permit orders entered
through OTTO to be cancelled similar to FIX orders when the Exchange's
server does not receive a Heartbeat message for a certain time period.
The Exchange is proposing to amend Options 3, Section 18 to also
rearrange the rule text to add the word ``Definitions'' next to ``a''
and move the rule text in current ``a'' to ``b'' and re-letter the
other paragraphs accordingly. Also, the Exchange proposes to define
``Session of Connectivity'' for purposes of this rule to mean each time
the Participant connects to the Exchange's System. Further, each new
connection, intra-day or otherwise, is a new Session of Connectivity.
The Exchange proposes to use the new definition throughout Options 3,
Section 18.
Similar to FIX, when the OTTO Port detects the loss of
communication with a Participant's Client Application because the
Exchange's server does not receive a Heartbeat message for a certain
time period, the Exchange will automatically logoff the Participant's
affected Client Application and automatically cancel all of the
Participant's open orders through OTTO. Orders would be cancelled
across all Client Applications that are associated with the same BX
Options Market Maker ID and underlying issues. The Exchange proposes to
update Options 3, Section 18 to provide in proposed Options 3, Section
18(a)(3) that the OTTO Port is the Exchange's
[[Page 21621]]
proprietary System component through which Participants communicate
their orders from the Client Application. Further, the Exchange would
note in proposed Options 3, Section 18(c) that when the OTTO Port
detects the loss of communication with a Participant's Client
Application because the Exchange's server does not receive a Heartbeat
message for a certain time period (``nn'' seconds), the Exchange will
automatically logoff the Participant's affected Client Application and
if the Participant has elected to have its orders cancelled pursuant to
proposed Section 18(f), automatically cancel all orders. Proposed
Options 3, Section 18(f) would provide that the default period of
``nn'' seconds for OTTO Ports would be fifteen (15) seconds for the
disconnect and, if elected, the removal of orders. A Participant may
determine another time period of ``nn'' seconds of no technical
connectivity, as required in proposed paragraph (c), to trigger the
disconnect and, if so elected, the removal of orders and communicate
that time to the Exchange. The period of ``nn'' seconds may be modified
to a number between one hundred (100) milliseconds and 99,999
milliseconds for OTTO Ports prior to each Session of Connectivity to
the Exchange. This feature may be disabled for the removal of orders,
however the Participant will be disconnected.
Proposed Options 3, Section 18(f)(1) would provide that if the
Participant changes the default number of ``nn'' seconds, that new
setting shall be in effect throughout the current Session of
Connectivity and will then default back to fifteen seconds. The
Participant may change the default setting prior to each Session of
Connectivity. Finally, as proposed in Options 3, Section 18(f)(2), if
the time period is communicated to the Exchange by calling Exchange
operations, the number of ``nn'' seconds selected by the Participant
will persist for each subsequent Session of Connectivity until the
Participant either contacts Exchange operations by phone and changes
the setting or the Participant selects another time period through the
Client Application prior to the next Session of Connectivity. The
trigger for OTTO Ports is event and Client Application specific. The
automatic cancellation of the BX Options Market Maker's open orders for
OTTO Ports entered into the respective OTTO Ports via a particular
Client Application will neither impact nor determine the treatment of
orders of the same or other Participants entered into the OTTO Ports
via a separate and distinct Client Application. The proposed amendments
for OTTO mirror the manner in which FIX Ports are treated when the
Exchange's server does not receive a Heartbeat message for a certain
time period for a FIX Port.\12\
---------------------------------------------------------------------------
\12\ The Exchange proposes to update internal cross-references
to accommodate relocated text.
---------------------------------------------------------------------------
Pricing
BX proposes to amend its Pricing Schedule at Options 7, Section 3,
BX Options Market--Ports and other Services, to add pricing for the new
OTTO protocol. Specifically, BX proposes to offer Participants the
first OTTO Port at no cost. The one OTTO Port would permit BX
Participants to submit orders into BX. Today, only one account number
\13\ is necessary to transact an options business on BX and account
numbers are available to Participants at no cost. The Exchange proposes
to note in the Pricing Schedule at Options 7, Section 3 that BX does
not assess a fee for an account number to provide greater transparency
to Participants.
