[Federal Register Volume 83, Number 165 (Friday, August 24, 2018)]
[Notices]
[Pages 42954-42957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18294]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83888; File No. SR-NASDAQ-2018-069]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Codify the Definitions of the Protocols to Enter Quotes and Orders
August 20, 2018.
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 August 17, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or
``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 adopt new rule text within The Nasdaq
Options Market LLC Rules at Chapter VI, Section 21. Specifically, the
Exchange proposes to codify the definitions of the current protocols
that Participants can use to enter quotes and orders on the Exchange
and introduce a new protocol.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.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 adopt new rule text at Chapter VI, Section
21 to codify the Financial Information eXchange (``FIX'') and
Specialized Quote Feed (``SQF'') protocols. The Exchange proposes to
adopt a new protocol and name it ``Ouch to Trade Options'' (``OTTO'')
and rename and amend the current OTTO protocol on NOM as ``Quote Using
Orders'' or ``QUO''.\3\ The Exchange believes that codifying
definitions of current and new protocols in its rules will increase
transparency around its operations. Furthermore, the proposed
definitions will be harmonized where appropriate with definitions
contained in the rules of the Exchange's affiliated options markets,\4\
by using consistent terms to define the buckets of information
transmitted, or the features available, on each protocol. The protocols
used by NOM Participants to submit quotes and orders play an important
role in the operation of the System.
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\3\ Today the Exchange offers FIX, SQF and QUO (formerly known
as OTTO) to its Participants.
\4\ Rules have been filed for Nasdaq ISE, LLC (``ISE''), Nasdaq
GEMX, LLC (``GEMX''), Nasdaq MRX, LLC (``MRX''), Nasdaq BX, Inc. and
Nasdaq Phlx, LLC.
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The Exchange notes it has two protocols today, SQF and proposed to
be renamed QUO (formerly known as OTTO), that NOM Market Makers can use
to meet their quoting obligations. All quotes on SQF are counted toward
market making obligations. While a NOM Market Maker may enter an
Immediate-or-Cancel Order through SQF this order does not rest on the
Exchange's order book and therefore does not count toward quoting
[[Page 42955]]
obligations. In contrast orders that NOM Market Makers send through QUO
will count toward market maker quoting obligations because orders
submitted through QUO will rest on the order book and allow NOM Market
Makers to provide liquidity on NOM. NOM Market Makers cannot use QUO to
submit quotes. As noted below in the section on QUO, specifically
orders would count toward meeting quoting obligations for purposes of
Rule 701, Opening, and Rule 804(e), regarding intra-day quoting.
The Exchange proposes to title proposed new Section 21 as ``Order
and Quote Protocols'' and codify descriptions of the various current
and new protocols that Participants may use to enter quotes and orders
on NOM. Proposed new section (a) to Chapter VI, Section 21 would be
entitled ``Entry and Display of Orders and Quotes.'' Proposed new
Chapter VI, Section 21(a) would provide, ``Participants may enter
orders and quotes into the System as specified below.'' The Exchange
proposes to add a section Chapter VI, Section 21(a)(i) which states,
``The Exchange offers Participants the following protocols for entering
orders and quotes respectively.'' Each protocol will be explained in
greater detail below.
A. Financial Information eXchange Ports
This protocol is not memorialized within the Exchange's Rulebook,
however rule changes describing FIX were filed previously.\5\ The
Exchange proposes to codify a description of FIX at Rule 1080(a)(i)(a)
to add even greater specificity to this protocol. The Exchange proposes
to state that FIX is an interface that allows Participants (Market
Makers and non-Market Maker Participants) and their Sponsored Customers
to connect, send and receive messages related to orders to and from the
Exchange. Features include the following: (1) Execution messages; (2)
order messages; and (3) risk protection triggers and cancel
notifications.
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\5\ See Securities Exchange Act Release No. 74616 (April 6,
2015), 80 FR 18450 (March 31, 2015) (SR-NASDAQ-2015-027). The FIX
port was previously referred to as the ``Order Entry Port'' and
described as a connection to routing orders to the Exchange via an
external order entry port. NOM Participants access the Exchange's
network through order entry ports. A NOM Participant may have more
than one order entry port. The Exchange recently renamed the ``Order
Entry Port'' as the ``FIX Port'' in the Exchange's Pricing Schedule.
