[Federal Register Volume 84, Number 113 (Wednesday, June 12, 2019)]
[Notices]
[Pages 27374-27381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12339]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86060; File No. SR-BX-2019-017]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the Order
Routing Rule in BX Chapter VI, Section 11
June 6, 2019.
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 May 29, 2019, Nasdaq BX, Inc. (``BX'' 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 Substance
of the Proposed Rule Change
The Exchange proposes to amend Chapter VI, Section 11, titled
``Order Routing''.
The text of the proposed rule change is available on the Exchange's
website 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 BX Chapter VI, Section 11, titled
``Order Routing'' to conform the rule text of BX's Chapter VI, Section
11, where applicable, to Phlx Rule 1093 where the routing behavior is
identical. Further the Exchange is amending BX Chapter VI, Section 11
to add more clarity and correct the current Rule. The proposed changes
will be discussed below in greater detail.
Universal Change
The Exchange proposes to amend the term ``BX Options'' to simply
state ``Exchange'' throughout this rule.
Chapter VI, Section 11(a)
Nasdaq Phlx LLC recently amended its routing rule.\3\ As stated
above, BX proposes to conform the rule text of BX Chapter VI, Section
11, where applicable, to Phlx Rule 1093 where the routing behavior is
identical. The Exchange notes that the amendments to BX Chapter VI,
Section 11 reflect the current operation of the System. The purpose of
the amendment is to align the rule to the specific operation of the
routing functionality on BX.
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\3\ See Securities Exchange Act Release No. 85519 (April 5,
2019), 70 FR 14686 (April 11, 2019) (SR-Phlx-2019-07).
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The Exchange proposes to provide rule text within paragraph (a) to
BX Chapter VI, Section 11 \4\ similar to Phlx Rule 1093(a). While Phlx
offers a FIND and SRCH routing strategy, BX offers a SEEK and SRCH \5\
routing strategy.\6\ In addition, Phlx's All-or-None \7\ Order type
differs from BX. The BX BBO is representative of the displayed orders
on the BX Order Book. Finally, BX defines a Public Customer at Chapter
I, Section 1(a)(50), while Phlx defines Public Customer within Rule
1093(a).\8\
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\4\ Proposed BX Chapter VI, Section 11(a) would provide, ``BX
offers two routing strategies, SEEK and SRCH. Each of these routing
strategies will be explained in more detail below. An order may in
the alternative be marked Do Not Route or ``DNR''. The Exchange
notes that for purposes of this rule the System will route SEEK and
SRCH Orders with no other contingencies. Immediate or Cancel
(``IOC'') Orders will be cancelled immediately if not executed, and
will not be routed. The System checks the Order Book for available
contracts for potential execution against the SEEK or SRCH Orders.
After the System checks the Order Book for available contracts,
orders are sent to other available market centers for potential
execution. When checking the Order Book, the System will seek to
execute at the price at which it would send the order to an away
market. For purposes of this rule, a Route Timer shall not exceed
one second and shall begin at the time orders are accepted into the
System, and the System will consider whether an order can be routed
at the conclusion of each Route Timer. Finally, for purposes of this
rule, ``exposure'' or ``exposing'' an order shall mean a
notification sent to participants with the price, size, and side of
interest that is available for execution. Exposure notifications
will be sent to participants in accordance with the routing
procedures described in Section 11(c)(ii) below except if an
incoming order is joining an already established BBO price when the
ABBO is locked or crossed with the BBO, in which case such order
will join the established BBO price and no exposure notification
will be sent. An order exposure will be sent if the order size is
modified. For purposes of this rule BX's opening process is governed
by Chapter VI, Section 8 and includes an opening after a trading
halt (``Opening Process'').''
\5\ The SRCH routing functionalities for Phlx and BX are
different and therefore are not being conformed.
\6\ BX does not have a FIND routing strategy similar to Phlx.
\7\See Phlx Rule 1078. Phlx's All-or-None Order is non-
displayed. This order type could cause Phlx's Order Book to differ
from the displayed PBBO. BX has no such non-displayed order type.
\8\ BX Section 1(a)(50) provides, ``The term ``Public Customer''
means a person that is not a broker or dealer in securities and is
not a professional as defined within BX Rule at Chapter I, Section
1(a)(49).''
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The Exchange proposes a new second paragraph at BX Chapter VI,
Section 11(a).\9\ This paragraph does not conform to Phlx Rule 1093.
The proposed rule
[[Page 27375]]
text currently exists within the BX rule and is being amended and
relocated as described herein. The first sentence of current BX Chapter
VI, Section 11(a) \10\ is being amended and relocated to proposed BX
Chapter VI, Section 11(a). The current sentence provides, ``For System
securities, the order routing process shall be available to
Participants from 9:30 a.m. Eastern Time until market close and shall
route orders as described below.'' The amendment to the rule text is
not substantive. The Exchange proposes to relocate the remainder of
current BX Chapter VI, Section 11(a) to the first sentence of the
second paragraph of proposed BX Chapter VI, Section 11(a). Finally, the
Exchange proposes to relocate current BX Chapter VI, Section 11(a)(1)
\11\ to the second paragraph of proposed Chapter VI, Section 11(a).
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\9\ The second paragraph of proposed BX Chapter VI, Section
11(a) would provide, ``Routing options may be combined with all
available order types and times-in-force, with the exception of
order types and times-in-force whose terms are inconsistent with the
terms of a particular routing option. The term ``System routing
table'' refers to the proprietary process for determining the
specific trading venues to which the System routes orders and the
order in which it routes them. The Exchange reserves the right to
maintain a different System routing table for different routing
options and to modify the System routing table at any time without
notice. The order routing process shall be available to Participants
from 9:30 a.m. Eastern Time until market close and shall route
orders as described below. Participants can designate orders as
either available for routing or not available for routing. All
routing of orders shall comply with Chapter XII, Options Order
Protection and Locked and Crossed Market Rules.''
