Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt an OTTO Protocol, 46493-46499 [2024-11703]
Download as PDF
<![CDATA[
Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change,
rather will facilitate the listing and
trading of an additional exchange-traded
product that will enhance competition
among both market participants and
listing venues, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.59
J. Matthew DeLesDernier,
Deputy Secretary.
III. 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:
lotter on DSK11XQN23PROD with NOTICES1
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeBZX–2023–095 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–CboeBZX–2023–095. 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
VerDate Sep<11>2014
18:05 May 28, 2024
Jkt 262001
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–CboeBZX–2023–095 and should be
submitted on or before June 20, 2024.
[FR Doc. 2024–11707 Filed 5–28–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100211; File No. SR–BX–
2024–016]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Adopt an OTTO
Protocol
May 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 May 8,
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
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.
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.
59 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00136
Fmt 4703
Sfmt 4703
46493
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.’’ 3 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
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 4 to connect, send, and
receive messages related to orders,
auction orders, and auction responses to
the Exchange. OTTO features would
3 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).
4 General 2, Section 22 describes Sponsored
Access arrangements.
E:\FR\FM\29MYN1.SGM
29MYN1
46494
Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
lotter on DSK11XQN23PROD with NOTICES1
include the following: (1) options
symbol directory messages (e.g.,
underlying and complex instruments);
(2) System 5 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,6 however only one port is
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
5 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).
6 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.
VerDate Sep<11>2014
18:05 May 28, 2024
Jkt 262001
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.
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
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
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.7 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.
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
7 See
E:\FR\FM\29MYN1.SGM
MRX Options 3, Section 17.
29MYN1
Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
(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.8 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 9 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.10
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
lotter on DSK11XQN23PROD with NOTICES1
8 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).
9 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.
10 The Exchange proposes to remove this
sentence, ‘‘Permissible groups must reside within a
single broker-dealer’’ as the group option would no
longer exist.
VerDate Sep<11>2014
18:05 May 28, 2024
Jkt 262001
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
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)
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
46495
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.11
Pricing
BX proposes to amend its Pricing
Schedule at Options 7, Section 3, BX
Options Market—Ports and other
Services, to assess a port fee for the new
OTTO protocol.
The Exchange proposes to assess an
OTTO Port Fee of $650 per port, per
month, per account number. OTTO
would be an additional order entry
protocol for BX Participants in addition
11 The Exchange proposes to update internal
cross-references to accommodate relocated text.
E:\FR\FM\29MYN1.SGM
29MYN1
46496
Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
lotter on DSK11XQN23PROD with NOTICES1
to FIX, which is currently utilized by
BX Participants to enter orders into BX.
The Exchange currently assesses a FIX
Port Fee of $650 per port, per month,
per account number.12 Only one FIX
order protocol is required for a BX
Participant to submit orders into BX and
to meet its regulatory requirements.13
The Exchange will provide each
Participant the first FIX Port at no cost
to submit orders into BX. Only one
account number is necessary to transact
an options business on BX and account
numbers are available to Participants at
no cost.
Only BX Participants may utilize
ports on MRX. [sic] Any market
participant that sends orders to a
Participant would not need to utilize a
port. The BX Participant can send all
orders, proprietary and agency, through
one port to BX. Participants may elect
to obtain multiple account numbers to
organize their business, however only
one account number and one port for
orders is necessary for a BX Participant
to trade on BX. All other order entry
ports offered by BX are not required for
an BX Participant to meet its regulatory
obligations. BX Participants utilizing the
first FIX Port offered at no cost do not
need to purchase an OTTO Port to meet
their regulatory obligations.
Further, while only one FIX protocol
is necessary to submit orders into BX,
Participants may choose to purchase a
greater number of order entry ports,
depending on their business model.14
To the extent that Participants chose to
utilize more than one FIX Port, the
Participant would be assessed $650 per
port, per month, per account number for
each subsequent port beyond the first
port.
The Exchange also proposes to add
OTTO to the list of ports that are capped
at $7,500 on BX. Today, the maximum
monthly fees in the aggregate for FIX
Port, CTI Port, FIX DROP Port, BX
Depth Port and BX TOP Port Fees on BX
is $7,500.15 These ports are available to
all BX Participants. To the extent that a
Participant expended more than $7,500
for FIX or OTTO Ports, BX would not
charge a Participant for additional FIX
12 The term ‘‘account number’’ means a number
assigned to a Participant. Participants may have
more than one account number. See Options 1,
Section 1(a)(2). Account numbers are free on BX.
