[Federal Register Volume 84, Number 105 (Friday, May 31, 2019)]
[Notices]
[Pages 25332-25333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11330]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85935; File No. SR-MRX-2019-08]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Order Approving a
Proposed Rule Change To Adopt Complex Order Functionality
May 24, 2019.
I. Introduction
On April 12, 2019, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposal to adopt rules to provide
for the trading of Complex Orders. The proposed rule change was
published for comment in the Federal Register on April 23, 2019.\3\ The
Commission received no comment letters regarding the proposed rule
change. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 85671 (April 17,
2019), 84 FR 16907 (``Notice'').
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II. Description of the Proposed Rule Change
MRX proposes to adopt rules governing the trading of Complex
Orders.\4\ The proposed rules address, among other things, the order
types, auction and crossing mechanisms, trading increments, priority,
execution, opening process, risk protections, obvious error provisions,
and data feeds for Complex Orders. MRX states that the proposed Complex
Order functionality is identical to the Complex Order functionality
currently available on Nasdaq ISE, LLC (``ISE''), and that the proposed
rules are identical to corresponding ISE rules.\5\ As described more
fully in the Notice,\6\ MRX proposes to, among other things: (1)
[[Page 25333]]
Adopt new MRX Rule 722 to describe the availability of certain order
types for Complex Orders and the priority and execution of Complex
Orders; \7\ (2) add a defined term, ``Professional Customer,'' in MRX
Rule 100(a)(54A); \8\ (3) amend MRX Rule 714 to exclude Complex Order
transactions from the anti-internalization protection; \9\ (4) amend
MRX Rule 715 to define ``legging orders'' and ``QCC with Stock Orders''
and to revise the Ouch to Trade Options and Specialized Quote Feed
protocols to include complex instruments; \10\ (5) add a Complex
Facilitation Mechanism and Complex Solicited Order Mechanism to MRX
Rule 716; \11\ (6) amend MRX Rule 718(a)(5) to adopt a new Nasdaq MRX
Spread Feed that will provide information regarding Complex Orders;
\12\ (7) amend MRX Rule 720, relating to the nullification of trades
and obvious errors, to address transactions in Complex Orders; \13\ (8)
revise MRX Rule 721 to provide for Complex Customer Cross Orders,
Complex Qualified Contingent Cross Orders, and Qualified Contingent
Cross Orders with Stock; \14\ (9) add a new Complex Price Improvement
Mechanism to MRX Rule 723; \15\ and (10) adopt new MRX Rule 724 to
establish various risk protections for Complex Orders.\16\ The proposal
also includes non-substantive and technical changes related to the
adoption of the Complex Order functionality.
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\4\ The term ``Complex Order'' includes Complex Options Orders,
Stock-Option Orders, and Stock-Complex Orders. Complex Options
Orders, Stock-Option Orders, and Stock-Complex Orders are orders for
Complex Options Strategies, Stock-Option Strategies, and Stock-
Complex Strategies, respectively. See proposed MRX Rule 722(a)(5). A
Complex Options Strategy is the simultaneous purchase and/or sale of
two or more different options series in the same underlying
security, for the same account, in a ratio that is equal to or
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) and for the purpose of executing a particular investment
strategy. Only those Complex Options Strategies with no more than
the applicable number of legs, as determined by the Exchange on a
class-by-class basis, are eligible for processing. A Stock-Option
Strategy is the purchase or sale of a stated number of units of an
underlying stock or a security convertible into the underlying stock
(``convertible security'') coupled with the purchase or sale of
options contract(s) on the opposite side of the market representing
either (A) the same number of units of the underlying stock or
convertible security, or (B) the number of units of the underlying
stock necessary to create a delta neutral position, but in no case
in a ratio greater than eight-to-one (8.00), where the ratio
represents the total number of units of the underlying stock or
convertible security in the option leg to the total number of units
of the underlying stock or convertible security in the stock leg. A
Stock-Complex Strategy is the purchase or sale of a stated number of
units of an underlying stock or a security convertible into the
underlying stock (``convertible security'') coupled with the
purchase or sale of a Complex Options Strategy on the opposite side
of the market representing either (A) the same number of units of
the underlying stock or convertible security, or (B) the number of
units of the underlying stock necessary to create a delta neutral
position, but in no case in a ratio greater than eight-to-one
(8.00), where the ratio represents the total number of units of the
underlying stock or convertible security in the option legs to the
total number of units of the underlying stock or convertible
security in the stock leg. Only those Stock-Complex Strategies with
no more than the applicable number of legs, as determined by the
Exchange on a class-by-class basis, are eligible for processing. See
proposed MRX Rules 722(a)(1), (2), and (3).