\10\ Current BX Chapter VI, Section 11(a) provides, ``For System
securities, the order routing process shall be available to
Participants from 9:30 a.m. Eastern Time until market close and
shall route orders as described below. Participants can designate
orders as either available for routing or not available for routing.
All routing of orders shall comply with Chapter XII, Options Order
Protection and Locked and Crossed Market Rules.''
\11\ Current BX Chapter VI, Section 11(a)(1) provides, ``The
system provides a number of routing options pursuant to which orders
are sent to other available market centers for potential execution,
per the entering firm's instructions. Routing options may be
combined with all available order types and times-in-force, with the
exception of order types and times-inforce whose terms are
inconsistent with the terms of a particular routing option. The term
``System routing table'' refers to the proprietary process for
determining the specific trading venues to which the System routes
orders and the order in which it routes them. The Exchange reserves
the right to maintain a different System routing table for different
routing options and to modify the System routing table at any time
without notice.'' The Exchange notes that this partial sentence is
being deleted as unnecessary ``The system routing options are:''
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Proposed BX Chapter VI, Section 11(a)(i) \12\ is being relocated
from current BX Chapter VI, Section 11(c) \13\ with some minor non-
substantive changes to the rule text to conform the paragraph to Phlx
Rule 1093(a)(i).
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\12\ Current BX Chapter VI, Section 11(b) is reserved and is
being deleted.
\13\ Current BX Chapter VI, Section 11(c) provides, ``Priority
of Routed Orders. Orders sent by the System to other markets do not
retain time priority with respect to other orders in the System and
the System shall continue to execute other orders while routed
orders are away at another market center. Once routed by the System,
an order becomes subject to the rules and procedures of the
destination market including, but not limited to, order
cancellation. A routed order can be for less than the original
incoming order's size. If a routed order is subsequently returned,
in whole or in part, that routed order, or its remainder, shall
receive a new time stamp reflecting the time of its return to the
System, unless any portion of the original order remains on the
System, in which case the routed order shall retain its timestamp
and its priority.''
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Current BX Chapter VI, Section 11(d) \14\ is proposed to be
relocated to proposed BX Chapter VI, Section 11(a)(ii) with some minor
non-substantive changes.
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\14\ Current BX Chapter VI, Section 11(d) provides, ``Options
Participants whose orders are routed to away markets shall be
obligated to honor such trades that are executed on away markets to
the same extent they would be obligated to honor a trade executed on
BX Options.''
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The Exchange proposes to relocate BX Chapter VI, Section 11(e) \15\
and (f) \16\ to proposed BX Chapter VI, Section 11(a)(ii)(A)-(F).
Current Chapter VI, Section 11(g), ``Cancellation of Orders and Error
Account'' is being re-lettered from ``g'' to ``b'' with no changes to
the rule text.
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\15\ Current BX Chapter VI, Section 11(e) provides, ``BX Options
shall route orders in options via Nasdaq Execution Services, LLC
(``NES''), a broker-dealer that is a member of an unaffiliated SRO
which is the designated examining authority for the broker-dealer.
NES serves as the Routing Facility of BX Options. The sole function
of the Routing Facility will be to route orders in options listed
and open for trading on BX Options to away markets either directly
or through one or more third-party unaffiliated routing broker-
dealers pursuant to BX Options rules on behalf of BX Options. The
Exchange and NES may not use a routing broker for which the Exchange
or any affiliate of the Exchange is the designated examining
authority. The Routing Facility is subject to regulation as a
facility of BX, including the requirement to file proposed rule
changes under Section 19 of the Act.
Use of NES to route orders to other market centers is optional.
Parties that do not desire to use NES must designate orders as not
available for routing.
The Exchange will determine the logic that provides when, how,
and where orders are routed away to other exchanges. Except as
provided in subparagraph (f) below, the routing broker(s) cannot
change the terms of an order or the routing instructions, nor does
the routing broker have any discretion about where to route an
order.
BX Options shall establish and maintain procedures and internal
controls reasonably designed to adequately restrict the flow of
confidential and proprietary information between the Exchange and
its facilities (including the Routing Facility), and any other
entity; or, where there is a routing broker, the Exchange, the
Routing Facility and any routing broker, and any other entity,
including any affiliate of the routing broker (and if the routing
broker or any of its affiliates engages in any other business
activities other than providing routing services to the Exchange,
between the segment of the routing broker or affiliate that provides
the other business activities and the segment of the routing broker
that provides the routing services).
The books, records, premises, officers, directors, agents, and
employees of the Routing Facility, as a facility of the Exchange,
shall be deemed to be the books, records, premises, officers,
directors, agents, and employees of the Exchange for purposes of and
subject to oversight pursuant to the Exchange Act. The books and
records of the Routing Facility, as a facility of the Exchange,
shall be subject at all times to inspection and copying by the
Exchange and the Commission.''
\16\ Current BX Chapter VI, Section 11(f) provides, ``Market
Access. In addition to the Exchange Rules regarding routing to away
trading centers, NES has, pursuant to Rule 15c3-5 under the Act,
implemented certain tests designed to mitigate risks associated with
providing the Exchange's Members with access to such away trading
centers. Pursuant to the policies and procedures developed by NES to
comply with Rule 15c3-5, if an order or series of orders are deemed
to be violative of applicable pre-trade requirements under Rule
15c3-5, the order will be rejected prior to routing and/or NES will
seek to cancel the order if it has been routed.''
