[Federal Register Volume 89, Number 135 (Monday, July 15, 2024)]
[Notices]
[Pages 57485-57491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15410]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100479; File No. SR-BX-2024-019]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt an OTTO
Protocol
July 9, 2024.
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 26, 2024, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``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 a new protocol, ``Ouch to Trade
Options'' or ``OTTO'' and establish pricing for this new protocol.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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
BX proposes to offer a new order entry protocol called OTTO. Today,
BX Participants may enter orders into the Exchange through the
``Financial Information eXchange'' or ``FIX.'' \3\ The proposed new
OTTO protocol is identical to the OTTO protocol offered
[[Page 57486]]
today on 3 Nasdaq affiliated exchanges, Nasdaq ISE, LLC (``ISE''),
Nasdaq GEMX, LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'').
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\3\ FIX is an interface that allows Participants and their
Sponsored Customers to connect, send, and receive messages related
to orders and auction orders and responses to and from the Exchange.
Features include the following: (1) execution messages; (2) order
messages; and (3) risk protection triggers and cancel notifications.
In addition, a BX Participant may elect to utilize FIX to send a
message and PRISM Order, as defined within Options 3, Section 13, to
all BX Participants that opt in to receive Requests for PRISM
requesting that it submit the sender's PRISM Order with responder's
Initiating Order, as defined within Options 3, Section 13, into the
Price Improvement Auction (``PRISM'') mechanism, pursuant to Options
3, Section 13 (``Request for PRISM''). See Options 3, Section
7(e)(1)(A).
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The OTTO protocol is a proprietary protocol of Nasdaq, Inc. The
Exchange continues to innovate and modernize technology so that it may
continue to compete among options markets. The ability to continue to
innovate with technology and offer new products to market participants
allows BX to remain competitive in the options space which currently
has seventeen options markets and potential new entrants.
OTTO Protocol
As proposed, OTTO would allow Participants and their Sponsored
Customers \4\ to connect, send, and receive messages related to orders,
auction orders, and auction responses to the Exchange. OTTO features
would include the following: (1) options symbol directory messages
(e.g., underlying and complex instruments); (2) System \5\ 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; (6) risk protection triggers and cancel
notifications; (7) auction notifications; (8) auction responses; and
(9) post trade allocation messages. The Exchange notes that unlike FIX,
which offers routing capability, OTTO does not permit routing. The
Exchange proposes to include this description of OTTO in new Options 3,
Section 7(e)(1)(B) and re-letter current ``B'' as ``C''.
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\4\ General 2, Section 22 describes Sponsored Access
arrangements.
\5\ The term ``System'' or ``Trading System'' means the
automated system for order execution and trade reporting owned and
operated by BX as the BX Options market. The BX Options market
comprises: (A) an order execution service that enables Participants
to automatically execute transactions in option series; and provides
Participants with sufficient monitoring and updating capability to
participate in an automated execution environment; (B) a trade
reporting service that submits ``locked-in'' trades for clearing to
a registered clearing agency for clearance and settlement; transmits
last-sale reports of transactions automatically to the Options Price
Reporting Authority for dissemination to the public and industry;
and provides participants with monitoring and risk management
capabilities to facilitate participation in a ``locked-in'' trading
environment; and (C) the data feeds described in Options 3, Section
23. See BX Options 1, Section 1(a)(59).
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Only one order protocol is required for a BX Participant to submit
orders into BX. Only BX Participants may utilize ports on BX. Any
market participant that sends orders to a BX Participant would not need
to utilize a port. The BX Participant may send all orders, proprietary
and agency, through one port to BX. Participants may elect to obtain
multiple ports to organize their business,\6\ however only one port is
necessary for a Participant to enter orders on BX.
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\6\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons, segregating order flow among different
trading desks, or other determinations that are specific to that
Participant. A market participant may utilize multiple ports in some
cases to send multiple orders through different ports to avoid any
latency or queuing of orders. The Exchange notes that to the extent
that different OTTO Ports are used to send multiple orders as
compared to sending multiple orders through one OTTO Port the
difference from a latency standpoint would be in nanoseconds.