---------------------------------------------------------------------------
\13\ An ``account number'' means a number assigned to a
Participant. Participants may have more than one account number. See
Options 1, Section 1(a)(2).
---------------------------------------------------------------------------
The Exchange proposes to assess an OTTO Port Fee of $650 per port,
per month, per account number for each subsequent port beyond the first
port. This is the same fee assessed for OTTO Ports on MRX and GEMX.\14\
Additional OTTO Ports beyond the first OTTO Port would be optional for
Participants to utilize as the Exchange is offering the first OTTO
order protocol, per Participant, at no cost and only one port is
necessary to enter orders into BX.\15\
---------------------------------------------------------------------------
\14\ See MRX Options 7, Section 6 and GEMX Options 7, Section 6,
C. MRX and GEMX do not offer an OTTO Port at no cost. MRX offers the
first FIX Port at no cost. The Exchange notes that OTTO Ports on
GEMX and MRX are subject to a monthly cap. On GEMX and MRX, OTTO
Ports, CTI Ports, FIX Ports, FIX Drop Ports and Disaster Recovery
Ports are capped at $7,500 a month.
\15\ The Exchange proposes to renumber the SQF Port Fee and SQF
Purge Port Fee in Options 7, Section 3(i).
---------------------------------------------------------------------------
Implementation
The Exchange will implement this rule change on or before December
20, 2025. The Exchange will announce the operative date to Participants
in an Options Trader Alert.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\16\ in general, and furthers the objectives of section
6(b)(5) of the Act,\17\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. Additionally, the Exchange believes that its proposal
furthers the objectives of sections 6(b)(4) and 6(b)(5) of the Act,\18\
in particular, in that it provides for the equitable allocation of
reasonable dues, fees, and other charges among members and issuers and
other persons using any facility, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ See 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
OTTO Protocol
The Exchange's proposal to adopt OTTO is consistent with the Act
because OTTO would provide BX Participants with an alternative protocol
to submit orders to the Exchange. As proposed, BX would offer the first
OTTO Port at no cost to submit orders into BX, which would remove
impediments to and perfect the mechanism of a free and open market.
While BX Participants may elect to obtain multiple ports to organize
their business,\19\ only one order port is necessary for a Participant
to enter orders on BX. A BX Participant may send all orders,
proprietary and agency, through one port to BX without incurring any
cost with this proposal. In the alternative, BX Participants may elect
to obtain multiple ports to organize their business.\20\
---------------------------------------------------------------------------
\19\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that Participant.
\20\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that Participant.
---------------------------------------------------------------------------
With the addition of OTTO, a BX Participant may elect to enter
their orders through FIX, OTTO, or both protocols, although both
protocols are not necessary. Each BX Participant would receive one OTTO
Port at no cost, thereby promoting just and equitable principles of
trade. The Exchange notes that Participants may prefer one order
protocol as compared to another order protocol, for example, the
ability to route an order may cause a Participant to utilize FIX and a
Participant that desires to execute an order locally may utilize OTTO.
Also, the OTTO Port offers lower latency as compared to the FIX Port,
which may be attractive to Participants depending on their trading
behavior. With this proposal, BX Participant may organize
[[Page 21622]]
their business as they chose with the ability to send orders to BX at
no cost. The proposed new OTTO protocol is identical to the OTTO
protocol offered today on ISE, GEMX, MRX.
Other Amendments
In connection with offering OTTO, the Exchange proposes to amend
other rules within Options 3 to make clear where the FIX and OTTO
protocols may be utilized. IOC Orders may be entered through FIX, OTTO
or SQF. A Day order may be entered through FIX or OTTO. A GTC order may
only be entered through FIX. A Public Customer-to-Public Customer Cross
Order may be entered through FIX or OTTO. Other processes such the
Opening Cancel Timer would impact FIX and OTTO equally.
