[Federal Register Volume 81, Number 137 (Monday, July 18, 2016)]
[Notices]
[Pages 46739-46744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16857]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78298; File No. SR-BX-2016-040]


Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to 
Detection of Loss of Connection

July 12, 2016.
    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 July 8, 2016, NASDAQ BX, Inc. (``BX'' or

[[Page 46740]]

``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II, below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter VI, Section 6, entitled 
``Acceptance of Quotes and Orders'' to adopt functionality which is 
designed to assist BX Participants in the event that they lose 
communication with their assigned Financial Information eXchange 
(``FIX'') \3\ or Specialized Quote Feed (``SQF'') \4\ Ports due to a 
loss of connectivity.
---------------------------------------------------------------------------

    \3\ FIX permits the entry of orders.
    \4\ SQF permits the transmission of quotes to the Exchange by a 
BX Options Market Makers using its Client Application. SQF Auction 
Responses would not be cancelled pursuant to this Chapter VI, 
Section 6(e) because other rules govern auction specific responses, 
see Chapter VI, Section 9, entitled ``Price Improvement Auction 
(``PRISM'').
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqbx.cchwallstreet.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 proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Chapter VI, Section 6, entitled 
``Acceptance of Quotes and Orders'' to adopt a new section ``e'' 
entitled ``Detection of Loss of Connection,'' a new automated process 
which BX proposes to adopt for its SQF \5\ and FIX Ports in the event 
that they lose communication with a Client Application due to a loss of 
connectivity. This feature is designed to protect BX Options Market 
Makers \6\ and other market participants from inadvertent exposure to 
excessive risk.
---------------------------------------------------------------------------

    \5\ Today, SQF and FIX have the capability to disconnect and 
cancel quotes and orders, respectively, for technical disconnects 
although there is no automated process triggered by pre-set 
conditions. The rule change would adopt a formalized process to 
automatically disconnect and cancel quotes for SQF and disconnect 
and cancel orders, if elected, for FIX when there is a loss of 
communication with the BX Participant's Client Application.
    \6\ The term ``BX Options Market Makers'' or ``Options Market 
Makers'' (herein ``BX Options Market Makers'') means an Options 
Participant registered with the Exchange for the purpose of making 
markets in options contracts traded on the Exchange and that is 
vested with the rights and responsibilities specified in Chapter VII 
of these Rules.'' See BX Rules at Chapter I, Section 1(a)(9).
---------------------------------------------------------------------------

    By way of background, BX Participants currently enter quotes and 
orders utilizing either an SQF or FIX Port. SQF is utilized by BX 
Options Market Makers and FIX is utilized by all market participants. 
These ports are System \7\ components through which a BX Participant 
communicates its quotes and/or orders to the BX match engine through 
the BX Participant's Client Application.
---------------------------------------------------------------------------

    \7\ The term ``System'' shall mean the automated system for 
order execution and trade reporting owned and operated by BX as the 
BX Options market. See Chapter VI, Section 1(a).
---------------------------------------------------------------------------

    Under the proposed rule change, an SQF Port would be defined as the 
Exchange's System component through which BX Participants communicate 
their quotes from the BX Participant's Client Application at proposed 
Chapter VI, Section 6(e)(i)(B). A FIX Port would be defined as the 
Exchange's System component through which BX Participants communicate 
their orders from the BX Participant's Client Application at proposed 
Chapter VI, Section 6(e)(i)(C). BX Options Market Makers may submit 
quotes to the Exchange from one or more SQF Ports. Similarly, market 
participants may submit orders to the Exchange from one or more FIX 
Ports. The proposed cancellation feature will be mandatory for each BX 
Options Market Maker utilizing SQF for the removal of quotes and 
optional for any market participant utilizing FIX for the removal of 
orders.
    When the SQF Port detects the loss of communication with a BX 
Participant's Client Application because the Exchange's server does not 
receive a Heartbeat message \8\ for a certain period of time (a period 
of ``nn'' seconds), the Exchange will automatically logoff the BX 
Participant's affected Client Application and automatically cancel all 
of the BX Participant's open quotes. Quotes will be cancelled across 
all Client Applications that are associated with the same BX Options 
Market Makers ID and underlying issues.
---------------------------------------------------------------------------

    \8\ It is important to note that the Exchange separately sends a 
connectivity message to the BX Participant as evidence of 
connectivity.
---------------------------------------------------------------------------