13 BX Participants have trade-through
requirements under Regulation NMS as well as
broker-dealers’ best execution obligations.
14 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.
15 See BX Options 7, Section 3(i).
VerDate Sep<11>2014
18:05 May 28, 2024
Jkt 262001
or OTTO Ports, respectively, beyond the
cap.
Only one FIX order protocol is
required for an MRX [sic] Member to
submit orders into MRX [sic] and to
meet its regulatory requirements.16 The
Exchange will provide each Participant
the first FIX Port at no cost to submit
orders into BX. Only one account
number is necessary to transact an
options business on BX and account
numbers are available to Participants at
no cost. Both FIX and OTTO ports are
not necessary to conduct business on
BX; a Participant may choose among
protocols based on their business
workflow. The Exchange’s proposal to
offer the first FIX Port at no cost would
allow BX Participants to submit orders
and quotes into BX at no cost while
meeting their regulatory obligations.
The proposed fee for OTTO is
identical to the fee offered for OTTO, an
identical protocol, on MRX.
Additionally, MRX offers one free FIX
Port to its Members and assesses the
same FIX Port fee of $650 per port, per
month, per account number as BX
assessed today for FIX. MRX also offers
a free FIX Disaster Recovery Port.
Today, BX does not assess Disaster
Recovery Port fees.17 Finally, today,
MRX offers a $7,500 monthly cap for
OTTO Ports, CTI Ports, FIX Ports, FIX
Drop Ports and all Disaster Recovery
Ports.18 BX’s proposed monthly cap
does not include Disaster Recovery
Ports, which are free on BX, but does
include BX Depth Ports and BX Top
Ports which are assessed fees of $650
per port, per month.
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,19 in general, and furthers the
objectives of Section 6(b)(5) of the Act,20
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
Additionally, the Exchange believes that
16 BX Participants have trade-through
requirements under Regulation NMS as well as
broker-dealers’ best execution obligations.
17 See BX Options 7, Section 3.
18 See MRX Options 7, Section 6.
19 15 U.S.C. 78f(b).
20 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00139
Fmt 4703
Sfmt 4703
its proposal furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,21
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,22 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.23
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
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.
21 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.
23 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.
22 For
E:\FR\FM\29MYN1.SGM
29MYN1
lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
Other Amendments
Pricing
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
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.
Proposed Port Fees Are Reasonable,
Equitable and Not Unfairly
Discriminatory
Only one FIX order protocol is
required for a BX Participant to submit
orders into BX and to meet its regulatory
requirements 24 at no cost while meeting
its regulatory requirements. The
Exchange will provide each Participant
the first FIX Port at no cost to submit
orders into BX. Only one account
number is necessary to transact an
options business on BX and account
numbers are available to Participants at
no cost.
The Exchange proposes to offer each
Participant the first FIX Port at no cost
to meet their regulatory requirements.
As noted above, Participants may freely
choose to rely on one or many ports,
depending on their business model.
The Exchange’s proposal is
reasonable, equitable and not unfairly
discriminatory as BX is providing BX
Participants the first FIX Port to submit
orders at no cost. These ports, which are
offered at no cost, would allow a BX
Participant to meet its regulatory
requirements. All other ports offered by
BX are not required for an BX
Participant to meet its regulatory
obligations. Therefore, for the foregoing
reasons, it is reasonable to assess no fee
for the first FIX Port obtained by a
Participant as an BX Participant is able
to meet its regulatory requirements with
these ports.
Further it is equitable and not unfairly
discriminatory to assess no fee for the
first FIX Port to Participants as all
Participants would be entitled to the
first FIX 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
$650 per port, per month, per account
number for an OTTO Port is reasonable
because OTTO is not required for a
Participant to meet its regulatory
requirements. The Exchange is offering
the first FIX Port at no cost to submit
orders to BX. In addition to the FIX Port,
all Participants may elect to purchase
OTTO to submit orders to BX. BX
Participants utilizing the FIX Port,
which is offered at no cost, do not need
to utilize OTTO.