\5\ See Notice, 84 FR at 16907.
\6\ See note 3, supra.
\7\ The Exchange represents that proposed MRX Rule 722 is
identical to ISE Rule 722. See Notice at 16907. MRX also proposes to
amend MRX Rules 702 (Trading Halts) and 710 (Minimum Trading
Increments) to account for Complex Orders. The Exchange represents
that MRX Rules 702 and 710, as proposed to be amended, are identical
to ISE Rules 702 and 710, respectively. See id. at 16908 and 16910.
\8\ The Exchange represents that proposed MRX Rule 100(a)(54A)
is identical to ISE Rule 100(a)(54A). See id. at 16910.
\9\ The Exchange represents that proposed MRX Rule 714(b)(3)(A)
is identical to ISE Rule 714(b)(3)(A). See id.
\10\ The Exchange represents that the proposed definitions of
``legging orders'' and ``QCC with Stock Orders'' in proposed MRX
Rules 715(k) and (t) are identical to ISE Rules 715(k) and (t),
respectively. In addition, the Exchange represents that the proposed
amendment to the Ouch to Trade Options and Specialized Quote Feed
protocols in proposed MRX Rule 715, Supplementary Material .03(b)
and (c) are identical to ISE Rule 715, Supplementary Material .03(b)
and (c). See id.
\11\ The Exchange represents that the proposed Complex
Facilitation Mechanism and Complex Solicited Order Mechanism in MRX
Rules 716(c) and (e) are identical to ISE Rules 716(c) and (e),
respectively. In addition, proposed MRX Rules 716(f) and (g),
addressing concurrent auctions, are identical to ISE Rules 716(f)
and (g). See id. at 16908-9.
\12\ The Exchange represents that proposed MRX Rule 718(a)(5) is
identical to ISE Rule 718(a)(5). See id. at 16910. The Exchange also
proposes to amend the MRX Pricing Schedule to indicate that the
Nasdaq MRX Spread Feed will be available at no cost. See id. and MRX
Options Pricing Schedule, Sections 6 and 7.
\13\ The Exchange represents that MRX Rule 720, as proposed to
be amended, is identical to ISE Rule 720. See id.
\14\ The Exchange represents that these orders are identical to
orders available on ISE. See id. at 16909.
\15\ The Exchange represents that the Complex Price Improvement
Mechanism in proposed MRX Rule 723(e) is identical to ISE Rule
723(e). See id.
\16\ MRX proposes to adopt the following Complex Order risk
protections: Price Limits, Vertical Spread Protections, Calendar
Spread Protections, Butterfly and Box Spread Protections, Limit
Order Price Protections, Size Limitations, and Price Level
Protections. The Exchange represents that proposed MRX Rule 724 is
identical to ISE Rule 724. See id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act,\17\ and the
rules and regulations thereunder applicable to a national securities
exchange.\18\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\19\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, 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, and that the rules are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers. The
Commission believes that the proposed rules are consistent with the Act
because they are substantially identical to ISE's rules governing the
trading of Complex Orders, which the Commission has reviewed
previously. Because they are substantially identical to ISE's Complex
Order rules, MRX's proposed rules do not raise new or novel regulatory
issues. The Commission believes that the proposed rules could assist
market participants in making informed decisions regarding the trading
of Complex Orders on MRX, including the order types, priority, auction
and crossing mechanisms, and risk protections available for Complex
Orders traded on MRX.
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\17\ 15 U.S.C. 78f.
\18\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\19\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the proposed rule change (SR-MRX-2019-08) is approved.
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\20\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11330 Filed 5-30-19; 8:45 am]
BILLING CODE 8011-01-P