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Participants may elect to enter their orders through FIX, OTTO, or
both protocols, although both protocols are not necessary. Participants
may prefer one protocol as compared to another protocol, for example,
the ability to route may cause a Participant to utilize FIX and a
Participant that desires to execute an order locally may prefer OTTO.
Also, the OTTO Port offers lower latency as compared to the FIX Port,
which may be attractive to Participants depending on their trading
behavior. Nasdaq believes that the addition of OTTO will provide BX
Participants with additional choice when submitting orders to BX.
While the Exchange has no way of predicting with certainty the
amount or type of OTTO Ports market participants will in fact purchase,
the Exchange anticipates that some Participants will subscribe to
multiple OTTO Ports in combination with FIX Ports. The Exchange notes
that Options Participants may use varying number of OTTO ports based on
their business needs.
Other Amendments
In connection with offering OTTO, the Exchange proposes to amend
other rules within Options 3. Each amendment is described below.
Options 3, Section 7
BX proposes to amend Options 3, Section 7, Types of Orders and
Quote Protocols. Specifically, BX proposes to amend Options 3, Section
7 (b)(2) that describes the Immediate-or-Cancel'' or ``IOC'' order.
Today, Options 3, Section 7(b)(2)(B) notes that an IOC order may be
entered through FIX or SQF, provided that an IOC Order entered by a
Market Maker through SQF is not subject to the Order Price Protection,
the Market Order Spread Protection, or Size Limitation in Options 3,
Section 15(a)(1), (a)(2), and (b)(2), respectively. The Exchange
proposes to add ``OTTO'' to the list of protocols to note that an IOC
order may also be entered through OTTO.
BX also proposes to amend the ``DAY'' order in Options 3, Section
7(b)(3) that currently provides that a Day order may be entered through
FIX. With the addition of OTTO, a Day order may also be entered through
OTTO.
BX also proposes to amend the ``Good Til Cancelled'' or ``GTC''
order which currently does not specify that a GTC order may be entered
through FIX. GTC orders would only be able to be entered through FIX
and not OTTO. The Exchange proposes to amend Options 3, Section 7(b)(4)
to add a sentence to note that GTC orders may be entered through FIX.
Options 3, Section 8
BX proposes to amend Options 3, Section 8, Options Opening Process.
BX proposes to amend Options 3, Section 8(l) that describes the Opening
Process Cancel Timer. The Opening Process Cancel Timer represents a
period of time since the underlying market has opened. If an option
series has not opened before the conclusion of the Opening Process
Cancel Timer, a Participant may elect to have orders returned by
providing written notification to the Exchange. Today, these orders
include all non-Good Til Cancelled Orders received over the FIX
protocol. The Exchange proposes to add the OTTO protocol as well to the
rule text language in that paragraph.
Options 3, Section 12
The Exchange proposes to amend the Options 3, Section 12, Crossing
Orders. Specifically, the Exchange proposes to amend Customer Crossing
Orders in Options 3, Section 12(a) that currently provides Public
Customer-to-Public Customer Cross Orders are automatically executed
upon entry provided that the execution is at or between the best bid
and offer on the Exchange and (i) is not at the same price as a Public
Customer Order on the Exchange's limit order book and (ii) will not
trade through the NBBO. Public Customer-to-Public Customer Cross Orders
must be entered through FIX. The Exchange proposes to remove the
sentence that provides that Public Customer-to-Public Customer Cross
Orders must be entered through FIX because they will be able to be
entered through both FIX and OTTO.
Options 3, Section 17
The Exchange proposes to amend the Kill Switch at Options 3,
Section 17. The Kill Switch provides Participants with an optional risk
management tool to promptly cancel and restrict orders.
[[Page 57487]]
With the introduction of OTTO, the Exchange proposes to align its Kill
Switch rule text with MRX's Kill Switch.\7\ The Exchange proposes to
note in Options 3, Section 17(a) that BX Participants may initiate a
message(s) to the System to promptly cancel and restrict their order
activity on the Exchange, as is the case today, as described in section
(a)(1). This amendment simply rewords the rule text without a
substantive amendment to the rule text.