    The Exchange proposes to define ``Client Application'' as the 
System component of the BX Participant through which the BX Participant 
communicates its quotes and orders to the Exchange at proposed Chapter 
VI, Section 6(e)(i)(D). The Exchange proposes to define a ``Heartbeat'' 
message as a communication which acts as a virtual pulse between the 
SQF or FIX Port and the Client Application at proposed Chapter VI, 
Section 6(e)(i)(A). The Heartbeat message sent by the BX Participant 
and subsequently received by the Exchange allows the SQF or FIX Port to 
continually monitor its connection with the BX Participant.
SQF Ports
    The Exchange's System has a default time period, which will trigger 
a disconnect from the Exchange and remove quotes, set to fifteen (15) 
seconds for SQF Ports. A BX Participant may change the default period 
of ``nn'' seconds of no technical connectivity to trigger a disconnect 
from the Exchange and remove quotes to a number between one hundred 
(100) milliseconds and 99,999 milliseconds for SQF Ports prior to each 
session of connectivity to the Exchange. This feature is enabled for 
each BX Options Market Maker and may not be disabled.
    There are two ways to change the number of ``nn'' seconds: (1) 
Systemically or (2) by contacting the Exchange's operations staff. If 
the BX Participant systemically changes the default number of ``nn'' 
seconds, that new setting shall be in effect throughout the current 
session of connectivity \9\ and will then default back to fifteen 
seconds.\10\ The BX Participant may change the default setting 
systemically prior to each session of connectivity. The BX Participant 
may also communicate the time to the Exchange by calling the Exchange's 
operations staff. If the time period is communicated

[[Page 46741]]

to the Exchange by calling Exchange operations, the number of ``nn'' 
seconds selected by the BX Participant shall persist for each 
subsequent session of connectivity until the BX Participant either 
contacts Exchange operations and changes the setting or the BX 
Participant systemically selects another time period prior to the next 
session of connectivity.
---------------------------------------------------------------------------

    \9\ Each time the BX Participant connects to the Exchange's 
System is a new period of connectivity. For example, if the BX 
Participant were to connect and then disconnect within a trading day 
several times, each time the BX Participant disconnected the next 
session would be a new session of connectivity.
    \10\ The Exchange's System would capture the new setting 
information that was changed by the BX Participant and utilize the 
amended setting for that particular session. The setting would not 
persist beyond the current session of connectivity and the setting 
would default back to 15 seconds for the next session if the BX 
Participant did not change the setting again.
---------------------------------------------------------------------------

