[Federal Register Volume 82, Number 134 (Friday, July 14, 2017)]
[Notices]
[Pages 32589-32591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14754]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81107; File No. SR-MRX-2017-11]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Specify an
Exception to the Manner in Which Market Maker Immediate-or-Cancel
Orders Will Be Handled
July 10, 2017.
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 June 27, 2017, Nasdaq MRX, LLC (``MRX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend MRX Rule 715(b)(3) to specify an
exception to the manner in which Immediate-or-Cancel Orders will be
handled by the System when entered through the Specialized Quote Feed
\3\ (``SQF'') protocol.
---------------------------------------------------------------------------
\3\ SQF is an interface that allows Market Makers to connect and
send quotes, Immediate-or-Cancel Orders and auction responses into
MRX.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at www.ise.com, 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
[[Page 32590]]
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend MRX Rule 715(b)(3) to specify
the manner in which an Immediate-or-Cancel Order will interact with
certain order protections when entered through SQF. An Immediate-or-
Cancel Order is defined as a limit order that is to be executed in
whole or in part upon receipt. Any portion not so executed is to be
treated as cancelled.\4\ SQF is an interface that is being introduced
with the technology migration to a Nasdaq, Inc. (``Nasdaq'') supported
architecture.\5\ Today, Members may enter orders through FIX, DTI or
Nasdaq Precise on MRX. After the migration to the INET architecture,
Members will continue to be able to submit orders through FIX or Nasdaq
Precise, as is the case today, and OTTO will also be available to enter
orders. SQF will be available for Market Makers \6\ to enter quotes and
also Immediate-or-Cancel Orders. DTI will no longer be available.
---------------------------------------------------------------------------
\4\ See MRX Rule 715(b)(3). Immediate-or Cancel Orders do not
route.
\5\ See Securities Exchange Act Release No. 80815 (May 30,
2017), 82 FR 25827 (June 5, 2017) (SR-MRX-2017-02). INET is the
proprietary core technology utilized across Nasdaq's global markets
and utilized on The NASDAQ Options Market LLC (``NOM''), NASDAQ PHLX
LLC (``Phlx'') and NASDAQ BX, Inc. (``BX'') (collectively, ``Nasdaq
Exchanges''). The migration of MRX to the Nasdaq INET architecture
would result in higher performance, scalability, and more robust
architecture. With this system migration, the Exchange intends to
adopt certain trading functionality currently utilized at Nasdaq
Exchanges.
\6\ The term ``market makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See MRX Rule
100(a)(25).
---------------------------------------------------------------------------
With the introduction of SQF, the Exchange proposes to amend MRX
Rule 715(b)(3) to state that an Immediate-or-Cancel order entered by a
Market Maker through SQF will not be subject to the Limit Order Price
Protection and Size Limitation Protection as defined in MRX Rule
714(b)(2) and (3). All other Immediate-or-Cancel Orders entered through
FIX, OTTO or Nasdaq Precise will continue to be subject to these
protections.
MRX Rule 714, entitled ``Automatic Execution of Orders,'' contains
a section (b)(2) and (3) which applies to order protections that are
automatically enforced by the System. The Limit Order Price Protection
sets a limit on the amount by which incoming limit orders to buy may be
priced above the Exchange's best offer and by which incoming limit
orders to sell may be priced below the Exchange's best bid. Limit
orders that exceed the pricing limit are rejected.\7\ Immediate-or-
Cancel Orders entered through SQF will not be subject to the Limit
Order Price Protection provided in MRX Rule 714(b)(2).
---------------------------------------------------------------------------
\7\ The limit is established by the Exchange from time-to-time
for orders to buy (sell) as the greater of the Exchange's best offer
(bid) plus (minus): (i) An absolute amount not to exceed $2.00, or
(ii) a percentage of the Exchange's best bid/offer not to exceed
10%. See MRX Rule 714(b)(2).
---------------------------------------------------------------------------
MRX Rule 714(b)(3) provides a protection for size limitation. The
System limits the number of contracts an incoming order may specify.
Orders that exceed the maximum number of contracts are rejected.\8\
Immediate-or-Cancel Orders entered through SQF will not be subject to
this size limitation protection provided in MRX Rule 714(b)(3).
---------------------------------------------------------------------------
\8\ The maximum number of contracts, which shall not be less
than 10,000, is established by the Exchange from time-to-time. See
MRX Rule 714(b)(3).
---------------------------------------------------------------------------
Implementation
The Exchange intends to begin implementation of the proposed rule
change in Q3 2017. The MRX migration will be on a symbol by symbol
basis as specified in an alert to Members that will be issued by the
Exchange in the form of an Options Trader Alert. The alert will provide
the dates that symbols will migrate to INET.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ 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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
With the adoption of the SQF protocol on INET, the Exchange will
offer Market Makers the ability to expeditiously submit Immediate-or-
Cancel orders through SQF, without having to involve a different
protocol and method of entry such as FIX, OTTO or Nasdaq Precise. With
the ability for Market Makers to utilize the SQF protocol to enter
Immediate-or-Cancel Orders, in addition to having the ability to enter
Immediate-or-Cancel Orders on FIX, OTTO or Nasdaq Precise, similar to
other market participants, Market Makers may submit Immediate-or-Cancel
Orders into SQF allowing them to manage risk utilizing a single
protocol, SQF.