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DNR Orders
The Exchange proposes to add a new BX Chapter VI, Section
11(a)(iii) \17\ with the following text, ``The following order types
are available:''. The Exchange proposes to relocate and amend current
BX Chapter VI, Section 11(a)(1)(C) \18\ to
[[Page 27376]]
proposed BX Chapter VI, Section 11(a)(iii) with some amendments. This
proposed rule text is identical to Phlx Rule 1093(a)(iii)(A).
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\17\ Proposed BX Chapter VI, Section 11(a)(iii) provides, ``DNR
Order. A DNR Order will never be routed outside of BX regardless of
the prices displayed by away markets. A DNR Order may execute on the
Exchange at a price equal to or better than, but not inferior to,
the best away market price but, if that best away market remains,
the DNR Order will remain in the BX Order Book and be displayed at a
price one minimum price variation (``MPV'') inferior to that away
best bid/offer. If the DNR Order is locking or crossing the ABBO,
the DNR Order shall be entered into the Order Book at the ABBO price
and displayed one MPV away from the ABBO. The Exchange shall
immediately expose the order at the ABBO to participants, provided
the option series has opened for trading. Any incoming order
interacting with such a resting DNR Order will execute at the ABBO
price, unless the ABBO is improved to a price which crosses the
DNR's displayed price, in which case the incoming order will execute
at the previous ABBO price. Should the best away market change its
price to an inferior price level, the DNR Order will automatically
re-price from its one MPV inferior to the original away best bid/
offer price to one minimum trading increment away from the new away
best bid/offer price or its original limit price, and expose such
orders at the ABBO to participants only if the re-priced order locks
or crosses the ABBO. Once priced at its original limit price, it
will remain at that price until executed or cancelled. Should the
best away market improve its price such that it locks or crosses the
DNR Order limit price, the Exchange will execute the resulting
incoming order that is routed from the away market that locked or
crossed the DNR Order limit price.
\18\ Current BX Chapter VI, Section 11(a)(1)(C) provides, ``DNR
Order. A DNR order will never be routed outside of the Exchange
regardless of the prices displayed by away markets. A DNR order may
execute on the Exchange at a price equal to or better than, but not
inferior to, the best away market price but, if that best away
market remains, the DNR order will remain in the Exchange book and
be displayed at the better of a price one minimum price variation
away from that ABBO or the established Exchange BBO. A DNR order
remaining on the book after the opening process or received during
open trading that is marketable against the ABBO when the ABBO is
better than the Exchange BBO will be exposed at the NBBO to market
participants. Any incoming order interacting with such a resting DNR
order will receive the best away market price. Should the best away
market change its price, or move to an inferior price level, the DNR
order will automatically re-price from its one minimum price
variation away from the original away best bid/offer price to one
minimum trading increment away from the new away best bid/offer
price or its original limit price, and expose such orders at the
NBBO to market participants only if the re-priced order locks or
crosses the ABBO and is not already displayed at its limit price.
Should the best away market improve its price such that it locks or
crosses the DNR order limit price, the Exchange will execute the
resulting incoming order that is routed from the away market that
locked or crossed the DNR order limit price. An order exposure alert
may be sent if the order size is modified.''
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The Exchange proposes to amend the second and third sentence of
current BX Chapter VI, Section 11(a)(1)(C), which states,
A DNR order may execute on the Exchange at a price equal to or
better than, but not inferior to, the best away market price but, if
that best away market remains, the DNR order will remain in the
Exchange book and be displayed at the better of a price one minimum
price variation away from that ABBO or the established Exchange BBO.
A DNR order remaining on the book after the opening process or
received during open trading that is marketable against the ABBO
when the ABBO is better than the Exchange BBO will be exposed at the
NBBO to market participants.
The Exchange proposes to instead provide at proposed BX Chapter VI,
Section 11(a)(iii)(A), ``A DNR Order may execute on the Exchange at a
price equal to or better than, but not inferior to, the best away
market price but, if that best away market remains, the DNR Order will
remain in the BX Order Book and be displayed at a price one minimum
price variation (``MPV'') \19\ inferior to that away best bid/offer.''
The Exchange is amending ``one minimum price variation away from that
ABBO or the established Exchange BBO'' to ``one minimum price variation
(``MPV'') inferior to that away best bid/offer.'' Further, the Exchange
provides at proposed BX Chapter VI, Section 11(a)(iii)(A), ``If the DNR
Order is locking or crossing the ABBO, the DNR Order shall be entered
into the Order Book at the ABBO price and displayed one MPV away from
the ABBO. The Exchange shall immediately expose the order at the ABBO
to participants, provided the option series has opened for trading.''
An order that the Options Participant has elected not to make eligible
for routing will be re-priced to the current national best offer (for
bids) or the current national best bid (for offers) and displayed at
one MPV above (for offers) or below (for bids) the national best price.
The Exchange displays the DNR Order at one MPV away in compliance with
Regulation NMS. An order will not be executed at a price that trades
through another market or displayed at a price that would lock or cross
another market. An order that is designated by a member as non-routable
will be re-priced in order to comply with applicable Trade-Through and
Locked and Crossed Markets restrictions.\20\ This proposed new sentence
will add greater transparency as to the manner in which the Exchange
handles locked and cross orders today and re-prices those orders.
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\19\ Any reference to minimum price variance in the rules will
be replaced with ``MPV.''
\20\ Also, an order that is designated by the member as routable
will be routed in compliance with applicable Trade-Through and
Locked and Crossed Markets restrictions.