The Exchange's proposal to amend the Kill Switch at Options 3,
Section 17 to align its rule text in proposed Options 3, Section 17(a)
and (a)(2) with MRX's Options 3, Section 17 is consistent with the Act
because it does not substantively amend the functionality beyond
removing the group level cancel capability. The Exchange's proposal to
amend proposed Options 3, Section 17(a)(2) to specify that FIX and OTTO
orders may be cancelled is consistent with the Act as it will make
clear that all orders entered on BX may be purged through the Kill
Switch. Finally, allowing BX Participants to send a mass purge request
through FIX or OTTO, in lieu of an interface, is consistent with Act
and the protection of investors and the general public because it will
enable BX Participants to initiate the Kill Switch more seamlessly
without the need to utilize a separate interface. Further, utilizing
the order protocols directly, in lieu of the interface, will align the
Kill Switch functionality to that of ISE, GEMX and MRX. When initiating
a cancellation of their orders by sending a mass purge request through
FIX or OTTO, Participants will be able to submit a Kill Switch request
on a user level only because the purge will be specific to a FIX or
OTTO user for these ports.
Finally, the Detection of Loss of Communication would apply equally
to FIX and OTTO. The Exchange believes that its proposal is consistent
with the Act and protects investors as the Exchange is making clear
what types of order types and other mechanisms may utilize OTTO. Today,
BX Participants utilize FIX to enter their orders. Despite the fact
that OTTO would not be available for the GTC Time-In-Force modifier,
the Exchange notes that one OTTO Port is being provided to Participants
at no cost. Today, FIX is the only manner in which to enter orders into
BX.
Pricing
BX's proposal to amend its Pricing Schedule at Options 7, Section 3
will offer BX Participants the first OTTO Port at no cost to submit
orders into BX. Only BX Participants may utilize ports on BX. A
Participant can send all orders, proprietary and agency, through one
port to BX. Only one order entry protocol is required for BX
Participants to submit orders into BX to meet its regulatory
requirements.\21\ Additional ports beyond one port are not required for
a BX Participant to meet its regulatory obligations. Participants may
elect to obtain multiple account numbers to organize their business,
however only one account number is necessary to transact options
business on BX and account numbers are available to Participants at no
cost.
---------------------------------------------------------------------------
\21\ BX Participants have trade-through requirements under
Regulation NMS as well as broker-dealers' best execution
obligations. See Rule 611 of Regulation NMS; 17 CFR 242.611 and
FINRA Rule 5310.
---------------------------------------------------------------------------
The Exchange's proposal is reasonable, equitable and not unfairly
discriminatory as BX is providing Participants the first OTTO Port to
submit orders at no cost. One OTTO Port would allow a BX Participant to
meet its regulatory requirements. Additional OTTO Ports, beyond the
first port which is being offered at no cost, are not required for a BX
Participant to meet its regulatory obligations. For the foregoing
reasons, the Exchange believes that it is reasonable to assess no fee
for the first OTTO Port obtained by a BX Participant as a BX
Participant is able to meet its regulatory requirements with one OTTO
Port. Additionally, the OTTO protocol is a proprietary protocol of
Nasdaq, Inc. The Exchange continues to innovate and modernize
technology so that it may continue to compete among options markets.
The ability to continue to innovate with technology and offer new
products to market participants allows BX to remain competitive in the
options space which currently has seventeen options markets and
potential new entrants.
Today, a Member on ISE, GEMX, or MRX may utilize either a FIX or an
OTTO Port to submit orders to the respective exchange. In analyzing the
data provided below for ISE, GEMX and MRX, it is important to note that
30% of members on ISE subscribe to 1 OTTO Port and 24% of members
subscribe to 1 FIX Port. ISE had a market share of 5.90% in 2023. Below
are charts which display the number of members that subscribe to OTTO
and FIX Ports on MRX.
[[Page 21623]]
[GRAPHIC] [TIFF OMITTED] TN28MR24.015
[GRAPHIC] [TIFF OMITTED] TN28MR24.016
Below are charts which display the number of members that subscribe to
OTTO and FIX Ports on GEMX.
[[Page 21624]]
[GRAPHIC] [TIFF OMITTED] TN28MR24.017
[GRAPHIC] [TIFF OMITTED] TN28MR24.018
Below are charts which display the number of members that subscribe to
OTTO and FIX Ports on ISE.
[[Page 21625]]
[GRAPHIC] [TIFF OMITTED] TN28MR24.019
[GRAPHIC] [TIFF OMITTED] TN28MR24.020
Further it is equitable and not unfairly discriminatory to assess
no fee for the first OTTO Port to a BX Participant as all BX
Participants would be entitled to the first OTTO Port at no cost. With
this proposal, BX Participants may organize their business in such a
way as to submit orders to BX at no cost.
