[Federal Register Volume 85, Number 120 (Monday, June 22, 2020)]
[Notices]
[Pages 37486-37488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13309]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89077; File No. SR-NASDAQ-2020-031]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Delay the Protocol ``Ouch To Trade Options'' or ``OTTO''

June 16, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 11, 2020, 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 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 delay the protocol ``Ouch to Trade 
Options'' or ``OTTO'' on The Nasdaq Options Market LLC (``NOM'').
    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
    Nasdaq filed a rule change \3\ which adopted a new protocol ``Ouch 
to Trade Options'' or ``OTTO'' \4\ and proposed to rename and modify 
the current OTTO protocol as ``Quote Using Orders'' or ``QUO.'' \5\ The 
Exchange subsequently filed a rule change to amend Options 3, Section 
18, titled ``Detection of Loss of Communication'' which describes the 
impact to NOM protocols in the event of a loss of a communication. The 
Exchange accounted for both the new OTTO and renamed and modified QUO 
within this rule. Similarly, the Exchange amended Options 3, Section 8, 
``Nasdaq Opening and Halt Cross'' to account for the new OTTO and 
renamed and modified QUO within this rule. Finally, the Exchange 
amended Options 3, Section 23, ``Data Feeds and Trade Information'' to 
amend ``OTTO DROP'' to ``QUO DROP'' and noted within Options 3, Section 
15(a)(1) related to Order Price Protection rule or ``OPP'' that OPP 
shall not apply to orders entered through QUO.\6\
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    \3\ See Securities Exchange Act Release No. 83888 (August 20, 
2018), 83 FR 42954 (August 24, 2018) (SR-NASDAQ-2018-069) (``Prior 
Rule Change''). In the Prior Rule Change the Exchange stated that it 
would issue an Options Trader Alert introducing the new OTTO 
protocol in Q4 of 2018. The rule numbers were amended in 2019 when 
the Rulebook was relocated. See Securities Exchange Act Release No. 
87778 (December 17, 2019), 84 FR 70590 (December 23, 2019) (SR-
NASDAQ-2019-098).
    \4\ As modified by the Prior Rule Change, OTTO is an interface 
that allows Participants and their Sponsored Customers to connect, 
send, and receive messages related to orders to and from the 
Exchange. 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. See NOM Rules at Options 3, Section 
7(d)(1)(C).
    \5\ QUO is an interface that allows NOM Market Makers to 
connect, send, and receive messages related to single-sided orders 
to and from the Exchange. 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. Orders submitted by NOM Market 
Makers over this interface are treated as quotes. See Options 3, 
Section 7(d)(1)(D).
    \6\ See Securities Exchange Act Release No. 84559 (November 9, 
2019), 83 FR 57774 (November 16, 2018) (SR-NASDAQ-2018-085) 
(``Subsequent Rule Change'').
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    Both the Prior Rule Change and the Subsequent Rule Change indicated 
the aforementioned rule changes would be implemented for QUO and OTTO 
in Q4 of 2018 with the date announced via an Options Traders Alert. The 
Exchange filed a rule change implementing QUO and delaying the 
introduction of the OTTO functionality until Q3 2019 by announcing the 
date of implementation via an Options Traders Alert.\7\ The Exchange 
further delayed the implementation of OTTO functionality until Q3 2019 
and then Q2 2020, respectively.\8\ At this time, the Exchange proposes 
to further delay the implementation of OTTO functionality until Q2 
2021. The Exchange will issue an Options Trader Alert notifying 
Participants when this functionality will be available.
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    \7\ See Securities Exchange Act Release No. 84723 (December 4, 
2018), 83 FR 63692 (December 11, 2018) (SR-NASDAQ-2018-097). The 
Exchange proposed to immediately implement QUO as of the 
effectiveness of SR-NASDAQ-2018-097 and delay the implementation of 
OTTO by issuing an Options Trader Alert announcing the 
implementation date in Q1 2019. The QUO implementation became 
effective upon filing on November 26, 2018.
    \8\ See Securities Exchange Act Release Nos. 85386 (March 21, 
2019), 84 FR 11597 (March 27, 2019) (SR-NASDAQ-2019-016); and 87160 
(September 30, 2019), 84 FR 53186 (October 4, 2019) (SR-NASDAQ-2019-
078).

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[[Page 37487]]

    Nasdaq is considering enhancing OTTO features to provide members 
with other capabilities, which are currently not offered with OTTO, in 
the area of risk enhancements. Nasdaq would need time to file a 
proposal with the Commission with respect to any enhancement. Nasdaq 
proposes to delay the implementation of OTTO in order to receive 
additional feedback from market participants regarding the protocol. 
Also, Nasdaq proposes this delay to account for a change in its 
timeline to deliver this product, as a result of the market events in 
2020
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest by delaying the OTTO functionality to allow the Exchange 
additional time to implement this functionality.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    Nasdaq is considering enhancing OTTO features to provide members 
with other capabilities, which are currently not offered with OTTO, in 
the area of risk enhancements. Nasdaq would need time to file a 
proposal with the Commission with respect to any enhancement. Nasdaq 
proposes to delay the implementation of OTTO in order to receive 
additional feedback from market participants regarding the protocol. 
Also, Nasdaq proposes this delay to account for a change in its 
timeline to deliver this product, as a result of the market events in 
2020.

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 Exchange's proposal to 
delay the adoption of the OTTO functionality does not impose an undue 
burden on competition as no Participant has access to OTTO today on 
NOM.
    Nasdaq is considering enhancing OTTO features to provide members 
with other capabilities, which are currently not offered with OTTO, in 
the area of risk enhancements. Nasdaq would need time to file a 
proposal with the Commission with respect to any enhancement. Nasdaq 
proposes to delay the implementation of OTTO in order to receive 
additional feedback from market participants regarding the protocol. 
Also, Nasdaq proposes this delay to account for a change in its 
timeline to deliver this product, as a result of the market events in 
2020.

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

    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \12\ 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 asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
the waiver will allow the Exchange to immediately delay the 
implementation of the OTTO functionality. The Exchange notes that it is 
considering enhancing OTTO features to provide members with other risk-
enhancement capabilities, which are currently not offered with OTTO, 
and that Nasdaq would need time to file a proposal with the Commission 
with respect to any such enhancement. The Exchange further notes that a 
delay in the implementation of OTTO would allow the Exchange to receive 
additional feedback from market participants regarding the protocol. 
Finally, Nasdaq notes this delay is needed to account for a change in 
its timeline to deliver this product, as a result of the market events 
in 2020. The Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Accordingly, the Commission hereby waives the operative delay 
and designates the proposed rule change as operative upon filing.\13\
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    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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-NASDAQ-2020-031 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-2020-031. 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

[[Page 37488]]

submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2020-031 and should 
be submitted on or before July 13, 2020.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13309 Filed 6-19-20; 8:45 am]
BILLING CODE 8011-01-P