FIX Ports
    The Exchange's System has a default time period, which will trigger 
a disconnect from the Exchange and remove orders, set to thirty (30) 
seconds for FIX Ports. The BX Participant may disable the removal of 
orders feature but not the disconnect feature. If the BX Participant 
elects to have its orders removed, in addition to the disconnect, the 
BX Participant may determine a time period of no technical connectivity 
to trigger the disconnect and removal of orders between one (1) second 
and thirty (30) seconds for FIX Ports prior to each session of 
connectivity to the Exchange.
    There are two ways to change the number of ``nn'' seconds: (1) 
Systemically or (2) by contacting the Exchange's operations staff. If 
the BX Participant systemically changes the default number of ``nn'' 
seconds, that new setting shall be in effect throughout that session of 
connectivity and will then default back to thirty seconds at the end of 
that session. The BX Participant may change the default setting 
systemically prior to each session of connectivity. The BX Participant 
may also communicate the time to the Exchange by calling the Exchange's 
operations staff. If the time period is communicated to the Exchange by 
calling Exchange operations, the number of ``nn'' seconds selected by 
the BX Participant shall persist for each subsequent session of 
connectivity until the BX Participant either contacts Exchange 
operations and changes the setting or the BX Participant systemically 
selects another time period prior to the next session of connectivity.
    Similar to SQF Ports, when a FIX Port detects the loss of 
communication with a Participant's Client Application for a certain 
time period (a period of ``nn'' seconds), the Exchange will 
automatically logoff the BX Participant's affected Client Application 
and if elected, automatically cancel all open orders. The BX 
Participant may have an order which has routed away prior to the 
cancellation, in the event that the order returns to the Order Book, 
because it was either not filled or partially filled, that order will 
be subsequently cancelled.
    The disconnect feature is mandatory for FIX users however the user 
has the ability to elect to also enable a removal feature, which will 
cancel all open orders submitted through that FIX Port. If the removal 
of orders feature is not enabled, the System will simply disconnect the 
FIX user and not cancel any orders. The FIX user would have to commence 
a new session to add, modify or cancel its orders once disconnected. 
The Exchange will issue an Options Trader Alert advising BX 
Participants on the manner in which they should communicate the number 
of ``nn'' seconds to the Exchange for SQF and FIX Ports.
    The trigger for the SQF and FIX Ports is event and Client 
Application specific. The automatic cancellation of the BX Options 
Market Maker's quotes for SQF Ports and open orders, if elected by the 
BX Participant for FIX Ports entered into the respective SQF or FIX 
Ports via a particular Client Application will neither impact nor 
determine the treatment of the quotes of other BX Options Market Makers 
entered into SQF Ports or orders of the same or other BX Participants 
entered into the FIX Ports via a separate and distinct Client 
Application. In other words, with respect to quotes, each BX Options 
Market Maker only maintains one quote in a given option in the order 
book. A new quote would replace the existing quote. Orders on the other 
hand do not replace each other in the order book as multiple orders may 
exist in a given option at once. Therefore the difference in the impact 
as between BX Options Market Makers submitting quotes and BX 
Participants submitting orders is that quotes may continue to be 
submitted and/or refreshed by unaffected BX Options Market Makers 
because these market participants are cancelled based on ID when an SQF 
Port disconnects, whereas all of the open orders submitted by a given 
firm will be impacted when a FIX port disconnects, if the firm elected 
to have orders cancelled.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ 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, by imposing this mandatory removal functionality on BX 
Options Market Makers to prevent disruption in the marketplace and also 
offering this removal feature to other market participants.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    BX Options Market Makers will be required to utilize this removal 
functionality with respect to SQF Ports. This feature will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and protect investors and the public interest 
by requiring BX Options Market Makers quotes to be removed in the event 
of a loss of connectivity with the Exchange's System. BX Options Market 
Makers provide liquidity to the market place and have obligations 
unlike other market participants.\13\ This risk feature is important 
because it will enable BX Options Market Makers to avoid risks 
associated with inadvertent executions in the event of a loss of 
connectivity with the Exchange. The proposed rule change is designed to 
not permit unfair discrimination among market participants, as it would 
apply uniformly to all BX Options Market Makers utilizing SQF.
---------------------------------------------------------------------------

    \13\ Pursuant to BX Rules at Chapter VII, Section 5, entitled 
``Obligations of BX Options Market Makers,'' in registering as a 
market maker, an Options Participant commits himself to various 
obligations. Transactions of a BX Options Market Makers must 
constitute a course of dealings reasonably calculated to contribute 
to the maintenance of a fair and orderly market, and BX Options 
Market Makers should not make bids or offers or enter into 
transactions that are inconsistent with such course of dealings. 
Further, all BX Options Market Makers are designated as specialists 
on BX for all purposes under the Act or rules thereunder.
---------------------------------------------------------------------------

    The disconnect feature of FIX is mandatory, however market 
participants will have the option to either enable or disable the 
cancellation feature, which would result in the cancellation of all 
orders submitted over a FIX port when such port disconnects. It is 
appropriate to offer this removal feature as optional to all market 
participants utilizing FIX, because unlike BX Options Market Makers who 
are required to provide quotes in all products in which they are 
registered, market participants utilizing FIX do not bear the same 
magnitude of risk of potential erroneous or unintended executions. In 
addition, market participants utilizing FIX may desire their orders to 
remain on the order book despite a technical disconnect, so as not to 
miss any opportunities for execution of such orders while the FIX 
session is disconnected.
    Utilizing a time period for SQF Ports of fifteen (15) seconds and 
permitting the BX Options Market Maker to modify