The Exchange's proposal to assess BX Participants $650 per port,
per month, per account number for OTTO Ports beyond the first port is
reasonable because these ports are not required for a member to meet
its regulatory requirements. BX Participants only require one order
entry port to submit orders to BX. The Exchange is offering
Participants one free OTTO Port. Participants that subscribe to FIX
could utilize their FIX Port to submit orders and would not need to
utilize an OTTO Port. Participants electing to subscribe to more than
one OTTO Port are choosing the additional ports to accommodate their
business model. For example, a Participant may purchase one or more
OTTO Ports for its market making business, and then purchase separate
OTTO Ports for proprietary trading or customer facing businesses,
allowing the firm to send multiple messages into the Exchange's System
in parallel rather than sequentially. Some Participants that provide
direct market access to their customers may also choose to purchase
separate ports for different clients. While a smaller Participant may
choose to subscribe to two OTTO Ports, a larger market participant with
a substantial and diversified U.S. options business may opt to purchase
multiple OTTO Ports to support both the volume and types of activity
that they conduct on the Exchange. While the Exchange has no way of
predicting with certainty the amount of OTTO Ports market participants
will in fact purchase, the Exchange anticipates that some Participants
will subscribe to multiple OTTO Ports. The Exchange believes that the
proposed OTTO Port fees beyond the first port are reasonable because
these ports are not required for a member to meet its regulatory
requirements. Additionally, the proposed OTTO Port fee of $650 per
port, per month, per account number is the same fee charged for OTTO
Ports on MRX and GEMX.\22\ Unlike BX, GEMX and MRX cap their OTTO
Port.\23\ The Exchange believes that it is reasonable to not cap OTTO
Ports because unlike
[[Page 21626]]
MRX and GEMX where the OTTO Ports have existed on those exchanges for a
number of years, the OTTO Port is new to BX. The Exchange is offering
Participants an alternative to the current FIX Port with this new
proprietary port. Unlike BX's FIX Port, the Exchange is offering the
first OTTO port at no cost. At this time, BX is not capping the port
fee for OTTO, similar to other options exchanges.\24\ If Participants
elect to acquire a number of OTTO Ports, the Exchange may consider
capping OTTO Ports at a later date.
---------------------------------------------------------------------------
\22\ See MRX Options 7, Section 6 and GEMX Options 7, Section 6,
C. MRX and GEMX do not offer an OTTO Port at no cost. MRX offers the
first FIX Port at no cost.
\23\ On GEMX and MRX, OTTO Ports, CTI Ports, FIX Ports, FIX Drop
Ports and Disaster Recovery Ports are capped at $7,500 a month.
\24\ See note 27 below. Other options exchanges tier their ports
but do not cap them. See notes 29, 30 and 32 below.
---------------------------------------------------------------------------
The Exchange's proposal to assess BX Participants $650 per port,
per month, per account number for OTTO Ports beyond the first port is
equitable and not unfairly discriminatory because any BX Participant
may elect to subscribe to additional OTTO Ports, however BX
Participants only require one order entry port to submit orders to BX.
The Exchange is offering Participants one free OTTO Port. Participants
that subscribe to FIX could utilize their FIX Port to submit orders and
would not need to utilize an OTTO Port. As noted herein, all BX
Participants would be subject to the same fees for OTTO Ports. Also, as
noted herein, account numbers are available on BX at no cost. The
Exchange believes that it is equitable and not unfairly discriminatory
to not cap OTTO Ports because the Exchange is offering the first OTTO
Port at no cost and, currently, FIX Ports, CTI Ports, FIX DROP Ports,
BX Depth Ports and BX TOP Ports are capped at $7,500 a month.