Finally, in the event that a BX
Participant elects to subscribe to
multiple ports, the Exchange offers a
monthly cap beyond which a
VerDate Sep<11>2014
18:05 May 28, 2024
Jkt 262001
24 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
46497
Participant would be assessed no
additional fees for the month and
proposes to add OTTO to the monthly
cap. Today, OTTO Port, CTI Port, FIX
Port, FIX Drop Port and all Disaster
Recovery Ports are subject to a monthly
cap of $7,500. These caps are reasonable
because they allow Participants to limit
their fees beyond a certain level if they
elect to purchase multiple ports in a
given month. The caps are also
equitable and not unfairly
discriminatory because any Participant
will be subject to the cap, provided they
exceeded the appropriate dollar amount
in a given month. These ports are
available to all BX Participants.
The proposed BX OTTO fee is the
same as the OTTO Port fee on MRX, for
the identical port. Additionally, MRX
offers one free FIX Port to its Members
and assesses the same FIX Port fee of
$650 per port, per month, per account
number as BX assesses today for a FIX
Port. MRX offers its Members a free FIX
Disaster Recovery Port.25 Today, BX
does not assess Disaster Recovery Port
fees.26 Finally, today, MRX offers a
$7,500 monthly cap for OTTO Ports, CTI
Ports, FIX Ports, FIX Drop Ports and all
Disaster Recovery Ports.27 BX’s
proposed monthly cap does not include
Disaster Recovery Ports, which are free
on BX, but does include BX Depth Ports
and BX Top Ports which are currently
assessed fees of $650 per port, per
month.
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
25 See
MRX Options 7, Section 6.
BX Options 7, Section 3.
27 See MRX Options 7, Section 6.
26 See
E:\FR\FM\29MYN1.SGM
29MYN1
46498
Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
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
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.
lotter on DSK11XQN23PROD with NOTICES1
Pricing
Nothing in the proposal burdens
inter-market competition because BX’s
proposal to offer the first FIX Port for
free is similar to MRX’s FIX Port
offering, and would allow BX
Participants to meet their regulatory
obligations. BX’s offering would permit
Participants the ability to submit orders
to BX at no cost. OTTO Ports are not
required for BX Participants to meet
their regulatory obligations.
Nothing in the proposal burdens
intra-market competition because the
Exchange would uniformly assess the
port fees to all Participants, as
applicable, and would uniformly apply
monthly caps. The proposed fees are
identical to fees recently approved on
MRX.28 The proposed BX OTTO fee is
the same as the OTTO Port fee on MRX,
28 See Securities Exchange Commission Release
No. 96824 (February 7, 2023), 88 FR 8975 (February
10, 2023) (SR–MRX–2023–05).
VerDate Sep<11>2014
18:05 May 28, 2024
Jkt 262001
for the identical port. Additionally,
MRX offers one free FIX Port to its
Members and assesses the same FIX Port
fee of $650 per port, per month, per
account number as BX assessed today
for FIX.29 MRX also offers a free FIX
Disaster Recovery Port.30 Today, BX
does not assess Disaster Recovery Port
fees.31 Finally, today, MRX offers a
$7,500 monthly cap for OTTO Ports, CTI
Ports, FIX Ports, FIX Drop Ports and all
Disaster Recovery Ports.32 BX’s
proposed monthly cap does not include
Disaster Recovery Ports, which are free
on BX, but does include BX Depth Ports
and BX Top Ports which are assessed
fees of $650 per port, per month.
To the extent that the Commission
does not permit BX to assess the same
identical fees for the same identical
products on its market, the Commission
is creating a burden on competition by
allowing MRX to assess fees and offer a
product that would otherwise be
unavailable on BX. Additionally, the
proposal offers a free FIX Port to BX
Participants that already subscribe to
FIX, the only order port currently
offered on BX. Each SRO should be
permitted to mirror fees assessed by
another SRO to further competition
among the exchanges.
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 33 and
subparagraph (f)(6) of Rule 19b–4
thereunder.34
At any time within 60 days of the
filing of the proposed rule change, the
29 See
MRX Options 7, Section 6.
30 Id.
31 See
BX Options 7, Section 3.
MRX Options 7, Section 6.
33 15 U.S.C. 78s(b)(3)(A)(iii).
34 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.