See Securities Exchange Act Release No. 83192 [sic] (May 9, 2018),
83 FR 22570 [sic] (May 15, 2018) (SR-NASDAQ-2018-036).
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B. Specialized Quote Feed Ports
This protocol is not memorialized within the Exchange's Rulebook,
however rule changes describing SQF were filed previously.\6\ The
Exchange proposes to more specifically define an SQF Port. The Exchange
proposes the following definition:
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\6\ See Securities Exchange Act Release No. 83193 (May 9, 2018),
83 FR 22539 (May 15, 2018) (SR-NASDAQ-2018-036). This rule change
generally described SQF as an interface that allows market makers to
send quotes, sweeps and auction responses into the Exchange.
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SQF is an interface that allows Market Makers to connect, send, and
receive messages related to quotes and Immediate-or-Cancel Orders into
and from the Exchange. Features include the following: (1) Options
symbol directory messages (e.g underlying instruments); (2) system
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) quote messages; (6) Immediate-or-Cancel Order
messages; (7) risk protection triggers and purge notifications; and (8)
opening imbalance messages. The SQF Purge Interface only receives and
notifies of purge request from the Market Maker.\7\
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\7\ All of the notification messages available on SQF ports as
described above (i.e., options symbol directory messages, system
event messages, trading action messages, etc.) are configurable in
that NOM Market Makers can select the specific types of
notifications they wish to receive on their SQF ports. As such, SQF
Purge Interface ports are a subpart of SQF ports that have been
configured to only receive and notify of purge requests.
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The Exchange believes that this information provides a more
thorough description of SQF.
C. Quote Using Orders (Formerly OTTO)
Today, the Exchange offers a protocol named ``Ouch to Trade
Options'' or ``OTTO.'' The Exchange has filed a description of the
current OTTO in prior rule changes stating OTTO is a protocol which
permits the transmission of orders to the Exchange by a Participant.\8\
Further, the prior filing noted Immediate-or- Cancel orders will not be
cancelled pursuant to this Chapter VI, Section 6 because, by
definition, these orders will cancel if not executed.\9\ All
Participants have the ability to utilize OTTO. Today, orders submitted
by NOM Market Makers over this interface are treated as quotes.\10\
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\8\ See Securities Exchange Act Release No. 78480 (August 4,
2016), 81 FR 52926 (August 10, 2016) (SR-NASDAQ-2016-097).
\9\ Id.
\10\ Id.
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The Exchange proposes to rename the current OTTO as ``Quote Using
Orders'' or ``QUO'' and amend the protocol by restricting it to NOM
Market Makers only because this protocol is predominately utilized by
NOM Market Makers. Further, the Exchange is offering non-Market Makers
the new OTTO protocol, described below, which some Participants, who
are also members of ISE, GEMX and MRX,\11\ utilize today. The Exchange
also notes QUO users will be subject to certain quote protections
specified in Chapter VI, Section 18(c) which are specific to NOM Market
Makers and would otherwise not apply to non-Market Makers. This
interface would continue to allow NOM Market Makers to connect, send,
and receive messages related to single-sided orders to and from the
Exchange. The Exchange proposes to add additional granularity to this
protocol by stating that the order features include the following: (1)
Options symbol directory messages (e.g., underlying); (2) system 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; and (6) risk protection triggers and
cancel notifications. Similar to how the protocol operates today,
orders submitted by NOM Market Makers over this interface are treated
as quotes. These orders would therefore count toward meeting quoting
obligations for purposes of Rule 701, Opening, and Rule 804(e),
regarding intra-day quoting.
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\11\ The new OTTO protocol is the same protocol offered on ISE,
GEMX and MRX.
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D. New Ouch to Trade Options
The Exchange proposes to introduce a new interface similar to OTTO
offered on affiliated markets which would be available to all NOM
Participants (Market Makers and non-Market Makers). In order to bring
conformance to the protocols across its affiliated markets, the
Exchange proposes to name the new interface ``Ouch to Trade Options''
or ``OTTO'' similar to the other markets.\12\ This new protocol would
allow Participants and their Sponsored Customers to connect, send, and
receive messages related to orders to and from the Exchange. Features
would include the following: (1) Options symbol directory messages
(e.g., underlying); (2) system 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;
and (6) risk protection triggers and cancel notifications.\13\ Orders
submitted by NOM Market Makers through the
[[Page 42956]]
new OTTO will not count toward their quoting obligations.