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\7\ See MRX Options 3, Section 17.
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The Exchange proposes to renumber Options 3, Section 17(a)(i) and
(ii) as (a)(1) and (2). Current Options 3, Section 17(a)(i) states,
``If orders are cancelled by the BX Participant utilizing the Kill
Switch, it will result in the cancellation of all orders requested for
the Identifier(s). The BX Participant will be unable to enter
additional orders for the affected Identifier(s) until re-entry has
been enabled pursuant to section (a)(ii).'' The Exchange proposes to
instead provide, ``A BX Participant may submit a request to the System
through FIX or OTTO to cancel all existing orders and restrict entry of
additional orders for the requested Identifier(s) on a user level on
the Exchange.'' With the addition of OTTO, the Exchange notes that both
FIX and OTTO orders may be cancelled. Further, today, BX Participants
utilize an interface to send a message to the Exchange to initiate a
Kill Switch.\8\ The Exchange notes that in lieu of the interface, BX
Participants will only be able to initiate a cancellation of their
orders by sending a mass purge request through FIX or OTTO. This change
will align the Kill Switch functionality to that of ISE, GEMX and MRX
Options 3, Section 17 and will enable BX Participants to initiate the
Kill Switch more seamlessly without the need to utilize a separate
interface. When initiating a cancellation of their orders by sending a
mass purge request through FIX or OTTO, Participants will be able to
submit a Kill Switch request on a user level only. This is a change
from the ability to cancel orders on either a user or group level \9\
with the interface. The Exchange proposes to amend Options 3, Section
17(a) to note this change by removing the words ``or group'' and the
following sentence that applies to a group.\10\
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\8\ See Securities Exchange Act Release No. 76116 (October 8,
2015), 80 FR 62147 (October 15, 2015) (SR-BX-2015-050) (Order
Approving Proposed Rule Change To Adopt a Kill Switch).
\9\ A permissible group could include all badges associated with
a Market Maker. Today, a Participant is able to set up these groups
in the interface to include all or some of the Identifiers
associated with the Participant firm so that a GUI Kill Switch
request could apply to this pre-defined group.
\10\ The Exchange proposes to remove this sentence,
``Permissible groups must reside within a single broker-dealer'' as
the group option would no longer exist.
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Finally, the Exchange proposes to amend proposed Options 3, Section
17(a)(2) to align to MRX's rule text by providing ``Once a BX
Participant initiates a Kill Switch pursuant to (a)(1) above . . .'' in
the first sentence. This amendment simply rewords the rule text without
a substantive amendment to the rule text.
Options 3, Section 18
The Exchange proposes to amend Options 3, Section 18, Detection of
Loss of Communication. The Exchange proposes to add OTTO to Options 3,
Section 18 as OTTO would also be subject to this rule. Today, when the
SQF Port or the FIX Port detects the loss of communication with a
Participant's Client Application because the Exchange's server does not
receive a Heartbeat message for a certain time period, the Exchange
will automatically logoff the Participant's affected Client Application
and automatically cancel all of the Participant's open quotes through
SQF and open orders through FIX. Quotes and orders are cancelled across
all Client Applications that are associated with the same BX Options
Market Maker ID and underlying issues.
At this time, the Exchange proposes to permit orders entered
through OTTO to be cancelled similar to FIX orders when the Exchange's
server does not receive a Heartbeat message for a certain time period.
The Exchange is proposing to amend Options 3, Section 18 to also
rearrange the rule text to add the word ``Definitions'' next to ``a''
and move the rule text in current ``a'' to ``b'' and re-letter the
other paragraphs accordingly. Also, the Exchange proposes to define
``Session of Connectivity'' for purposes of this rule to mean each time
the Participant connects to the Exchange's System. Further, each new
connection, intra-day or otherwise, is a new Session of Connectivity.
The Exchange proposes to use the new definition throughout Options 3,
Section 18.