Unlike ISE, GEMX and MRX, BX only offers its Participants a FIX
Port to submit orders to BX. As noted herein, the proposed OTTO Port
Fee for additional ports is comparable to GEMX and MRX, which markets
assess an OTTO Port Fee of $650 per port, per month, per account
number.\25\ GEMX and MRX do not offer the first OTTO Port at no cost,
however MRX offers the first FIX Port at no cost.\26\ Additionally, MRX
and GEMX cap their OTTO Ports.\27\ Cboe offers more than one order
entry port. Cboe port fees \28\ are within the range of the proposed
fees. Cboe does not offer a free order entry port and tiers its BOE and
FIX Logical ports so that each subsequent port fee is higher than BX's
port fees. Additionally, Cboe limits usage on each port and assesses
fees for incremental usage \29\ thereby increasing the expense for
ports if the usage is exceeded and potentially requiring market
participants to acquire additional ports to avoid additional costs. BOX
port fees \30\ are within the range of the proposed fees. While BOX
does not offer an order entry port at no cost, it tiers its FIX and
SAIL port fees and each subsequent port fee is lower. MIAX port fees
\31\ are within the range of the proposed fees. MIAX Port users are
allocated two (2) Full Service MEI Ports and two (2) Limited Service
MEI Ports per matching engine to which they connect.\32\ NYSE Arca port
fees \33\ are within the range of the proposed fees. For each order/
quote entry port utilized, NYSE Arca Market Makers may utilize, free of
charge, one port dedicated to quote cancellation or ``quote takedown,''
which port(s) will not be included in the count of order/quote entry
ports utilized.\34\
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\25\ See GEMX Options 7, Section 6.C and MRX Options 7, Section
6.
\26\ See GEMX Options 7, Section 6.C and MRX Options 7, Section
6.
\27\ On GEMX and MRX, OTTO Ports, CTI Ports, FIX Ports, FIX Drop
Ports and Disaster Recovery Ports are capped at $7,500 a month.
\28\ Cboe assesses a fee of $750 per port up to 5 BOE/FIX
Logical Ports, and $800 per port for over 5 BOE/FIX Logical Ports.
Cboe does not cap its ports. See Cboe's Fees Schedule.
\29\ Each Cboe BOE or FIX Logical Port incur the logical port
fee indicated when used to enter up to 70,000 orders per trading day
per logical port as measured on average in a single month. For each
incremental usage of up to 70,000 per day per logical port will
incur an additional logical port fee of $800 per month. See Cboe's
Fees Schedule.
\30\ BOX assesses tiered FIX Port Fees as follows: $500 per port
per month for the first FIX Port, $250 per port per month for FIX
Ports 2-5 and $150 per port per month for over 5 FIX Ports. BOX
assesses $1000 per month for all SAIL Ports for Market Making and
$500 per month per port up to 5 ports for order entry and $150 per
month for each additional port. See BOX's Fee Schedule.
\31\ MIAX tiers its FIX Port fees as follows: $550 per month for
the 1st FIX Port, $350 per month per port for the FIX Ports 2
through 5 and $150 per month for over 5 FIX Ports. MIAX tiers its
MEI Port Fees and assesses fees per number of classes and as a
percentage of National Average Daily Volume. MEI Port fees range
from $5,000 to $20,500 per month. The applicable fee rate is the
lesser of either the per class basis or percentage of total national
average daily volume measurement. However, if the Market Maker's
total monthly executed volume during the relevant month is less than
0.060% of the total monthly executed volume reported by The Options
Clearing Corporation in the market maker account type for MIAX-
listed option classes for that month, then the fee will be $14,500
instead of the fee otherwise applicable. MIAX will assess monthly
MEI Port Fees on Market Makers in each month the Member has been
credentialed to use the MEI Port in the production environment and
has been assigned to quote in at least one class. See MIAX's Fee
Schedule.
\32\ MEI Port Fees include MEI Ports at the Primary, Secondary
and Disaster Recovery data centers. MIAX Market Makers may request
additional Limited Service MEI Ports for which MIAX will assess MIAX
Market Makers $100 per month per additional Limited Service MEI Port
for each engine. See MIAX's Fee Schedule.
\33\ NYSE Arca assesses a tiered order/quote entry port fee of
$450 for the first 40 ports and $150 per port per month for the 41
ports or greater. For purpose of calculating the number of order/
quote entry ports and quote takedown ports, NYSE Arca aggregates the
ports of affiliates. See NYSE Arca Options Fees and Charges.
