[Federal Register Volume 82, Number 211 (Thursday, November 2, 2017)]
[Notices]
[Pages 50910-50912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23832]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81970; File No. SR-GEMX-2017-50]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to an 
Optional Kill Switch Protection

October 27, 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 October 18, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``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.
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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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to memorialize an optional Kill Switch 
protection.\3\ The Kill Switch allows Members to cancel open orders and 
prevent new order submission.
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    \3\ Today, this feature is offered to Members. GEMX transitioned 
from its legacy trading system to INET, the current technology, in 
2017. While GEMX offered this feature on its legacy system, the 
feature was not codified in the GEMX Rulebook. At this time, the 
Exchange is codifying the Kill Switch feature to reflect the 
functionality.
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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 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.

[[Page 50911]]

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

1. Purpose
    The Exchange proposes to memorialize its Kill Switch risk 
protection which is applicable to all Members at GEMX Rule 711(d). The 
Kill Switch allows Members to cancel open orders and prevent new order 
submission. This feature provides Members with a powerful risk 
management tool for immediate control of their order activity.
    The Kill Switch is an optional tool that enables Members to 
initiate a message(s) \4\ [sic] to the trading system (``System'') to 
promptly cancel orders and restrict entry of new orders until re-entry 
has been enabled. Members may submit a request to the System to cancel 
orders for that Member. Members may not remove orders by symbol using 
the Kill Switch. The System will send an automated message to the 
Member when a Kill Switch request has been processed by the Exchange's 
System.\5\
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    \4\ Members are able to send a message to the Exchange to 
initiate the Kill Switch or they may contact the Exchange directly. 
A message to remove orders may be sent through FIX, OTTO or Precise.
    \5\ Opening Sweep Orders will also be cancelled. Consistent with 
current auction functionality, PIM auction orders and responses will 
not be cancelled. See GEMX Rule 723. Other auctions orders and 
responses would cancel. Quotes are unaffected.
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    The Member must send a message to the Exchange to request the 
cancellation of all orders for the Member. The Member is unable to 
enter additional orders until re-entry has been enabled pursuant to 
subsection (d)(2) of Rule 711.
    Proposed subsection (d)(2) stipulates that after orders are 
cancelled by the Member utilizing the Kill Switch, the Member is unable 
to enter additional orders until the Member has made a request to the 
Exchange and Exchange staff has set a re-entry indicator to enable re-
entry.\6\ Once enabled for re-entry, the System will send a Re-entry 
Notification Message to the Member. The applicable Clearing Member for 
that Member also is notified of the re-entry into the System after 
orders are cancelled as a result of the Kill Switch, provided the 
Clearing Member has requested to receive such notification.
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    \6\ The Member must directly and verbally contact the Exchange 
to request the re-set.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \8\ 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 memorializing a risk protection available to Exchange Members. This 
risk feature promotes policy goals of the Commission which has 
encouraged execution venues, exchange and non-exchange alike, to offer 
risk protection tools and other mechanisms to decrease risk and 
increase stability. The Exchange believes that memorializing this 
feature will provide Members with specific information on cancelling 
orders.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The individual firm benefits of enhanced risk protections flow 
downstream to counter-parties both at the Exchange and at other options 
exchanges, thereby increasing systemic protections as well. This risk 
feature allows Members to enter orders without fear of inadvertent 
exposure to excessive risk, which in turn benefits investors through 
increased liquidity for the execution of their orders, thereby 
protecting investors and the public interest. By memorializing the 
features in this rule change, Members are aware of the impact of 
utilizing this risk tool.
    This optional risk tool as noted above is offered to all Members. 
The Exchange further represents that its proposal operates consistently 
with the firm quote obligations of a broker-dealer pursuant to Rule 602 
of Regulation NMS and that the functionality is not mandatory. 
Specifically, any interest that is executable against a Member's orders 
that are received \9\ by the Exchange, prior to the time the Kill 
Switch is processed by the System, will automatically execute at the 
price up to the Member's size prior to the removal of orders from the 
System as a result of the Kill Switch. The Kill Switch message is 
accepted by the System in the order of receipt in the queue and is 
processed in that order so that interest that is already accepted into 
the System is processed prior to the Kill Switch message.
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    \9\ The time of receipt for an order is the time such message is 
processed by the Exchange Order Book.
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    With respect to providing information regarding the cancellation of 
orders as a result of the Kill Switch to the Clearing Member, each 
Member that transacts through a Clearing Member on the Exchange accepts 
financial responsibility for all Exchange transactions made by the 
Member on whose behalf the Clearing Member agrees to clear.\10\ The 
Exchange believes that because Clearing Members guarantee all 
transactions on behalf of a Member, and therefore bear the risk 
associated with those transactions, it is appropriate for Clearing 
Members to have knowledge of the utilization by the Member of the Kill 
Switch, should the Clearing Member request such notification.
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    \10\ See GEMX Rule 808(b).
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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. The proposal does not impose an 
undue burden on intra-market competition because all Members may avail 
themselves of the Kill Switch. The Kill Switch functionality is 
optional. The proposed rule change protects Members in the event the 
Member is suffering from a systems issue or from the occurrence of 
unusual or unexpected market activity that would require them to 
withdraw from the market in order to protect investors. Utilizing this 
Kill Switch will permit the Member to protect itself from inadvertent 
exposure to excessive risk. Reducing such risk will enable Members to 
enter orders without fear of inadvertent exposure to excessive risk, 
which in turn will benefit investors through increased liquidity for 
the execution of their orders. Such increased liquidity benefits 
investors because they receive better prices and because it lowers 
volatility in the options market. For these reasons, the Exchange does 
not believe this proposal imposes an undue burden on inter-market 
competition because other exchanges offer the same functionality, which 
is being memorialized herein.

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

[[Page 50912]]

become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ 
and subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative before 30 days from the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has asked the Commission to waive the 30-day operative 
delay. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
because the proposal is similar to the rules of other options exchanges 
and the Exchange's proposal does not raise any new or novel issues. 
Therefore, the Commission hereby waives the 30-day operative delay and 
designates the proposed rule change to be operative upon filing with 
the Commission.\14\
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    \14\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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-GEMX-2017-50 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-GEMX-2017-50. 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. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-GEMX-2017-50, and should be 
submitted on or before November 24, 2017.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23832 Filed 11-1-17; 8:45 am]
 BILLING CODE 8011-01-P