Similar to FIX, when the OTTO Port detects the loss of
communication with a Participant's Client Application because the
Exchange's server does not receive a Heartbeat message for a certain
time period, the Exchange will automatically logoff the Participant's
affected Client Application and automatically cancel all of the
Participant's open orders through OTTO. Orders would be cancelled
across all Client Applications that are associated with the same BX
Options Market Maker ID and underlying issues. The Exchange proposes to
update Options 3, Section 18 to provide in proposed Options 3, Section
18(a)(3) that the OTTO Port is the Exchange's proprietary System
component through which Participants communicate their orders from the
Client Application. Further, the Exchange would note in proposed
Options 3, Section 18(c) that when the OTTO Port detects the loss of
communication with a Participant's Client Application because the
Exchange's server does not receive a Heartbeat message for a certain
time period (``nn'' seconds), the Exchange will automatically logoff
the Participant's affected Client Application and if the Participant
has elected to have its orders cancelled pursuant to proposed Section
18(f), automatically cancel all orders. Proposed Options 3, Section
18(f) would provide that the default period of ``nn'' seconds for OTTO
Ports would be fifteen (15) seconds for the disconnect and, if elected,
the removal of orders. A Participant may determine another time period
of ``nn'' seconds of no technical connectivity, as required in proposed
paragraph (c), to trigger the disconnect and, if so elected, the
removal of orders and communicate that time to the Exchange. The period
of ``nn'' seconds may be modified to a number between one hundred (100)
milliseconds and 99,999 milliseconds for OTTO Ports prior to each
Session of Connectivity to the Exchange. This feature may be disabled
for the removal of orders, however the Participant will be
disconnected.
Proposed Options 3, Section 18(f)(1) would provide that if the
Participant changes the default number of ``nn'' seconds, that new
setting shall be in effect throughout the current Session of
Connectivity and will then default back to fifteen seconds. The
Participant may change the default setting prior to each Session of
Connectivity. Finally, as proposed in Options 3, Section 18(f)(2), if
the time period is communicated to the Exchange by calling Exchange
operations, the number of ``nn'' seconds selected by the Participant
will persist for each subsequent Session of Connectivity until the
Participant either contacts Exchange operations by phone and changes
the setting or the Participant selects another time period through the
Client Application prior to the next Session of Connectivity. The
trigger for OTTO Ports is event and Client Application specific. The
automatic cancellation of the BX
[[Page 57488]]
Options Market Maker's open orders for OTTO Ports entered into the
respective OTTO Ports via a particular Client Application will neither
impact nor determine the treatment of orders of the same or other
Participants entered into the OTTO Ports via a separate and distinct
Client Application. The proposed amendments for OTTO mirror the manner
in which FIX Ports are treated when the Exchange's server does not
receive a Heartbeat message for a certain time period for a FIX
Port.\11\
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\11\ The Exchange proposes to update internal cross-references
to accommodate relocated text.
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Pricing
BX proposes to amend its Pricing Schedule at Options 7, Section 3,
BX Options Market--Ports and other Services, to assess a port fee for
the new OTTO protocol.
The Exchange proposes to assess an OTTO Port Fee of $650 per port,
per month, per account number. OTTO would be an additional order entry
protocol for BX Participants in addition to FIX, which is currently
utilized by BX Participants to enter orders into BX. The Exchange
currently assesses a FIX Port Fee of $650 per port, per month, per
account number.\12\ Only one FIX order protocol is required for a BX
Participant to submit orders into BX and to meet its regulatory
requirements.\13\ The Exchange will provide each Participant the first
FIX Port at no cost to submit orders into BX. Only one account number
is necessary to transact an options business on BX and account numbers
are available to Participants at no cost.
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\12\ The term ``account number'' means a number assigned to a
Participant. Participants may have more than one account number. See
Options 1, Section 1(a)(2). Account numbers are free on BX.
\13\ BX Participants have trade-through requirements under
Regulation NMS as well as broker-dealers' best execution
obligations.