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The Exchange proposes to remove the current sentence within current
BX Chapter VI, Section 11(a)(1)(C), which provides, ``A DNR order
remaining on the book after the opening process or received during open
trading that is marketable against the ABBO when the ABBO is better
than the Exchange BBO will be exposed at the NBBO to market
participants.'' The Exchange proposes to state at proposed BX Chapter
VI, Section 11(a)(iii)(A), ``The Exchange shall immediately expose the
order at the ABBO to participants, provided the option series has
opened for trading.'' The Exchange notes that inserting ``ABBO'' more
clearly provides that the away market is considered because the local
book has already been exhausted in this scenario. The Exchange proposes
to amend the next sentence of current BX Chapter VI, Section
11(a)(1)(C), which provides, ``Any incoming order interacting with such
a resting DNR order will receive the best away market price.'' The
Exchange proposes to instead state at proposed BX Chapter VI, Section
11(a)(iii)(A), ``Any incoming order interacting with such a resting DNR
order will execute at the ABBO price, unless the ABBO is improved to a
price which crosses the DNR's displayed price, in which case the
incoming order will execute at the previous ABBO price.'' The Exchange
is expanding this language because it is accounting for a scenario
where an ABBO was disseminated after the crossing condition took place.
This is a change to reflect the current practice and amend the rule
text to conform to the manner in which the System is operating. While
the ABBO can improve, when it crosses the DNR Order the updated ABBO
cannot be utilized to execute the DNR Order. The Exchange is amending
the sentence of current BX Chapter VI, Section 11(a)(1)(C), ``Should
the best away market change its price, or move to an inferior price
level, the DNR order will automatically re-price from its one minimum
price variation away from the original away best bid/offer price to one
minimum trading increment away from the new away best bid/offer price
or its original limit price, and expose such orders at the NBBO to
market participants only if the re-priced order locks or crosses the
ABBO and is not already displayed at its limit price.'' The Exchange
proposes to state within proposed BX Chapter VI, Section 11(a)(iii)(A),
``Should the best away market change its price to an inferior price
level, the DNR Order will automatically re-price from its one MPV
inferior to the original away best bid/offer price to one minimum
trading increment away from the new away best bid/offer price or its
original limit price, and expose such orders at the ABBO to
participants only if the re-priced order locks or crosses the ABBO.''
The Exchange is rewording this sentence because the NBBO by definition
includes the BBO. However, if the DNR order locks or crosses the BBO,
the DNR order will immediately execute. Only if the DNR order locks or
crosses the ABBO will the DNR order be exposed. This amendment reflects
current practice.
The Exchange proposes to add a new sentence to proposed Chapter VI,
Section 11(a)(iii)(A) which states, ``Once priced at its original limit
price, it will remain at that price until executed or cancelled.'' The
Exchange believes the addition of this sentence, similar to rule text
in Phlx today \21\ will add more clarity to the manner in which the DNR
Order will be priced.
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\21\ See Phlx Rule 1093(a).
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The proposed rule text is intended to bring more clarity to the
current rule regarding DNR Orders. The Exchange believes that adding
context around a DNR Order when that order is locked or crossed will
provide more transparency to the current rule. The Exchange notes that
consistent with SEEK and SRCH Orders, a DNR Order that is locked or
crossed will display one MPV away from the ABBO. The Exchange believes
that the proposed language will benefit market participants because it
provides greater information.
SEEK Order
The Exchange proposes to relocate SEEK Orders which are currently
within BX Chapter VI, Section 11(a)(1)(A) into proposed new BX Chapter
VI, Section 11(a)(iii)(B).\22\
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\22\ Phlx does not have SEEK Orders.
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The first sentence of current BX Chapter VI, Section 11(a)(1)(A) is
proposed to be relocated to proposed BX Chapter VI, Section
11(a)(iii)(B).\23\ The Exchange proposes to add the following
[[Page 27377]]
sentence to proposed BX Chapter VI, Section 11(a)(iii)(B), ``Orders
initiate their own route timers and are routed in the order in which
their route timers end.'' Specifically, each order begins a separate
Route Timer, which cannot be early terminated. Each individual order's
Route Timer must complete before the order can route to an away market.
The Exchange believes that this language makes clear how the SEEK Order
is prioritized today for routing purposes, which is sequentially based
on the Route Timer.
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\23\ Proposed BX Chapter VI, Section 11(a)(iii)(B) provides,
``SEEK is a routing option pursuant to which an order will first
check the System for available contracts for execution, and then is
sent to other available market centers for potential execution.
Orders initiate their own route timers and are routed in the order
in which their route timers end.''
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The Exchange proposes to add new text at BX Chapter VI, Section
11(a)(iii)(B)(1) \24\ which provides, ``If a SEEK is received during an
Opening Process it may route as part of the Opening Cross pursuant to
Chapter VI, Section 8(b)(7).'' The Exchange proposes to introduce the
defined term ``Opening Process'' within proposed BX Chapter VI, Section
11(a).\25\
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\24\ Proposed BX Chapter VI, Section 11(a)(iii)(B)(1) provides,
``If a SEEK is received during an Opening Process it may route as
part of the Opening Cross pursuant to Chapter VI, Section 8(b)(7).''
\25\ The last sentence of the first paragraph of proposed BX
Chapter VI, Section 11(a) provides, ``For purposes of this rule BX's
opening process is governed by Chapter VI, Section 8 and includes an
opening after a trading halt (``Opening Process'').''