32 See
PO 00000
Frm 00141
Fmt 4703
Sfmt 4703
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–2024–016 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–2024–016. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
E:\FR\FM\29MYN1.SGM
29MYN1
Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–BX–2024–016 and should be
submitted on or before June 20, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–11703 Filed 5–28–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100218; File No. SR–
CboeBZX–2024–018]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
Amendment No. 1 to a Proposed Rule
Change Relating To List and Trade
Shares of the Franklin Ethereum ETF,
a Series of the Franklin Ethereum
Trust, Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares
May 22, 2024.
On February 22, 2024, Cboe BZX
Exchange, Inc. (‘‘BZX’’ 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 list and trade shares
(‘‘Shares’’) of the Franklin Ethereum
ETF, a series of the Franklin Ethereum
Trust, under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares. The
proposed rule change was published for
comment in the Federal Register on
March 13, 2024.3 On April 23, 2024,
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 determine whether to
disapprove the proposed rule change.5
On May 21, 2024, the Exchange filed
Amendment No. 1 to the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. Amendment No. 1
amended and replaced the proposed
rule change in its entirety. The
35 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. 99686
(Mar. 7, 2024), 89 FR 18447. Comments on the
proposed rule change are available at: https://
www.sec.gov/comments/sr-cboebzx-2024-018/
srcboebzx2024018.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No.
100015, 89 FR 33431 (Apr. 29, 2024).
lotter on DSK11XQN23PROD with NOTICES1
1 15
VerDate Sep<11>2014
18:05 May 28, 2024
Jkt 262001
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
1, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) a proposed
rule change to list and trade shares of
the Franklin Ethereum ETF (the
‘‘Fund’’), a series of the Franklin
Ethereum Trust (the ‘‘Trust’’),6 under
BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
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
This Amendment No. 1 to SR–
CboeBZX–2024–018 amends and
replaces in its entirety the proposal as
originally submitted on February 22,
2024. The Exchange submits this
Amendment No. 1 in order to clarify
certain points and add additional details
to the proposal.
The Exchange proposes to list and
trade the Shares under BZX Rule
14.11(e)(4),7 which governs the listing
and trading of Commodity-Based Trust
6 The Trust was formed as a Delaware statutory
trust on February 8, 2024. The Fund is operated as
a grantor trust for U.S. federal tax purposes. The
Trust and the Fund have no fixed termination date.
7 The Commission approved BZX Rule 14.11(e)(4)
in Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(SR–BATS–2011–018).
PO 00000
Frm 00142
Fmt 4703
Sfmt 4703
46499
Shares on the Exchange.8 Franklin
Holdings, LLC is the sponsor of the
Fund (‘‘Sponsor’’). The Shares will be
registered with the Commission by
means of the Trust’s registration
statement on Form S–1 (the
‘‘Registration Statement’’).9
The Commission has historically
approved or disapproved exchange
filings to list and trade series of Trust
Issued Receipts, including spot-based
Commodity-Based Trust Shares, on the
basis of whether the listing exchange
has in place a comprehensive
surveillance sharing agreement with a
regulated market of significant size
related to the underlying commodity to
be held.10 With this in mind, the
8 Any of the statements or representations
regarding the index composition, the description of
the portfolio or reference assets, limitations on
portfolio holdings or reference assets, dissemination
and availability of index, reference asset, and
intraday indicative values, or the applicability of
Exchange listing rules specified in this filing to list
a series of Other Securities (collectively,
‘‘Continued Listing Representations’’) shall
constitute continued listing requirements for the
Shares listed on the Exchange.
9 On February 12, 2024, the Trust filed with the
Commission the Registration Statement on Form S–
1, submitted to the Commission by the Sponsor on
behalf of the Trust (333–277008). The descriptions
of the Fund, the Trust, the Shares, and the Index
(as defined below) contained herein are based, in
part, on information in the Registration Statement.
The Registration Statement is not yet effective and
the Shares will not trade on the Exchange until
such time that the Registration Statement is
effective.
10 See Securities Exchange Act Release No. 78262
(July 8, 2016), 81 FR 78262 (July 14, 2016) (the
‘‘Winklevoss Proposal’’). The Winklevoss Proposal
was subsequently disapproved by the Commission.