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Only BX Participants may utilize ports on BX. Any market
participant that sends orders to a Participant would not need to
utilize a port. The BX Participant can send all orders, proprietary and
agency, through one port to BX. Participants may elect to obtain
multiple account numbers to organize their business, however only one
account number and one port for orders is necessary for a BX
Participant to trade on BX. All other order entry ports offered by BX
are not required for a BX Participant to meet its regulatory
obligations. BX Participants utilizing the first FIX Port offered at no
cost do not need to purchase an OTTO Port to meet their regulatory
obligations.
Further, while only one FIX protocol is necessary to submit orders
into BX, Participants may choose to purchase a greater number of order
entry ports, depending on their business model.\14\ To the extent that
Participants chose to utilize more than one FIX Port, the Participant
would be assessed $650 per port, per month, per account number for each
subsequent port beyond the first port.
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\14\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that Participant.
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The Exchange also proposes to add OTTO and Disaster Recovery Ports
to the list of ports that are capped at $7,500 on BX. The Exchange
notes that BX currently does not assess BX Participants for Disaster
Recovery Ports.\15\ Today, the maximum monthly fees in the aggregate
for FIX Port, CTI Port, FIX DROP Port, BX Depth Port and BX TOP Port
Fees on BX is $7,500.\16\ These ports are available to all BX
Participants. For example, to the extent that a Participant expended
more than $7,500 for FIX or OTTO Ports, BX would not charge a
Participant for additional FIX or OTTO Ports, respectively, beyond the
cap.
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\15\ See BX Options 7, Section 3.
\16\ See BX Options 7, Section 3(i).
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Only one FIX order protocol is required for a BX Participant to
submit orders into BX and to meet its regulatory requirements.\17\ The
Exchange will provide each Participant the first FIX Port at no cost to
submit orders into BX. Only one account number is necessary to transact
an options business on BX and account numbers are available to
Participants at no cost. Both FIX and OTTO ports are not necessary to
conduct business on BX; a Participant may choose among protocols based
on their business workflow. The Exchange's proposal to offer the first
FIX Port at no cost would allow BX Participants to submit orders and
quotes into BX at no cost while meeting their regulatory obligations.
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\17\ BX Participants have trade-through requirements under
Regulation NMS as well as broker-dealers' best execution
obligations.
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The proposed fee for BX OTTO is identical to the fee offered for
OTTO, an identical protocol, on MRX.\18\ MRX offers one free FIX Port
to its Members and assesses the same FIX Port fee of $650 per port, per
month, per account number as BX assessed today for FIX.\19\ MRX also
offers one free FIX Disaster Recovery Port.\20\ Today, BX does not
assess Disaster Recovery Port fees.\21\ Finally, today, MRX offers a
$7,500 monthly cap for OTTO Ports, CTI Ports, FIX Ports, FIX Drop Ports
and all Disaster Recovery Ports.\22\ BX's proposed monthly cap is
$7,500 and includes the same ports as MRX, with the exception of BX
Depth Ports and BX Top Ports.\23\ BX Depth Ports and BX Top Ports are
assessed fees of $650 per port, per month. Therefore, BX's proposed cap
can also be obtained utilizing BX Depth Port and BX Top Port in
addition to the same ports that MRX aggregates for purposes of the
monthly cap.
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\18\ See Securities Exchange Act Release No. 96824 (February 7,
2023), 88 FR 8975 (February 10, 2023) (SR-MRX-2023-05) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
MRX Options 7, Section 6). At the time SR-MRX-2023-05 was filed, MRX
had a market share of 1.62%. The Exchange notes that BX's market
share is 3.27%.
\19\ See MRX Options 7, Section 6(i).
\20\ See MRX Options 7, Section 6(i).
\21\ See BX Options 7, Section 3.
\22\ See MRX Options 7, Section 6.
\23\ BX proposes to add OTTO and Disaster Recovery Ports to its
current monthly cap. The Exchange notes that BX does not assess fees
for Disaster Recovery Ports.
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Implementation
The Exchange will implement this rule change on or before December
20, 2025. The Exchange will announce the operative date to Participants
in an Options Trader Alert.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\24\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\25\ 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. Additionally, the Exchange believes that its proposal
furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\26\
in particular, in that it provides for the equitable allocation of
reasonable dues, fees, and other charges among members and issuers and
other persons using any facility, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
\26\ See 15 U.S.C. 78f(b)(4) and (5).
