[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]


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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend 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.
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    \3\ SQF is an interface that allows Market Makers to connect and 
send quotes, Immediate-or-Cancel Orders and auction responses into 
MRX.
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    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.
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    \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).
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    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).
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    \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).
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    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).
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    \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).
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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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    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.
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    \11\ See MRX Rule 804(e).
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    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.
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    \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).
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    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.
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    \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.''
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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\
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    \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.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (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.
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    \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