\34\ Any quote takedown port utilized by a NYSE Arca Market
Maker that is in excess of the number of order/quote entry ports
utilized will be counted and charged as an order/quote entry port.
See NYSE Arca Options Fees and Charges.
---------------------------------------------------------------------------
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 OTTO protocol is a proprietary protocol of Nasdaq, Inc. The
Exchange continues to innovate and modernize technology so that it may
continue to compete among options markets. The ability to continue to
innovate with technology and offer new products to market participants
allows BX to remain competitive in the options space which currently
has seventeen options markets and potential new entrants. If BX were
unable to offer and price new protocols, it would result in an undue
burden on competition as BX would not have the ability to innovate and
modernize its technology to compete effectively in the options space.
BX's ability to offer OTTO will enable it to compete with other options
markets that provide its market participants a choice as to the type of
order entry protocols that may be utilized. BX's ability to offer and
price new and innovative products and continue to modernize its
technology, similar to other options markets, supports intermarket
competition.
OTTO Protocol
The Exchange's proposal to adopt an OTTO Protocol does not impose
an undue burden on intramarket competition. Today, all BX Participants
utilize FIX to send orders to BX. The Exchange would offer each BX
Participant the first OTTO Port at no cost with this proposal. With the
addition of OTTO Ports, a BX Participant may elect to enter their
orders through FIX, OTTO, or both protocols, although both protocols
are not necessary. The Exchange's proposal to adopt an OTTO Protocol
does not impose an undue burden on intermarket competition as other
options exchanges offer multiple protocols today such as ISE, GEMX and
MRX.
Other Amendments
The Exchange's proposal to amend other rules within Options 3 to
make clear where the FIX and OTTO protocols may be utilized does not
impose an undue burden on intramarket competition as these rules will
apply in
[[Page 21627]]
the same manner to all Participants. The Exchange's proposal to amend
other rules within Options 3 to make clear where the FIX and OTTO
protocols may be utilized does not impose an undue burden on
intermarket competition as other options exchanges may elect to utilize
their order entry protocols in different ways.
Pricing
Nothing in the proposal burdens intermarket competition because
BX's proposal to offer the first OTTO Port for free permits BX to set
fees, similar to other options markets, while continuing to allow BX
Participants to meet their regulatory obligations. BX's proposal would
permit BX Participants the ability to submit orders to BX at no cost
through OTTO. Additional OTTO Ports are not required for BX
Participants to meet their regulatory obligations. The proposed port
fees are similar to port fees assessed by other options markets as
noted in this proposal. Further, the Exchange does not believe that the
proposed rule change would place certain market participants at the
Exchange at a relative disadvantage compared to other market
participants or affect the ability of such market participants to
compete. The Exchange notes that while the manner in which an order is
sent to the Exchange may have an impact on latency, the difference from
a latency standpoint would be in nanoseconds, and it would depend on
the manner in which the order is being sent to the Exchange. A market
participant sending 30 sequential orders through an OTTO Port may
experience a slight latency of certain nanoseconds (less than a few
nanoseconds) to permit serialized processing in the port and the match
engine per order in certain cases. This is compared to a BX participant
who submits 30 orders through multiple OTTO Ports at the same time.
This distinction exists today on other options exchanges that offer
market participants the ability to submit order flow in bulk,\35\ which
results in a larger number of orders being sent to the exchange's match
engine in a quicker timeframe as compared to market participants that
utilize a port that does not support bulk orders. Also, as noted
herein, OTTO Orders do not route and therefore have a lower latency as
compared to orders sent via a FIX Port. The Exchange notes that other
factors may also contribute to the time it takes for an order to be
executed. For example, on an exchange that offers complex orders, such
orders with a stock component, may take additional time to execute as
compared to a market order. In short, while latency may play a very
small factor in the quantity of ports that are being utilized to send
an order to the Exchange, all market participants may elect how their
order is sent to an exchange. The Exchange notes that there is no
correlation between the number of orders executed on the Exchange by a
Participant and the number of ports subscribed to by a Participant.
There are Participants that subscribe to a larger number of ports that
have lower executed volumes on BX than those with half of the number of
ports. Also, not all ports subscribed to by a Participant are active.