See Securities Exchange Act Release No. 83723
(July 26, 2018), 83 FR 37579 (August 1, 2018) (the
‘‘Winklevoss Order’’). Prior orders from the
Commission have pointed out that in every prior
approval order for Commodity-Based Trust Shares,
there has been a derivatives market that represents
the regulated market of significant size, generally a
Commodity Futures Trading Commission (the
‘‘CFTC’’) regulated futures market. Further to this
point, the Commission’s prior orders have noted
that the spot commodities and currency markets for
which it has previously approved spot ETPs are
generally unregulated and that the Commission
relied on the underlying futures market as the
regulated market of significant size that formed the
basis for approving the series of Currency and
Commodity-Based Trust Shares, including gold,
silver, platinum, palladium, copper, and other
commodities and currencies. The Commission
specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold
ETP ‘‘was based on an assumption that the currency
market and the spot gold market were largely
unregulated.’’ See Winklevoss Order at 37592. As
such, the regulated market of significant size test
does not require that the spot ether market be
regulated in order for the Commission to approve
this proposal, and precedent makes clear that an
underlying market for a spot commodity or
currency being a regulated market would actually
be an exception to the norm. These largely
unregulated currency and commodity markets do
not provide the same protections as the markets that
are subject to the Commission’s oversight, but the
Commission has consistently looked to surveillance
E:\FR\FM\29MYN1.SGM
Continued
29MYN1
]]>Agencies
[Federal Register Volume 89, Number 104 (Wednesday, May 29, 2024)]
[Notices]
[Pages 46493-46499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11703]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100211; File No. SR-BX-2024-016]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt an OTTO
Protocol
May 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 May 8, 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 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.
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.'' \3\ 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'').
---------------------------------------------------------------------------
\3\ 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 \4\ to connect, send, and receive messages related to orders,
auction orders, and auction responses to the Exchange. OTTO features
would
[[Page 46494]]
include the following: (1) options symbol directory messages (e.g.,
underlying and complex instruments); (2) System \5\ 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''.
---------------------------------------------------------------------------
\4\ General 2, Section 22 describes Sponsored Access
arrangements.
\5\ 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,\6\ however only one port is
necessary for a Participant to enter orders on BX.
---------------------------------------------------------------------------
\6\ 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. 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.\7\ 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.
---------------------------------------------------------------------------
\7\ 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
[[Page 46495]]
(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.\8\ 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 \9\ 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.\10\
---------------------------------------------------------------------------
\8\ 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).
\9\ 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.
\10\ 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 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.\11\
---------------------------------------------------------------------------
\11\ 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 assess a port fee for
the new OTTO protocol.
The Exchange proposes to assess an OTTO Port Fee of $650 per port,
per month, per account number. OTTO would be an additional order entry
protocol for BX Participants in addition
[[Page 46496]]
to FIX, which is currently utilized by BX Participants to enter orders
into BX. The Exchange currently assesses a FIX Port Fee of $650 per
port, per month, per account number.\12\ Only one FIX order protocol is
required for a BX Participant to submit orders into BX and to meet its
regulatory requirements.\13\ The Exchange will provide each Participant
the first FIX Port at no cost to submit orders into BX. Only one
account number is necessary to transact an options business on BX and
account numbers are available to Participants at no cost.
---------------------------------------------------------------------------
\12\ The term ``account number'' means a number assigned to a
Participant. Participants may have more than one account number. See
Options 1, Section 1(a)(2). Account numbers are free on BX.
\13\ BX Participants have trade-through requirements under
Regulation NMS as well as broker-dealers' best execution
obligations.
---------------------------------------------------------------------------
Only BX Participants may utilize ports on MRX. [sic] Any market
participant that sends orders to a Participant would not need to
utilize a port. The BX Participant can send all orders, proprietary and
agency, through one port to BX. Participants may elect to obtain
multiple account numbers to organize their business, however only one
account number and one port for orders is necessary for a BX
Participant to trade on BX. All other order entry ports offered by BX
are not required for an BX Participant to meet its regulatory
obligations. BX Participants utilizing the first FIX Port offered at no
cost do not need to purchase an OTTO Port to meet their regulatory
obligations.
Further, while only one FIX protocol is necessary to submit orders
into BX, Participants may choose to purchase a greater number of order
entry ports, depending on their business model.\14\ To the extent that
Participants chose to utilize more than one FIX Port, the Participant
would be assessed $650 per port, per month, per account number for each
subsequent port beyond the first port.