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The Exchange proposes to amend current Chapter VI, Section
11(a)(1)(A), by utilizing the defined term ``Opening Process'' instead
of ``after the opening process or received during open trading'' and
remove the phrase ``a Route Timer not to exceed one second'' which is
also defined within the term Route Timer in proposed Chapter VI,
Section 11(a). The term ``NBBO'' is being replaced with the term
``ABBO'' because it is a more accurate representation than NBBO because
the local market has been exhausted and this portion of the rule is
describing the SEEK Order reacting to the ABBO. The proposed sentence
would provide at proposed BX Chapter VI, Section 11(a)(iii)(B)(2), ``If
a SEEK Order is received after an Opening Process and it is marketable
against the ABBO when the ABBO is better than the displayed Exchange
BBO, a Route Timer will initiate and expose the SEEK Order at the ABBO
to allow market participants an opportunity to interact with the
remainder of the SEEK Order.'' The Exchange proposes to replace the
current sentence within current Chapter VI, Section 11(a)(1)(A),
``During the Route Timer, the SEEK order will be included in the
displayed Exchange BBO at the better of a price one MPV away from the
ABBO or the established Exchange BBO.'' The Exchange proposes to state
in its place at the end of proposed BX Chapter VI, Section
11(a)(iii)(B)(2), ``During the Route Timer, the SEEK Order will be
included in the displayed Exchange BBO, unless the SEEK Order locks or
crosses the ABBO, in which case it will be entered into the Order Book
at the ABBO price and displayed one MPV away from the ABBO.'' The
Exchange is adding a locked and crossed scenario to the rule and
indicating the price at which the SEEK Order would display. This
additional information is intended to describe the condition that would
cause the SEEK Order to reprice, the locked or crossed market.\26\
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\26\ Proposed BX Chapter VI, Section 11(a)(iii)(B)(2), would
provide, ``If a SEEK Order is received after an Opening Process and
it is marketable against the ABBO when the ABBO is better than the
displayed Exchange BBO, a Route Timer will initiate and expose the
SEEK Order at the ABBO to allow market participants an opportunity
to interact with the remainder of the SEEK Order. During the Route
Timer, the SEEK Order will be included in the displayed Exchange
BBO, unless the SEEK Order locks or crosses the ABBO, in which case
it will be entered into the Order Book at the ABBO price and
displayed one MPV away from the ABBO.''
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Proposed BX Chapter VI, Section 11(a)(iii)(B)(3) \27\ is the same
as the current rule text at BX Chapter VI, Section 11(a)(1)(A), however
the Exchange proposes to amend current BX Chapter VI, Section
11(a)(1)(A) which states, ``If, during the Route Timer, any new
interest arrives opposite the SEEK order that is equal to or better
than the ABBO price, the SEEK order will trade against such new
interest at the ABBO price.'' The Exchange proposes to replace this
sentence within proposed Chapter VI, Section 11(a)(iii)(B)(3) with,
``If during the Route Timer, the ABBO moves and crosses the SEEK Order,
any new interest arrives opposite the SEEK Order that is marketable
against the SEEK Order will trade at the SEEK Order price.'' This
scenario is not currently described in the current rule. This new
sentence will address the specific situation where the ABBO cross a
SEEK Order and the price at which the SEEK Order would trade. In this
situation, the away market has crossed the BBO. The contra interest
would therefore execute at the SEEK Order price. The new language will
provide market participants with greater transparency as to the manner
in which the System currently handles a SEEK Order in that particular
situation.
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\27\ Proposed BX Chapter VI, Section 11(a)(iii)(B)(3) provide,
``If during the Route Timer in subparagraph (2) above any new
interest arrives opposite the SEEK order that is equal to or better
than the ABBO price, the SEEK Order will trade against such new
interest at the ABBO price. If during the Route Timer, the ABBO
moves and crosses the SEEK Order, any new interest arrives opposite
the SEEK Order that is marketable against the SEEK Order will trade
at the SEEK Order price. When checking the Order Book, the System
will seek to execute at the price at which it would send the order
to a destination market center. Eligible unexecuted orders will
continue to be routed as described in subparagraph (B)(2).''
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The Exchange proposes to amend rule text within current BX Chapter
VI, Section 11(a)(1)(A) with proposed BX Chapter VI, Section 11(a)(4)
\28\ by amending the first sentence from ``If contracts remain
unexecuted after routing, they are posted on the book'' to ``If
contracts remain unexecuted after routing, they are posted on the Order
Book at its limit price.'' This new text seeks to makes clear the price
at which the SEEK Order would post in the first sentence and therefore
provides additional information which is also contained in the second
sentence of that paragraph, which reflects current rule text. The
remainder of proposed BX Chapter VI, Section 11(a)(4) captures current
text within current BX Chapter VI, Section 11(a)(1)(A).
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\28\ Proposed BX Chapter VI, Section 11(a)(iii)(B)(4) provides,
``If contracts remain unexecuted after routing, they are posted on
the Order Book at its limit price. While on the Order Book at the
limit price, should the order subsequently be locked or crossed by
another market center, the System will not re-expose or route the
order to the locking or crossing market center.''
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The Exchange proposes to delete a relocated sentence within current
BX Chapter VI, Section 11(a)(1)(A), which provides, ``SEEK orders will
not be eligible for routing until the next time the option series is
subject to a new opening or reopening.'' The aforementioned sentence
was relocated to proposed BX Chapter VI, Section 11(a) and utilizes the
defined term ``Opening Process'' within proposed BX Chapter VI, Section
11(a).\29\
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\29\ Proposed BX Chapter VI, Section 11(a)(iii)(B)(5) provides,
``SEEK Orders will not be eligible for routing until the next time
the option series is subject to a new Opening Process.''
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SRCH Order
The Exchange proposes to relocate SRCH Orders which are currently
in BX Chapter VI, Section 11(a)(1)(B) to proposed BX Chapter VI,
Section 11(a)(iii)(C). As noted herein, Phlx and BX SRCH Orders differ.