[[Page 46742]]

the setting to between 100 milliseconds and 99,999 milliseconds is 
consistent with the Act because the Exchange does not desire to trigger 
unwarranted logoffs of BX Options Market Makers and therefore allows BX 
Options Market Makers the ability to set their time in order to enable 
the Exchange the authority to disconnect the BX Options Market Maker 
with this feature. Each BX Options Market Maker has different levels of 
sensitivity with respect to this disconnect setting and each BX Options 
Market Maker has their own system safeguards as well. A default setting 
of fifteen (15) seconds is appropriate to capture the needs of all BX 
Options Market Makers and high enough not to trigger unwarranted 
removal of quotes.
    Further, BX Options Market Makers are able to customize their 
setting. The Exchange's proposal to permit a timeframe for SQF Ports 
between 100 milliseconds and 99,999 milliseconds is consistent with the 
Act and the protection of investors because the purpose of this feature 
is to mitigate the risk of potential erroneous or unintended executions 
associated with a loss in communication with a Client Application. BX 
Options Market Makers are able to better anticipate the appropriate 
time within which they may require prior to a logoff as compared to the 
Exchange. BX Options Market Makers are offered a timeframe by the 
Exchange within which to select the appropriate time. The Exchange does 
not desire to trigger unwarranted logoffs of BX Options Market Makers 
and therefore permits BX Options Market Makers to provide an 
alternative time to the Exchange, within the Exchange's prescribed 
timeframe, which authorized the Exchange to disconnect the BX Options 
Market Maker. The ``nn'' seconds serve as the BX Options Market Maker's 
instruction to the Exchange to act upon the loss of connection and 
remove quotes from the System. This range will accommodate BX Options 
Market Makers in selecting their appropriate times within the 
prescribed timeframes.
    Also, BX Options Market Makers have quoting obligations \14\ and 
are more sensitive to price movements as compared to other market 
participants. It is consistent with the Act to provide a wider 
timeframe within which to customize settings for FIX Ports as compared 
to SQF Ports. BX Options Market Makers need to remain vigilant of 
market conditions and react more quickly to market movements as 
compared to other BX Participants entering orders into the System. The 
proposal acknowledges this sensitivity borne by BX Options Market 
Makers and reflects the reaction time of BX Options Market Makers as 
compared to other BX Participants entering orders. Of note, the 
proposed customized timeframe for FIX would be too long for BX Options 
Market Makers given their quoting requirements and sensitivity to price 
movements. BX Options Market Makers would be severely impacted by a 
loss of connectivity of more than several seconds. The BX Options 
Market Maker would have exposure during the time period in which they 
are unable to manage their quote and update that quote. The BX Options 
Market Maker is best positioned to determine their setting.
---------------------------------------------------------------------------

    \14\ Id.
---------------------------------------------------------------------------

    The Exchange's proposal is further consistent with the Act because 
it will mitigate the risk of potential erroneous or unintended 
executions associated with a loss in communication with a Client 
Application which protects investors and the public interest. Also, any 
interest that is executable against a BX Options Market Maker's quotes 
that is received \15\ by the Exchange prior to the trigger of the 
disconnect to the Client Application, which is processed by the System, 
automatically executes at the price up to the BX Options Market Maker's 
size. In other words, the System will process the request for 
cancellation in the order it was received by the System.
---------------------------------------------------------------------------

    \15\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange book.
---------------------------------------------------------------------------

    The System operates consistently with the firm quote obligations of 
a broker-dealer pursuant to Rule 602 of Regulation NMS. Specifically, 
with respect to BX Options Market Makers, their obligation to provide 
continuous two-sided quotes on a daily basis is not diminished by the 
removal of such quotes triggered by the disconnect. BX Options Market 
Makers are required to provide continuous two-sided quotes on a daily 
basis.\16\ BX Options Market Makers will not be relieved of the 
obligation to provide continuous two-sided quotes on a daily basis, nor 
will it prohibit the Exchange from taking disciplinary action against a 
BX Options Market Makers for failing to meet the continuous quoting 
obligation each trading day as a result of disconnects.
---------------------------------------------------------------------------

    \16\ See note 13 above.
---------------------------------------------------------------------------

    Today, BOX Options Exchange LLC offers its market makers a similar 
feature to the one proposed by the Exchange for the automatic removal 
of quotes when connectivity issues arise.\17\ BOX automatically cancels 
a market maker's quotes for all appointed classes when BOX loses 
communication with a market maker's trading host for a specified time 
period. BX also proposes to similarly cancel BX Options Market Makers 
open quotes associated with the same BX Options Market Makers ID and 
underlyings. BX proposes to cancel all BX Options Market Maker's quotes 
in options which are assigned to that particular BX Options Market 
Makers. BOX appears to similarly cancel all open quotes in options 
which are assigned to a specific market maker. BOX's timeframe is no 
less than 1 second or no greater than 9 seconds. BX proposes a default 
timeframe for SQF Ports of fifteen (15) seconds with the ability to 
modify this setting with a value between 100 milliseconds and 99,999 
milliseconds. The proposal to permit BX Options Market Makers to amend 
the default setting at the beginning of each session of connectivity is 
consistent with the Act because it avoids unwarranted logoffs of BX 
Options Market Makers and provides BX Options Market Makers the 
opportunity to set a time, within the prescribed timeframe, to 
authorize the Exchange to disconnect the BX Options Market Maker.
---------------------------------------------------------------------------