---------------------------------------------------------------------------
\14\ 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.
---------------------------------------------------------------------------
The Exchange also proposes to add OTTO to the list of ports that
are capped at $7,500 on BX. Today, the maximum monthly fees in the
aggregate for FIX Port, CTI Port, FIX DROP Port, BX Depth Port and BX
TOP Port Fees on BX is $7,500.\15\ These ports are available to all BX
Participants. To the extent that a Participant expended more than
$7,500 for FIX or OTTO Ports, BX would not charge a Participant for
additional FIX or OTTO Ports, respectively, beyond the cap.
---------------------------------------------------------------------------
\15\ See BX Options 7, Section 3(i).
---------------------------------------------------------------------------
Only one FIX order protocol is required for an MRX [sic] Member to
submit orders into MRX [sic] and to meet its regulatory
requirements.\16\ The Exchange will provide each Participant the first
FIX Port at no cost to submit orders into BX. Only one account number
is necessary to transact an options business on BX and account numbers
are available to Participants at no cost. Both FIX and OTTO ports are
not necessary to conduct business on BX; a Participant may choose among
protocols based on their business workflow. The Exchange's proposal to
offer the first FIX Port at no cost would allow BX Participants to
submit orders and quotes into BX at no cost while meeting their
regulatory obligations.
---------------------------------------------------------------------------
\16\ BX Participants have trade-through requirements under
Regulation NMS as well as broker-dealers' best execution
obligations.
---------------------------------------------------------------------------
The proposed fee for OTTO is identical to the fee offered for OTTO,
an identical protocol, on MRX. Additionally, MRX offers one free FIX
Port to its Members and assesses the same FIX Port fee of $650 per
port, per month, per account number as BX assessed today for FIX. MRX
also offers a free FIX Disaster Recovery Port. Today, BX does not
assess Disaster Recovery Port fees.\17\ Finally, today, MRX offers a
$7,500 monthly cap for OTTO Ports, CTI Ports, FIX Ports, FIX Drop Ports
and all Disaster Recovery Ports.\18\ BX's proposed monthly cap does not
include Disaster Recovery Ports, which are free on BX, but does include
BX Depth Ports and BX Top Ports which are assessed fees of $650 per
port, per month.
---------------------------------------------------------------------------
\17\ See BX Options 7, Section 3.
\18\ See MRX Options 7, Section 6.
---------------------------------------------------------------------------
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,\19\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\20\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. Additionally, the Exchange believes that its proposal
furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\21\
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.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ 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,\22\ 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.\23\
---------------------------------------------------------------------------
\22\ 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.
\23\ 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 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.
[[Page 46497]]
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
Proposed Port Fees Are Reasonable, Equitable and Not Unfairly
Discriminatory
Only one FIX order protocol is required for a BX Participant to
submit orders into BX and to meet its regulatory requirements \24\ at
no cost while meeting its regulatory requirements. The Exchange will
provide each Participant the first FIX Port at no cost to submit orders
into BX. Only one account number is necessary to transact an options
business on BX and account numbers are available to Participants at no
cost.
---------------------------------------------------------------------------
\24\ 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 proposes to offer each Participant the first FIX Port
at no cost to meet their regulatory requirements. As noted above,
Participants may freely choose to rely on one or many ports, depending
on their business model.
The Exchange's proposal is reasonable, equitable and not unfairly
discriminatory as BX is providing BX Participants the first FIX Port to
submit orders at no cost. These ports, which are offered at no cost,
would allow a BX Participant to meet its regulatory requirements. All
other ports offered by BX are not required for an BX Participant to
meet its regulatory obligations. Therefore, for the foregoing reasons,
it is reasonable to assess no fee for the first FIX Port obtained by a
Participant as an BX Participant is able to meet its regulatory
requirements with these ports.
Further it is equitable and not unfairly discriminatory to assess
no fee for the first FIX Port to Participants as all Participants would
be entitled to the first FIX 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 $650 per port, per month, per
account number for an OTTO Port is reasonable because OTTO is not
required for a Participant to meet its regulatory requirements. The
Exchange is offering the first FIX Port at no cost to submit orders to
BX. In addition to the FIX Port, all Participants may elect to purchase
OTTO to submit orders to BX. BX Participants utilizing the FIX Port,
which is offered at no cost, do not need to utilize OTTO.