Unlike other market participants, Market Makers are required to
provide liquidity to the market and are subject to certain obligations,
including a requirement to provide continuous two-sided quotes on a
daily basis.\11\ Market Makers use Immediate-or-Cancel Orders to trade
out of accumulated positions and manage their risk when providing
liquidity on the Exchange. Proper risk management, including using
these Immediate-or-Cancel Orders to offload risk, is vital for Market
Makers, and allows them to maintain tight markets and meet their
quoting and other obligations to the market. The Exchange believes that
allowing Market Makers to submit Immediate-or-Cancel Orders though
their preferred protocol will increase their efficiency in submitting
such orders and thereby allow them to maintain quality markets to the
benefit of all market participants that trade on the Exchange.
---------------------------------------------------------------------------
\11\ See MRX Rule 804(e).
---------------------------------------------------------------------------
Miami International Securities Exchange LLC (``MIAX'') utilizes its
MIAX Express Interface (MEI), a quoting interface, for market makers to
enter immediate-or-cancel orders.\12\ Specifically, MIAX noted in its
Application for Registration as a National Securities Exchange, ``. . .
MIAX would allow market makers to use a variety of quote types, some of
which would have a specific time in force and would be analogous to
orders (MIAX refers to such order types as ``eQuotes,'' and market
makers would be able to enter these orders through their quotation
infrastructure).'' \13\ Furthermore, MIAX's Price Protection on Non-
Market Maker Orders is not available for orders submitted by a Market
Maker.\14\ The Price Protection on Non-Market Maker Orders prevents an
order from being executed at a price beyond the price designated in the
[[Page 32591]]
order's price protection instructions, and is a similar protection to
the Exchange's Limit Order Price Protection. The Exchange similarly
believes that it is consistent with the Act to not apply certain
protections to Market Maker Immediate-or-Cancel Orders submitted
through SQF.
---------------------------------------------------------------------------
\12\ MIAX offers an eQuote, which is a quote with a specific
time in force that does not automatically cancel and replace a
previous Standard quote or eQuote. An eQuote can be cancelled by the
Market Maker at any time, or can be replaced by another eQuote that
contains specific instructions to cancel an existing eQuote. See
MIAX Rule 517(a)(2).
\13\ See Securities Exchange Release Act No. 68341 (December 3,
2012), 77 FR 73065 (December 7, 2012) (File No. 10-207) (In the
Matter of the Application of Miami International Securities
Exchange, LLC for Registration as a National Securities Exchange:
Findings, Opinion, and Order of the Commission).
\14\ See MIAX Rule 515(c)(1).
---------------------------------------------------------------------------
Market Makers handle a large amount of risk when quoting on MRX and
in addition to the risk protections required by the Exchange, Market
Makers utilize their own risk management parameters when entering
orders, minimizing the likelihood of a Market Maker order resulting
from an error from [sic] being entered. The Exchange believes that
Market Makers, unlike other market participants, have the ability to
manage their risk when submitting Immediate-or-Cancel Orders through
SQF and should be permitted to elect this method of order entry to
obtain efficiency and speed of order entry, particularly in light of
the continuous quoting obligations the Exchange imposes on these
participants. If Market Makers desire the Limit Order Protections and
the Size Limitation Protections, they may utilize the FIX, OTTO or
Nasdaq Precise protocols for entering their orders. The Exchange notes
that Market Makers on Phlx may enter Immediate-or-Cancel Orders through
SQF and are similarly not subject to certain risk protections
today.\15\ The Exchange represents that it will continue to assess the
risk protections that are applied to orders, including Market Maker
Immediate-or-Cancel Orders submitted through SQF, to ensure that
adequate risk protections are available to members that trade on the
Exchange. The Exchange will file to adopt additional risk protections
in the event that the Exchange determines that such additional
protections are appropriate in the interest of maintaining a fair and
orderly market.
---------------------------------------------------------------------------
\15\ See Securities and Exchange Release No. 76295 (October 29,
2015), 80 FR 68338 at 68339 (November 4, 2015) (SR-Phlx-2015-83)
(Phlx noted in footnote 8 that while SQF permits the receipt of
quotes, sweeps are not included for purposes of the Percentage Based
risk protection in Rule 1095(i)). Phlx Rule 1080(c)(iii)(B) provides
that, ``. . . Market Sweeps are processed on an immediate-or-cancel
basis, may not be routed, may be entered only at a single price, and
may not trade through away markets.''
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Market Makers handle a large
amount of risk when quoting on MRX and in addition to the risk
protections required by the Exchange, Market Makers utilize their own
risk management parameters when entering orders, minimizing the
likelihood of a Market Maker order resulting from an error from [sic]
being entered. Market Makers also transact a large amount of orders on
the Exchange and bring liquidity to the market. Market Makers should be
permitted to elect this method of order entry to obtain efficiency and
speed of order entry, particularly in light of the continuous quoting
obligations the Exchange imposes on these members that are not
applicable to other market participants. The Exchange therefore
believes that this rule change will not impose an undue burden on
competition.
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 \16\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A)(iii).
\17\ 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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MRX-2017-11 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MRX-2017-11. 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 Web site (http://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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MRX-2017-11, and should be
submitted on or before August 4, 2017.
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017-14754 Filed 7-13-17; 8:45 am]
BILLING CODE 8011-01-P