    \17\ See BOX Rule 8140.
---------------------------------------------------------------------------

    Another distinction to note is that while BOX sets the time for 
participants, BX permits BX Participants to modify the default setting 
for SQF Ports to a more appropriate time within a set of parameters. 
While BOX does not offer the cancellations of orders, Chicago Board 
Options Exchange, Incorporated's (``CBOE'') does offer its participants 
a similar mechanism to cancel orders. CBOE's proposal is discussed 
further below.
    With respect to FIX Ports, the Exchange will offer this optional 
removal functionality to all market participants. Offering the removal 
feature on a voluntary basis to all other non-BX Options Market Makers 
is consistent with the Act because it permits them an opportunity to 
utilize this risk feature, if desired, and avoid risks associated with 
inadvertent executions in the event of a loss of connectivity with the 
Exchange. The removal feature is designed to mitigate the risk of 
missed and/or unintended executions associated with a loss in 
communication with a Client Application. The proposed rule change is 
designed to not permit unfair discrimination among market participants, 
as this removal feature will be offered uniformly to all BX 
Participants utilizing FIX.
    The Exchange will disconnect BX Participants from the Exchange and 
not cancel its orders if the removal feature

[[Page 46743]]

is disabled. The disconnect feature is mandatory and will cause the BX 
Participant to be disconnected within the default timeframe or the 
timeframe otherwise specified by the BX Participant. This feature is 
consistent with the Act because it enables FIX users the ability to 
disconnect from the Exchange, assess the situation and make a 
determination concerning their risk exposure. The Exchange notes that 
in the event that orders need to be removed, the BX Participant may 
elect to utilize the Kill Switch \18\ feature. It is consistent with 
the Act to require other market participants to be disconnected because 
the BX Participant is otherwise not connected to the Exchange's System 
and the BX Participant simply needs to reconnect to commence submitting 
and cancelling orders. Requiring a disconnect when a loss of 
communication is detected is a rational course of action for the 
Exchange to alert the BX Participant of the technical connectivity 
issue.
---------------------------------------------------------------------------

    \18\ See BX Rule at Chapter VI, Section 6(d).
---------------------------------------------------------------------------

    The Exchange's proposal to set a default timeframe of thirty (30) 
seconds and permit a FIX user to modify the timeframe for FIX ports to 
between 1 second and 30 seconds for the removal of orders is consistent 
with the Act and the protection of investors because the purpose of 
this optional feature is to mitigate the risk of potential erroneous or 
unintended executions associated with a loss in communication with a 
Client Application. BX Participants selecting the removal feature are 
able to better anticipate the appropriate time that they require prior 
to a logoff as compared to the Exchange, within the Exchange's 
prescribed timeframes. The Exchange does not desire to trigger 
unwarranted logoffs of BX Participants and therefore permits BX 
Participants to provide a time to the Exchange, within the Exchange's 
prescribed timeframe, to authorize the Exchange to disconnect the BX 
Participant and remove orders. The ``nn'' seconds serve as the BX 
Participant's instruction to the Exchange to act upon the loss of 
connection and remove orders from the System. The BX Participant is 
also best positioned to determine that they only desire the disconnect 
feature, which is mandatory, and do not desire to have their orders 
removed.
    The Exchange's proposal to offer other market participants the 
removal feature on a voluntary basis is similar to CBOE's Rule.\19\ 
CBOE offers market participants, on a voluntary basis, the ability to 
cancel orders entered through FIX when a technical disconnect occurs, 
similar to the BX proposal. CBOE's Rule offers participants the 
opportunity to cancel orders within a timeframe determined by the 
Trading Permit Holder. The default value selected by the CBOE is no 
less than 5 seconds. The Exchange's default timeframe for the 
disconnect and removal of orders for FIX is 30 seconds with the ability 
to modify that timeframe to between 1 second and 30 seconds, on a 
session by session basis, in contrast to CBOE. Also, in contrast to 
CBOE, FIX users may choose to enable or disable the cancellation 
feature when a disconnect occurs. The proposed timeframe for the FIX 
feature is consistent with the Act because the Exchange seeks to 
provide BX Participants with the ability to select the amount of time 
that they desire for a loss of communication prior to taking action to 
cancel open orders or simply disconnect. The BX Participant should have 
the ability to select the appropriate time, within a prescribed 
timeframe, for authorizing the Exchange to cancel its open orders or 
simply disconnect from the Exchange. Inadvertent cancellations may 
create a greater risk of harm to investors and the BX Participant is 
better positioned to determine the appropriate time, with the 
prescribed timeframe, to remove orders or disconnect. CBOE's rule also 
offers participants the ability to cancel orders as proposed by BX, on 
a voluntary basis.
---------------------------------------------------------------------------