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OTTO Protocol
The Exchange's proposal to adopt OTTO is consistent with the Act
because OTTO would provide BX Participants with an alternative protocol
to submit orders to the Exchange. As proposed, BX would offer the first
OTTO Port at no cost to submit orders into BX, which would remove
impediments to and perfect the mechanism of a free and open market.
[[Page 57489]]
While BX Participants may elect to obtain multiple ports to organize
their business,\27\ only one order port is necessary for a Participant
to enter orders on BX. A BX Participant may send all orders,
proprietary and agency, through one port to BX without incurring any
cost with this proposal. In the alternative, BX Participants may elect
to obtain multiple ports to organize their business.\28\
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\27\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that Participant.
\28\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that Participant.
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With the addition of OTTO, a BX Participant may elect to enter
their orders through FIX, OTTO, or both protocols, although both
protocols are not necessary. Each BX Participant would receive one OTTO
Port at no cost, thereby promoting just and equitable principles of
trade. The Exchange notes that Participants may prefer one order
protocol as compared to another order protocol, for example, the
ability to route an order may cause a Participant to utilize FIX and a
Participant that desires to execute an order locally may utilize OTTO.
Also, the OTTO Port offers lower latency as compared to the FIX Port,
which may be attractive to Participants depending on their trading
behavior. With this proposal, BX Participant may organize their
business as they chose with the ability to send orders to BX at no
cost. The proposed new OTTO protocol is identical to the OTTO protocol
offered today on ISE, GEMX, MRX.
Other Amendments
In connection with offering OTTO, the Exchange proposes to amend
other rules within Options 3 to make clear where the FIX and OTTO
protocols may be utilized. IOC Orders may be entered through FIX, OTTO
or SQF. A Day order may be entered through FIX or OTTO. A GTC order may
only be entered through FIX. A Public Customer-to-Public Customer Cross
Order may be entered through FIX or OTTO. Other processes such the
Opening Cancel Timer would impact FIX and OTTO equally.
The Exchange's proposal to amend the Kill Switch at Options 3,
Section 17 to align its rule text in proposed Options 3, Section 17(a)
and (a)(2) with MRX's Options 3, Section 17 is consistent with the Act
because it does not substantively amend the functionality beyond
removing the group level cancel capability. The Exchange's proposal to
amend proposed Options 3, Section 17(a)(2) to specify that FIX and OTTO
orders may be cancelled is consistent with the Act as it will make
clear that all orders entered on BX may be purged through the Kill
Switch. Finally, allowing BX Participants to send a mass purge request
through FIX or OTTO, in lieu of an interface, is consistent with Act
and the protection of investors and the general public because it will
enable BX Participants to initiate the Kill Switch more seamlessly
without the need to utilize a separate interface. Further, utilizing
the order protocols directly, in lieu of the interface, will align the
Kill Switch functionality to that of ISE, GEMX and MRX. When initiating
a cancellation of their orders by sending a mass purge request through
FIX or OTTO, Participants will be able to submit a Kill Switch request
on a user level only because the purge will be specific to a FIX or
OTTO user for these ports.
Finally, the Detection of Loss of Communication would apply equally
to FIX and OTTO. The Exchange believes that its proposal is consistent
with the Act and protects investors as the Exchange is making clear
what types of order types and other mechanisms may utilize OTTO. Today,
BX Participants utilize FIX to enter their orders. Despite the fact
that OTTO would not be available for the GTC Time-In-Force modifier,
the Exchange notes that one OTTO Port is being provided to Participants
at no cost. Today, FIX is the only manner in which to enter orders into
BX.
Pricing
Proposed Port Fees Are Reasonable, Equitable and Not Unfairly
Discriminatory
Only one FIX order protocol is required for a BX Participant to
submit orders into BX and to meet its regulatory requirements \29\ at
no cost while meeting its regulatory requirements. The Exchange will
provide each Participant the first FIX Port at no cost to submit orders
into BX. Only one account number is necessary to transact an options
business on BX and account numbers are available to Participants at no
cost.