Finally, in the event that a BX Participant elects to subscribe to
multiple ports, the Exchange offers a monthly cap beyond which a
Participant would be assessed no additional fees for the month and
proposes to add OTTO to the monthly cap. Today, OTTO Port, CTI Port,
FIX Port, FIX Drop Port and all Disaster Recovery Ports are subject to
a monthly cap of $7,500. These caps are reasonable because they allow
Participants to limit their fees beyond a certain level if they elect
to purchase multiple ports in a given month. The caps are also
equitable and not unfairly discriminatory because any Participant will
be subject to the cap, provided they exceeded the appropriate dollar
amount in a given month. These ports are available to all BX
Participants.
The proposed BX OTTO fee is the same as the OTTO Port fee on MRX,
for the identical port. Additionally, MRX offers one free FIX Port to
its Members and assesses the same FIX Port fee of $650 per port, per
month, per account number as BX assesses today for a FIX Port. MRX
offers its Members a free FIX Disaster Recovery Port.\25\ Today, BX
does not assess Disaster Recovery Port fees.\26\ Finally, today, MRX
offers a $7,500 monthly cap for OTTO Ports, CTI Ports, FIX Ports, FIX
Drop Ports and all Disaster Recovery Ports.\27\ BX's proposed monthly
cap does not include Disaster Recovery Ports, which are free on BX, but
does include BX Depth Ports and BX Top Ports which are currently
assessed fees of $650 per port, per month.
---------------------------------------------------------------------------
\25\ See MRX Options 7, Section 6.
\26\ See BX Options 7, Section 3.
\27\ See MRX Options 7, Section 6.
---------------------------------------------------------------------------
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
[[Page 46498]]
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 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 inter-market competition because
BX's proposal to offer the first FIX Port for free is similar to MRX's
FIX Port offering, and would allow BX Participants to meet their
regulatory obligations. BX's offering would permit Participants the
ability to submit orders to BX at no cost. OTTO Ports are not required
for BX Participants to meet their regulatory obligations.
Nothing in the proposal burdens intra-market competition because
the Exchange would uniformly assess the port fees to all Participants,
as applicable, and would uniformly apply monthly caps. The proposed
fees are identical to fees recently approved on MRX.\28\ The proposed
BX OTTO fee is the same as the OTTO Port fee on MRX, for the identical
port. Additionally, MRX offers one free FIX Port to its Members and
assesses the same FIX Port fee of $650 per port, per month, per account
number as BX assessed today for FIX.\29\ MRX also offers a free FIX
Disaster Recovery Port.\30\ Today, BX does not assess Disaster Recovery
Port fees.\31\ Finally, today, MRX offers a $7,500 monthly cap for OTTO
Ports, CTI Ports, FIX Ports, FIX Drop Ports and all Disaster Recovery
Ports.\32\ BX's proposed monthly cap does not include Disaster Recovery
Ports, which are free on BX, but does include BX Depth Ports and BX Top
Ports which are assessed fees of $650 per port, per month.
---------------------------------------------------------------------------
\28\ See Securities Exchange Commission Release No. 96824
(February 7, 2023), 88 FR 8975 (February 10, 2023) (SR-MRX-2023-05).
\29\ See MRX Options 7, Section 6.
\30\ Id.
\31\ See BX Options 7, Section 3.
\32\ See MRX Options 7, Section 6.
---------------------------------------------------------------------------
To the extent that the Commission does not permit BX to assess the
same identical fees for the same identical products on its market, the
Commission is creating a burden on competition by allowing MRX to
assess fees and offer a product that would otherwise be unavailable on
BX. Additionally, the proposal offers a free FIX Port to BX
Participants that already subscribe to FIX, the only order port
currently offered on BX. Each SRO should be permitted to mirror fees
assessed by another SRO to further competition among the exchanges.
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 \33\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\34\
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78s(b)(3)(A)(iii).
\34\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-BX-2024-016 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-2024-016. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication
[[Page 46499]]
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-BX-2024-016 and should
be submitted on or before June 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
---------------------------------------------------------------------------
\35\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11703 Filed 5-28-24; 8:45 am]
BILLING CODE 8011-01-P