Further, all Participants are entitled to obtain additional OTTO Ports
or a mix of OTTO and FIX Ports. The Exchange is providing each
Participant the first OTTO Port at no cost. To the extent Participants
elect to utilize different technologies and connections to the
Exchange, including different numbers and combinations of ports, the
Exchange believes that the combinations may result in varying latencies
as is the case on all other options exchanges today. Finally, the
Exchange's proposal to not cap OTTO Ports does not create an undue
burden on competition because the Exchange is offering the first OTTO
Port at no cost and, currently, FIX Ports, CTI Ports, FIX DROP Ports,
BX Depth Ports and BX TOP Ports are capped at $7,500 a month.
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\35\ Cboe offers BOE Bulk Logical Ports. See Cboe's Fee
Schedule. See Securities Exchange Act Release No. 90333 (November 4,
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105). Cboe
amended access and connectivity fees, including port fees.
Specifically, Cboe adopted certain logical ports to allow for the
delivery and/or receipt of trading messages--i.e., orders, accepts,
cancels, transactions, etc. Cboe established tiered pricing for BOE/
FIX Logical Ports, with the lowest tier starting at $750 per port,
per month for 1 to 5 ports, and for BOE Bulk Logical Ports with
separate tiered pricing starting at $1,5000 per port, per month for
1 to 5 ports. Cboe also established flat prices for DROP, Purge
Ports, GRP Ports and Multicast PITCH/Top Spin Server Ports.
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Nothing in the proposal burdens intra-market competition because
the Exchange would uniformly assess the OTTO Port fees to all BX
Participants, as applicable. Further, other exchanges have increased or
added port fees in recent years. As recently as 2020, Cboe amended its
port fees.\36\ Specifically, Cboe adopted certain logical ports to
allow for the delivery and/or receipt of trading messages--i.e.,
orders, accepts, cancels, transactions, etc. Cboe established tiered
pricing for BOE and FIX logical ports, tiered pricing for BOE Bulk
ports, and flat prices for DROP, Purge Ports, GRP Ports and Multicast
PITCH/Top Spin Server Ports. Cboe argued in its fee proposal that the
proposed pricing more closely aligned its access fees to those of its
affiliated exchanges, and reasonably so, as the affiliated exchanges
offer substantially similar connectivity and functionality and are on
the same platform that Cboe migrated to as part of its migration. Cboe
also justified its pricing by stating that, ``. . . the Exchange
believes substitutable products and services are in fact available to
market participants, including, among other things, other options
exchanges a market participant may connect to in lieu of the Exchange,
indirect connectivity to the Exchange via a third-party reseller of
connectivity and/or trading of any options product, including
proprietary products, in the Over-the-Counter (OTC) markets.'' \37\
Cboe stated in its proposal that,
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\36\ See Securities Exchange Act Release No. 90333 (November 4,
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105).
\37\ Id. at 71676.
The rule structure for options exchanges are also fundamentally
different from those of equities exchanges. In particular, options
market participants are not forced to connect to (and purchase
market data from) all options exchanges. For example, there are many
order types that are available in the equities markets that are not
utilized in the options markets, which relate to mid-point pricing
and pegged pricing which require connection to the SIPs and each of
the equities exchanges in order to properly execute those orders in
compliance with best execution obligations. Additionally, in the
options markets, the linkage routing and trade through protection
are handled by the exchanges, not by the individual members. Thus
not connecting to an options exchange or disconnecting from an
options exchange does not potentially subject a broker-dealer to
violate order protection requirements. Gone are the days when the
retail brokerage firms (such as Fidelity, Schwab, and eTrade) were
members of the options exchanges--they are not members of the
Exchange or its affiliates, they do not purchase connectivity to the
Exchange, and they do not purchase market data from the Exchange.
Accordingly, not only is there not an actual regulatory requirement
to connect to every options exchange, the Exchange believes there is
also no ``de facto'' or practical requirement as well, as further
evidenced by the recent significant reduction in the number of
broker-dealers that are members of all options exchanges.\38\
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\38\ Id. at 71677.