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\29\ BX Participants have trade-through requirements under
Regulation NMS as well as broker-dealers' best execution
obligations. See Rule 611 of Regulation NMS; 17 CFR 242.611 and
FINRA Rule 5310.
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The Exchange proposes to offer each Participant the first FIX Port
at no cost to meet their regulatory requirements. As noted above,
Participants may freely choose to rely on one or many ports, depending
on their business model.
The Exchange's proposal is reasonable, equitable and not unfairly
discriminatory as BX is providing BX Participants the first FIX Port to
submit orders at no cost. These ports, which are offered at no cost,
would allow a BX Participant to meet its regulatory requirements. All
other ports offered by BX are not required for a BX Participant to meet
its regulatory obligations. Therefore, for the foregoing reasons, it is
reasonable to assess no fee for the first FIX Port obtained by a
Participant as a BX Participant is able to meet its regulatory
requirements with these ports. Additionally, the proposal offers a free
FIX Port to BX Participants that already subscribe to FIX, thereby
reducing fees for these market participants.
Further it is equitable and not unfairly discriminatory to assess
no fee for the first FIX Port to Participants as all BX Participants
would be entitled to the first FIX Port at no cost. With this proposal,
BX Participants may organize their business in such a way as to submit
orders to BX at no cost.
The Exchange's proposal to assess $650 per port, per month, per
account number for an OTTO Port is reasonable because OTTO is not
required for a Participant to meet its regulatory requirements. The
Exchange is offering the first FIX Port at no cost to submit orders to
BX. In addition to the FIX Port, all Participants may elect to purchase
OTTO to submit orders to BX. BX Participants utilizing the FIX Port,
which is offered at no cost, do not need to utilize OTTO.
Finally, in the event that a BX Participant elects to subscribe to
multiple ports, the Exchange offers a monthly cap beyond which a
Participant would be assessed no additional fees for the month and
proposes to add OTTO to the monthly cap. BX proposes to cap FIX Port,
OTTO Port, CTI Port, FIX Drop Port, BX Depth Port, BX TOP Port Fees,
and all Disaster Recovery Port Fees \30\ at a monthly cap of $7,500.
These caps are reasonable because they allow Participants to limit
their fees beyond a certain level if they elect to purchase multiple
ports in a given month. The caps are also equitable and not unfairly
discriminatory because any Participant will be subject to the cap,
provided they exceeded the appropriate dollar amount in a given month.
These ports are available to all BX Participants.
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\30\ BX does not assess fees for Disaster Recovery Ports.
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[[Page 57490]]
The proposed BX OTTO fee is the same as the OTTO Port fee on MRX,
for the identical port. Additionally, MRX offers one free FIX Port to
its Members and assesses the same FIX Port fee of $650 per port, per
month, per account number as BX assesses today for a FIX Port. MRX
offers its Members a free FIX Disaster Recovery Port.\31\ Today, BX
does not assess Disaster Recovery Port fees.\32\ Finally, today, MRX
offers a $7,500 monthly cap for OTTO Ports, CTI Ports, FIX Ports, FIX
Drop Ports and all Disaster Recovery Ports.\33\ BX's proposed monthly
cap includes BX Depth Ports and BX Top Ports, which are currently
assessed fees of $650 per port, per month, in addition to the same
ports that are capped on MRX (FIX Ports, OTTO Ports, CTI Ports, FIX
DROP Ports, and all Disaster Recovery Ports).
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\31\ See MRX Options 7, Section 6.
\32\ See BX Options 7, Section 3.
\33\ See MRX Options 7, Section 6.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
The OTTO protocol is a proprietary protocol of Nasdaq, Inc. The
Exchange continues to innovate and modernize technology so that it may
continue to compete among options markets. The ability to continue to
innovate with technology and offer new products to market participants
allows BX to remain competitive in the options space which currently
has seventeen options markets and potential new entrants. If BX were
unable to offer and price new protocols, it would result in an undue
burden on competition as BX would not have the ability to innovate and
modernize its technology to compete effectively in the options space.