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\12\ To allow for the conformance suggested herein, the Exchange
is proposing to rename the current protocol ``Quote Using Orders''
or ``QUO.''
\13\ Unlike the current OTTO, orders submitted through the
proposed new OTTO protocol would not be treated as quotes for
purposes of Market Maker quoting obligations.
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Implementation
The Exchange proposes to rename the current OTTO to QUO and
introduce the new OTTO protocol in Q4. The Exchange would issue an
Options Trader Alert announcing the date on which these protocols would
be available.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\14\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\15\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest by adding greater transparency to the order and
quote protocols available on NOM.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is consistent
with the protection of investors and the public interest as it codifies
the current FIX and SQF protocols used to connect to the Exchange's
System. With respect to these protocols in particular, the Exchange
believes that including a description of the various order entry
protocols into the Rulebook will benefit Participants by increasing
transparency around the operation of the Exchange. Furthermore, the
proposed descriptions of all protocols in one rule will reflect
information available on these protocols, and will be harmonized with
language to be included in the rules of its affiliated exchanges to the
extent that the protocols operate in the same manner.
With respect to the renamed and amended QUO protocol the Exchange
believes that restricting it to NOM Market Makers and further expanding
the description of the protocol is consistent with the Act because the
Exchange is also proposing to add a new protocol on NOM which would be
available to all Participants. NOM is restricting QUO to Market Makers
because it is already predominately utilized by Market Makers today.
The Exchange is offering non-Market Makers the new OTTO protocol, which
some Participants, who are also members of ISE, GEMX and MRX, utilize
today. The Exchange also notes QUO users will be subject to certain
quote protections specified in Chapter VI, Section 18(c) which are
specific to NOM Market Makers and would otherwise not apply to non-
Market Makers. The amended definition will provide greater transparency
concerning this protocol which is in use today.
Adopting a new protocol and naming it OTTO will bring greater
conformance to the protocols across Nasdaq affiliated markets. The
Exchange believes that the new proprietary protocol will offers
Participants a range of important features including the ability to
submit orders other than through FIX, while continuing to perform
functions necessary to manage trading on the Exchange. The proposed new
OTTO offers all NOM Participants the ability to send orders, similar to
QUO. The new OTTO is intended to continue to permit non-Market Makers
to have a protocol similar to the QUO (formerly OTTO) protocol offered
on NOM today. The functionality offered on new OTTO mirrors the
protocols offered on ISE, GEMX and MRX. The Exchange desires to conform
its protocols across Nasdaq affiliated markets. The Exchange believes
adopting and codifying this protocol will increase transparency to the
Participants. The Exchange also notes that today this protocol is
offered on ISE, GEMX and MRX.
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. As explained above, the
Exchange is codifying the quote and order entry protocols for FIX, SQF,
renamed QUO and the new OTTO. Participants utilize the FIX, SQF and
current OTTO protocols to connect to the Exchange's System. The
Exchange will offer a new OTTO protocol and rename current OTTO to QUO.
The Exchange does not believe that codifying these existing and new
protocols in the Rulebook will have any competitive impact.
The Exchange does not believe limiting QUO to only Market Makers
presents an undue burden on competition because, today, this protocol
is predominately utilized by Market Makers. The Exchange is offering
non-Market Makers the new OTTO protocol which some Participants, who
are also members of ISE, GEMX and MRX, utilize today. The Exchange also
notes QUO users will be subject to certain quote protections specified
in Chapter VI, Section 18(c) which are specific to NOM Market Makers
and would otherwise not apply to non-Market Makers.
Locating all the protocol descriptions within a single rule and
adding context around each protocol will increase transparency around
the operation of the Exchange without having any impact on inter-market
or intra-market competition. All market participants have the ability
to subscribe to the protocols for order entry. The quoting protocols
are limited to the market participants who are permitted by rule to
quote on NOM, but the function is uniformly available to these eligible
participants. Further, adopting OTTO will provide market participants
with additional choices in selecting an order protocol other than FIX.
Market Makers will be able to utilize either SQF or QUO to comply with
quoting obligations. Every market participant will have more than one
protocol available to utilize.
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.
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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-NASDAQ-2018-069 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-NASDAQ-2018-069. 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 (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 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 10:00 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-NASDAQ-2018-069 and should be submitted
on or before September 14, 2018.
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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\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18294 Filed 8-23-18; 8:45 am]
BILLING CODE 8011-01-P