The first sentence of current BX Chapter VI, Section 11(a)(1)(B) is
proposed to be relocated to proposed BX Chapter VI, Section
11(a)(iii)(C).\30\ The Exchange proposes to add the following second
sentence to proposed BX
[[Page 27378]]
Chapter VI, Section 11(a)(iii)(C), ``Orders initiate their own route
timers and are routed in the order in which their route timers end.''
Specifically, each order begins a separate Route Timer, which cannot be
early terminated. Each individual order's Route Timer must complete
before the order can route to an away market. The Exchange believes
that this language makes clear how the SRCH Order is prioritized today
for routing purposes, which is sequentially based on the Route Timer.
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\30\ Proposed BX Chapter VI, Section 11(a)(iii)(C) provides,
``SRCH Order is a routing option pursuant to which an order will
first check the System for available contracts for execution, and
then is sent to other available market centers for potential
execution. Orders initiate their own route timers and are routed in
the order in which their route timers end.''
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The Exchange proposes to amend the third sentence of current BX
Chapter VI, Section 11(a)(iii)(B) which provides, ``During the Route
Timer, the SRCH order will be included in the displayed Exchange BBO at
the better of a price one MPV away from the ABBO or the established
Exchange BBO.'' The Exchange proposes the following rule text within
proposed BX Chapter VI, Section 11(a)(iii)(C)(2),
During the Route Timer described in subparagraph (1), the SRCH
Order will be included in the displayed Exchange BBO, unless the
SRCH Order locks or crosses the ABBO, in which case it will be
entered into the Order Book at the ABBO price and displayed one MPV
away from the ABBO. If there exists a locked market upon receipt of
the SRCH Order, the SRCH Order may display at the locked ABBO price.
The Exchange is adding a locked and crossed scenario to the rule
and indicating the price at which the SRCH Order would display. This
additional information is intended to describe the condition that would
cause the SRCH Order to reprice the locked or crossed market.
The Exchange proposes to relocate the fourth through sixth
sentences of current BX Chapter VI, Section 11(a)(1)(B) to proposed BX
Chapter VI, Section 11(a)(iii)(C)(3).\31\ The proposed new rule text is
substantially similar to the proposed rule text except that the
Exchange proposes to add a new sentence to this paragraph which
provides, ``If during the Route Timer, the ABBO moves and crosses the
SRCH Order, any new interest arrives opposite the SRCH Order that is
marketable against the SRCH Order will trade at the SRCH Order price.''
This new sentence will address the specific situation where the ABBO
cross a SRCH Order and the price at which the SRCH Order would trade.
In this situation, the away market has crossed the BBO. The contra
interest would therefore execute at the SRCH Order price. The new
language will provide market participants with greater transparency as
to the manner in which the System currently handles a SRCH Order in
that particular situation.
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\31\ Proposed BX Chapter VI, Section 11(a)(iii)(C)(3) provides,
``If, during the Route Timer described in subparagraph (1), any new
interest arrives opposite the SRCH Order that is equal to or better
than the ABBO price, the SRCH order will trade against such new
interest at the ABBO price. If during the Route Timer, the ABBO
moves and crosses the SRCH Order, any new interest arrives opposite
the SRCH Order that is marketable against the SRCH Order will trade
at the SRCH Order price. When checking the Order Book, the System
will seek to execute at the price at which it would send the order
to a destination market center. Eligible unexecuted orders will
continue to be routed as described in subparagraph (C)(1).''
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The Exchange proposes to relocate and amend the seventh and eight
sentences of current BX Chapter VI, Section 11(a)(1)(B) to proposed BX
Chapter VI, Section 11(a)(iii)(C)(4) \32\ which state, ``If contracts
remain un-executed after routing, they are posted on the book. Once on
the book, should the order subsequently be locked or crossed by another
market center, it will be re-exposed, provided it is not on the book at
its limit price, and re-route. An order exposure alert may be sent if
the order size is modified.'' The Exchange is adding the phrase ``at
the limit price'' within this sentence to correctly note that the price
at which the order is posted at on the Order Book. Further, the
Exchange proposes to amend the penultimate sentence of current BX
Chapter VI, Section 11(a)(1)(B) as the sentence is incorrect. The
Exchange proposes to amend this incorrect sentence to provide at
proposed BX Chapter VI, Section 11(a)(iii)(C)(4), ``While on the Order
Book at the limit price, should the order subsequently be locked or
crossed by another market center, the System will not re-expose or
route the order to the locking or crossing market center.'' The
Exchange notes that the current text which states that the SRCH Order
would be re-exposed is incorrect. The current practice is that the
order is not re-exposed because the SRCH Order is being locked or
crossed by an away market and the Exchange is not required to re-expose
the SRCH Order in this scenario. The final sentence of Current Chapter
VI, Section 11(a)(i)(B) is being relocated to proposed Section 11(a) as
noted herein.
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\32\ Proposed BX Chapter VI, Section 11(a)(iii)(C)(4) provides,
``If contracts remain un-executed after routing, they are posted on
the Order Book at its limit price. While on the Order Book at the
limit price, should the order subsequently be locked or crossed by
another market center, the order will not re-expose and may route at
the end of route timer.''
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Current Chapter VI, Section 11(a)(1)(D)
The Exchange proposes to delete BX Chapter VI, Section 11(a)(1)(D)
because the Exchange has relocated the locked and crossed scenarios
into the text of SEEK and SRCH as explained herein. The proposed text
also addresses new interest trading opposite the order as well as
eligible unexecuted interest. The Exchange believes that this paragraph
is unnecessary with the proposed text for SEEK and SRCH.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\33\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\34\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest because the Exchange is adding more detail to
its routing rule to provide market participants with greater
transparency. The Exchange believes the added scenarios will provide
more context to routing in general and for the specific routing
strategies for the benefit of investors and the public interest. Also,
in defining terms and utilizing consistent language throughout the
rule, the Exchange believes the proposed rule will provide transparency
with respect to the manner in which BX routes orders. The Exchange
continues to offer various choices to its market participants with
respect to routing.