BX's ability to offer OTTO will enable it to compete with other options
markets that provide its market participants a choice as to the type of
order entry protocols that may be utilized. BX's ability to offer and
price new and innovative products and continue to modernize its
technology, similar to other options markets, supports intermarket
competition.
OTTO Protocol
The Exchange's proposal to adopt an OTTO Protocol does not impose
an undue burden on intramarket competition. Today, all BX Participants
utilize FIX to send orders to BX. The Exchange would offer each BX
Participant the first FIX Port at no cost with this proposal. With the
addition of OTTO Ports, a BX Participant may elect to enter their
orders through FIX, OTTO, or both protocols, although both protocols
are not necessary. The Exchange's proposal to adopt an OTTO Protocol
does not impose an undue burden on intermarket competition as other
options exchanges offer multiple protocols today such as ISE, GEMX and
MRX.
Other Amendments
The Exchange's proposal to amend other rules within Options 3 to
make clear where the FIX and OTTO protocols may be utilized does not
impose an undue burden on intramarket competition as these rules will
apply in the same manner to all Participants. The Exchange's proposal
to amend other rules within Options 3 to make clear where the FIX and
OTTO protocols may be utilized does not impose an undue burden on
intermarket competition as other options exchanges may elect to utilize
their order entry protocols in different ways.
Pricing
Nothing in the proposal burdens inter-market competition because
BX's proposal to offer the first FIX Port for free is similar to MRX's
FIX Port offering and allows BX Participants to meet their regulatory
obligations. BX's offering would permit Participants the ability to
submit orders to BX at no cost. OTTO Ports are not required for BX
Participants to meet their regulatory obligations.
Nothing in the proposal burdens intra-market competition because
the Exchange would uniformly assess the port fees to all Participants,
as applicable, and would uniformly apply monthly caps. The proposed
fees are identical to fees recently approved on MRX.\34\ The proposed
BX OTTO fee is the same as the OTTO Port fee on MRX, for the identical
port. Additionally, MRX offers one free FIX Port to its Members and
assesses the same FIX Port fee of $650 per port, per month, per account
number as BX assessed today for FIX.\35\ MRX also offers a free FIX
Disaster Recovery Port.\36\ Today, BX does not assess Disaster Recovery
Port fees.\37\ Finally, today, MRX offers a $7,500 monthly cap for OTTO
Ports, CTI Ports, FIX Ports, FIX Drop Ports and all Disaster Recovery
Ports.\38\ BX's proposed monthly cap includes BX Depth Ports and BX Top
Ports, which are assessed fees of $650 per port, per month, in addition
to the same ports that are capped on MRX (FIX Ports, OTTO Ports, CTI
Ports, FIX DROP Ports, and all Disaster Recovery Ports).
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\34\ See Securities Exchange Commission Release No. 96824
(February 7, 2023), 88 FR 8975 (February 10, 2023) (SR-MRX-2023-05).
\35\ See MRX Options 7, Section 6.
\36\ Id,
\37\ See BX Options 7, Section 3. BX is adding Disaster Recovery
Ports to its monthly cap.
\38\ See MRX Options 7, Section 6.
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To the extent that the Commission does not permit BX to assess the
same identical fees for the same identical products on its market, the
Commission is creating a burden on competition by allowing MRX to
assess fees and offer a product that would otherwise be unavailable on
BX. Additionally, the proposal offers a free FIX Port to BX
Participants that already subscribe to FIX, the only order port
currently offered on BX, thereby reducing fees for these market
participants. Each SRO should be permitted to mirror fees assessed by
another SRO to further competition among the exchanges.
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 \39\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\40\
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\39\ 15 U.S.C. 78s(b)(3)(A)(iii).
\40\ 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 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 should be approved or disapproved.
[[Page 57491]]
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-BX-2024-019 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-BX-2024-019. 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 (https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-BX-2024-019 and should be
submitted on or before August 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15410 Filed 7-12-24; 8:45 am]
BILLING CODE 8011-01-P