    \19\ See CBOE Rule 6.23C.
---------------------------------------------------------------------------

    The proposed rule change will help maintain a fair and orderly 
market which promotes efficiency and protects investors. This mandatory 
removal feature for BX Options Market Makers and optional removal for 
all other market participants will mitigate the risk of potential 
erroneous or unintended executions associated with a loss in 
communication with a Client Application.

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. Specifically, the Exchange does 
not believe the proposed rule change will cause an undue burden on 
intra-market competition because BX Options Market Makers, unlike other 
market participants, have greater risks in the market place. Quoting 
across many series in an option creates large principal positions that 
expose BX Options Market Makers, who are required to continuously quote 
in assigned options, to potentially significant market risk. Providing 
a broader timeframe for the disconnect and removal of orders for FIX as 
compared to the removal of quotes for SQF Ports does not create an 
undue burden on competition. BX Options Market Makers have quoting 
obligations \20\ and are more sensitive to price movements as compared 
to other market participants. The proposal is consistent with the Act 
because it provides a tighter timeframe for the disconnect and removal 
of quotes for SQF Ports as compared to the removal of orders for FIX 
Ports.
---------------------------------------------------------------------------

    \20\ See note 13 above.
---------------------------------------------------------------------------

    BX Options Market Makers need to remain vigilant of market 
conditions and react more quickly to market movements as compared to 
other BX Participants entering multiple orders into the System. The 
proposal reflects this sensitivity borne by BX Options Market Makers 
and reflects the reaction time of BX Options Market Makers as compared 
to other BX Participants entering orders. Offering the removal feature 
to other market participants on an optional basis does not create an 
undue burden on intra-market competition because unlike BX Options 
Market Makers, other market participants do not bear the same risks of 
potential erroneous or unintended executions. FIX users have the 
opportunity to disable the cancellation feature and simply disconnect 
from the Exchange. FIX users may also set a timeframe that is 
appropriate for their business. It is appropriate to offer this 
optional cancellation functionality to other market participants for 
open orders, because those orders are subject to risks of missed and/or 
unintended executions due to a lack of connectivity which the BX 
Participants need to weigh. Finally, the Exchange does not believe that 
such change will impose any burden on inter-market competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
Other options exchanges offer similar functionality.\21\
---------------------------------------------------------------------------

    \21\ See BOX's Rule 8140 and CBOE's Rule 6.23C.
---------------------------------------------------------------------------

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

[[Page 46744]]

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 \22\ and subparagraph 
(f)(6) of Rule 19b-4 thereunder.\23\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \23\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \24\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
30-day operative delay so that it may immediately offer the proposed 
risk protection feature. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest. The Exchange proposes to adopt a functionality 
designed to assist BX Participants with managing certain risks in the 
event that a BX Participant loses communication with its FIX or SQF 
Ports due to a loss of connectivity. The Commission notes that two 
other options exchanges currently have similar risk protection 
functionalities for their members.\25\ Therefore, the Commission hereby 
waives the 30-day operative delay and designates the proposal operative 
upon filing.\26\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. If 
the Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
---------------------------------------------------------------------------

    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ See BOX Rule 8140 and CBOE Rule 6.23C.
    \26\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

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-BX-2016-040 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-2016-040. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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-BX-2016-040 and should be 
submitted on or before August 8, 2016.

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

    \27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-16857 Filed 7-15-16; 8:45 am]
BILLING CODE 8011-01-P