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\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(5).
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Chapter VI, Section 11
The Exchange's proposal to utilize the term ``System'' will conform
this rule to other BX rules which utilize that term. Explaining the
Route Timer at the beginning of this proposed rule will provide context
to use of the term throughout the rule and avoid repetitiveness.
Replacing the term ``NBBO'' with the term ``ABBO,'' where appropriate,
is consistent with the Act because the term ``ABBO'' refers to the away
market and not the local market, which is a more accurate term in
situation where the local market has been exhausted. Defining minimum
price variation and Opening Process will bring greater transparency to
proposed Chapter IV, Section 11. The Exchange believes that it is
consistent with the Act to refer to the Opening Process within Chapter
VI, Section 8 when referring to routing during the Opening Process to
avoid confusion with respect to governing rules. The Exchange's
proposal to add the concept of DNR at the beginning of the rule to make
clear up-front that this option is available when selecting a routing
strategy is a structural non-substantive change intended to bring
greater clarity to the rule.
The Exchange proposes to more specifically explain within the rule
text
[[Page 27379]]
what is meant by ``exposure'' or ``exposing'' an order. The Exchange
proposes to make clear that exposure shall mean a notification sent to
participants that includes the price, size, and side of interest that
is available for execution. The Exchange believes that this additional
language in consistent with the Act because it will assist market
participants in understanding the manner in which these terms are used
throughout this rule.
The Exchange's proposal to not disseminate an exposure notification
to participants if an incoming order is joining an already established
BBO price when the ABBO is locked or crossed with the BBO is consistent
with the Act because in this case, such order will join the established
BBO price, which is already disseminated. The Exchange believes that
exposing an order which reflects a disseminated price could cause
confusion rather than inform investors and the general public of the
availability of an order. Today, the Exchange executes responses at a
price at or better than the ABBO on a first come, first served basis
prior to routing the order to an away market in accordance with the
rules currently in effect in Chapter VI, Section 11. If a response is
received which is executable against the full volume of the order, it
may execute immediately. Since the order was filled, the Route Timer no
longer exists because the order no longer exists. The Exchange believes
that this notification is not necessary in the case of an incoming
order that joins an already established BBO price when the ABBO is
locked or crossed with the BBO as other orders previously established
the BBO on the Order Book. The established BBO price is a disseminated
price which is available to market participants. A second notification
with the exposure message would reflect the same price as the
disseminated BBO price and would not offer market participants new
information.
The remainder of the rule changes in the introduction are non-
substantive rule changes that simply seek to reorganize and add
transparency to the current rule text.
DNR Orders
The Exchange's proposal to add a new sentence to proposed new
Chapter VI, Section 11(a)(iii)(A), that is not in the current rule
text, that provides, ``If the DNR order is locking or crossing the
ABBO, the DNR order shall be entered into the Order Book at the ABBO
price and displayed one MPV away from the ABBO'' is consistent with the
Act because this behavior is compliant with Regulation NMS. An order
will not be executed at a price that trades through another market or
displayed at a price that would lock or cross another market. An order
that is designated by a member as non-routable will be re-priced in
order to comply with applicable Trade-Through and Locked and Crossed
Markets restrictions.\35\ The Exchange's proposal to account for a
scenario where an ABBO was disseminated after the crossing condition
took place is consistent with the Act because an updated ABBO that
crosses the DNR Order cannot be utilized to execute the DNR Order. The
Exchange believes that adding context around a DNR Order when that
order is locked or crossed will provide more transparency to the rule.
The Exchange notes that consistent with SEEK and SRCH Orders, a DNR
Order that is locked or crossed will display one MPV away from the
ABBO. The Exchange believes that the proposed language will benefit
market participants because it provides greater information.
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\35\ Also, an order that is designated by the member as routable
will be routed in compliance with applicable Trade-Through and
Locked and Crossed Markets restrictions.
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The Exchange's proposal to remove the sentence within current BX
Chapter VI, Section 11(a)(1)(C) which provides, ``A DNR order remaining
on the book after the opening process or received during open trading
that is marketable against the ABBO when the ABBO is better than the
Exchange BBO will be exposed at the NBBO to market participants'' and
instead provide within proposed BX Chapter VI Section 11(a)(iii)(A),
``The Exchange shall immediately expose the order at the ABBO to
participants, provided the option series has opened for trading'' is
consistent with the Act. The Exchange notes that inserting ``ABBO''
more clearly provides that the away market is considered because the
local book has already been exhausted in this scenario. This amendment
will protect investors and the public interest by avoiding confusion.
Adding locking and crossing scenarios will account for a scenario where
an ABBO was disseminated after the crossing condition took place. This
is a change to reflect the current practice and amend the rule text to
conform to the manner in which the System is operating. While the ABBO
can improve, when it crosses the DNR Order the updated ABBO cannot be
utilized to execute the DNR Order. The Exchange's proposal to amend
rule text, within proposed BX Chapter VI Section 11(a)(iii)(A) to
provide, ``Should the best away market change its price to an inferior
price level, the DNR Order will automatically re-price from one MPV
inferior to the original away best bid/offer price to one minimum
trading increment away from the new away best bid/offer price or its
original limit price, and expose such orders at the ABBO to
participants only if the re-priced order locks or crosses the ABBO'' is
consistent with the Act. The Exchange is rewording this sentence
because the NBBO by definition includes the BBO. However, if the DNR
order locks or crosses the BBO, the DNR order will immediately execute.