The proposal also referenced the National Market System Plan
Governing the Consolidated Audit Trail (``CAT NMS Plan''),\39\ wherein
the Commission discussed the existence of competition in the
marketplace generally, and particularly for exchanges with unique
business models. The Commission
[[Page 21628]]
acknowledged that, even if an exchange were to exit the marketplace due
to its proposed fee-related change, it would not significantly impact
competition in the market for exchange trading services because these
markets are served by multiple competitors.\40\ Further, the Commission
explicitly stated that ``[c]onsequently, demand for these services in
the event of the exit of a competitor is likely to be swiftly met by
existing competitors.'' \41\ Finally, the Commission recognized that
while some exchanges may have a unique business model that is not
currently offered by competitors, a competitor could create similar
business models if demand were adequate, and if a competitor did not do
so, the Commission believes it would be likely that new entrants would
do so if the exchange with that unique business model was otherwise
profitable.\42\ Cboe concluded that the Exchange is subject to
significant substitution-based competitive forces in pricing its
connectivity and access fees.\43\ Cboe stressed that the proof of
competitive constraints does not depend on showing that members walked
away, or threatened to walk away, from a product due to a pricing
change. Rather, the very absence of such negative feedback (in and of
itself, and particularly when coupled with positive feedback) is
indicative that the proposed fees are, in fact, reasonable and
consistent with the Exchange being subject to competitive forces in
setting fees.\44\
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\39\ See Securities Exchange Act Release No. 86901 (September 9,
2019), 84 FR 48458 (September 13, 2019) (File No. S7-13-19).
\40\ Id.
\41\ Id.
\42\ Id.
\43\ Id. at 71679.
\44\ Id. at 71680.
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MRX recently filed to establish port fees.\45\ In SR-MRX-2023-05,
MRX proposed to assess no fee for the first FIX Port obtained by an MRX
Member and established fees for additional FIX Ports of $650 per port,
per month for each subsequent port beyond the first port. MRX noted in
SR-MRX-2023-05 that:
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\45\ See Securities Exchange Act No. 96824(February 7, 2023), 88
FR 8975 (February 10, 2023) (SR-MRX-2023-05) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend MRX Options
7, Section 6).
Only MRX Members may utilize ports on MRX. Any market
participant that sends orders to a Member would not need to utilize
a port. The Member can send all orders, proprietary and agency,
through one port to MRX. Members may elect to obtain multiple
account numbers to organize their business, however only one account
number and one port for orders and one port for quotes is necessary
for a Member to trade on MRX. All other ports offered by MRX are not
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required for an MRX Member to meet its regulatory obligations.
MRX also established fees for OTTO Ports, which ports are identical
to the ports being offered on BX, and priced them the same as the
proposed OTTO fees for BX. MRX assesses an OTTO Port Fee of $650 per
port, per month, per account number but does not offer the first OTTO
Port at no cost because it was offering one FIX Port at no cost for
order entry. Unlike BX, MRX caps its OTTO Port.\46\ Unlike MRX, where
the OTTO Port has existed on MRX for a number of years, the OTTO Port
is new to BX. The Exchange is offering Participants an alternative to
the current FIX Port with this new proprietary port. Unlike BX's FIX
Port, the Exchange is offering the first OTTO port at no cost. At this
time, BX is not capping the port fee for OTTO, similar to other options
exchanges.\47\ If Participants elect to acquire a number of OTTO Ports,
the Exchange may consider capping OTTO Ports at a later date.
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\46\ On GEMX and MRX, OTTO Ports, CTI Ports, FIX Ports, FIX Drop
Ports and Disaster Recovery Ports are capped at $7,500 a month.
\47\ See note 27 below. Other options exchanges tier their ports
but do not cap them. See notes 29, 30 and 32 below.
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If the Commission were to apply a different standard of review to
this proposal than it applied to other exchange fee filings, such as
the Cboe or MRX fee filings,\48\ it would create a burden on
competition such that it would impair BX's ability to innovate new
products, modernize its technology, and compete with other options
markets.
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\48\ See notes 30 and 39 above.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to section 19(b)(3)(A)(iii) of the Act \49\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\50\
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\49\ 15 U.S.C. 78s(b)(3)(A)(iii).
\50\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-BX-2024-011 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-2024-011. 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
[[Page 21629]]
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-2024-011
and should be submitted on or before April 18, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\51\
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\51\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06573 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P