Only if the DNR order locks or crosses the ABBO will the DNR order be
exposed. The proposed rule text is intended to bring more clarity to
the current rule regarding DNR Orders. The Exchange believes that
adding context around a DNR Order when that order is locked or crossed
will provide more transparency to the current rule. The Exchange
believes that the proposed language will benefit market participants
because it provides greater information.
The Exchange's proposal to add a new sentence to proposed Chapter
VI, Section 11(a)(iii)(A), ``Once priced at its original limit price,
it will remain at that price until executed or cancelled'' is
consistent with the Act. The Exchange believes the addition of this
sentence, similar to rule text in Phlx today \36\ will add more clarity
to the manner in which the DNR Order will be priced.
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\36\ See Phlx Rule 1093(a).
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SEEK and SRCH Orders
The Exchange's proposal to expand the current language within SEEK
and SRCH Orders to add a reference to an Opening Process as defined
within proposed BX Chapter VI, Section 11(a) will add clarity to the
rule text. Also, making clear that each order begins a separate Route
Timer, which cannot be early terminated and the individual order's
Route Timer must complete before the order can route to an away market
is consistent with the Act because the Exchange is allowing the entire
time on the Route Timer to obtain the best price for the order.\37\ In
order to maintain priority within the System, the SEEK and SRCH Order
is prioritized today for routing purposes, which is sequentially based
on the Route Timer.
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\37\ See proposed BX Rule Chapter VI, Sections 11(a)(iii)(B) and
11(a)(iii)(C).
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SEEK Order
The Exchange's proposal to utilize the more precise terms ``ABBO''
in place of ``NBBO'' where the local market has been exhausted when
describing SEEK
[[Page 27380]]
Order behavior is consistent with the Act because the term is more
accurate.\38\ The Exchange's proposal to note a scenario where the ABBO
moves and crosses the SEEK Order during a Route Timer.\39\ If the away
market price crosses the BBO, the market is crossed and contra interest
would execute at the price the order rested on the Order Book. If the
away price locks the displayed price, the contra interest would execute
at its displayed price. This proposed rule text is consistent with the
Act because it would not permit a trade-through but would allow a SEEK
Order to trade where the order is marketable, but does not trade-
though. The new language will provide market participants with greater
transparency as to the manner in which the System will handle a SEEK
Order in that particular situation. This is also applicable to SRCH
Orders.
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\38\ See proposed BX Chapter VI, Section 11(a)(1)(A).
\39\ See proposed BX Chapter VI, Section 11(a)(iii)(B)(2).
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SRCH Order
The Exchange's proposal to add new rule text within proposed BX
Chapter VI, Section 11(a)(iii)(C)(3) concerning a SRCH Order, ``If
during the Route Timer, the ABBO moves and crosses the SRCH Order, any
new interest arrives opposite the SRCH Order that is marketable against
the SRCH Order will trade at the SRCH Order price'' is consistent with
the Act. This new sentence will address the specific situation where
the ABBO cross a SRCH Order and the price at which the SRCH Order would
trade. In this situation, the away market has crossed the BBO. The
contra interest would therefore execute at the SRCH Order price. The
new language will provide market participants with greater transparency
as to the manner in which the System currently handles a SRCH Order in
that particular situation'' \40\ is consistent with the Act because
this situation accounts for a locked and crossed market scenario and
provides information as to the manner in which the SRCH Order would
display. This information provides market participant with greater
transparency.
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\40\ See proposed BX Chapter VI, Section 11(a)(iii)(C)(3).
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The Exchange's proposal to amend the penultimate sentence of
current BX Chapter VI, Section 11(a)(1)(B) to provide, ``While on the
Order Book at the limit price, should the order subsequently be locked
or crossed by another market center, the order will not re-expose and
may route at the end of route timer'' is consistent with the Act
because the Exchange would not disseminate an exposure notification to
participants because the SRCH Order is being locked or crossed by an
away market and the Exchange is not required to re-expose the SRCH
Order in this scenario.
Current Chapter VI, Section 11(a)(1)(D)
The Exchange's proposal to delete current BX Chapter VI, Section
11(a)(1)(D) is consistent with the Act because the Exchange has
relocated the locked and crossed scenarios into the text of SEEK and
SRCH as explained herein. The proposed text also addresses new interest
trading opposite the order as well as eligible unexecuted interest. The
Exchange believes that this paragraph is unnecessary and redundant in
light of the proposed text for SEEK and SRCH.
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 proposed routing rules
apply to all market participants including routing during an Opening
Process. The Exchange believes that adding greater detail to its rules
does not impose an undue burden on competition, rather it provides
greater transparency as to the potential outcomes when utilizing
different routing strategies. Further, the Exchange notes that market
participants may elect not to route their orders. The Exchange
continues to offer various options to its market participants with
respect to routing.
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) of the Act \41\ and Rule 19b-
4(f)(6) thereunder.\42\
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\41\ 15 U.S.C. 78s(b)(3)(A).
\42\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of 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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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \43\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \44\ 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 requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative upon filing. The
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the Exchange to immediately provide members with greater
information and transparency on potential order routing strategies
available on the Exchange. For this reason, the Commission hereby
waives the 30-day operative delay and designates the proposed rule
change as operative upon filing.\45\
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\43\ 17 CFR 240.19b-4(f)(6).
\44\ 17 CFR 240.19b-4(f)(6)(iii).
\45\ For purposes only of waiving the 30-day operative delay,
the Commission also 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 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 change 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-BX-2019-017 on the subject line.
[[Page 27381]]
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-2019-017. 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-BX-2019-017, and should be submitted on
or before July 3, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12339 Filed 6-11-19; 8:45 am]
BILLING CODE 8011-01-P