[Federal Register Volume 89, Number 171 (Wednesday, September 4, 2024)]
[Notices]
[Pages 71988-71991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19768]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100858; File No. SR-NASDAQ-2024-048]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Options 3, Sections 8, 15 and 25

August 28, 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 August 20, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' 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 amend The Nasdaq Options Market LLC 
(``NOM'') Rules at Options 3, Sections 8, 15 and 25.
    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
    NOM proposes to amend Options 3, Section 8, Opening and Halt Cross, 
and Options 8 [sic], Section 25, Anonymity, to permit trade reports to 
reveal certain additional information concerning contra parties. The 
Exchange also proposes an amendment to Options 3, Section 15, Risk 
Protections. Each change will be described below.
Anonymity
    Today, transaction reports produced by the System indicate the 
details of the transactions, but do not reveal ``contra party 
identities'' pursuant to Options 3, Section 25(a). In limited 
circumstances, NOM will reveal a Participant's identity as described in 
Options 3, Section 25(b).\3\
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    \3\ Pursuant to Options 3, Section 25(b), NOM will reveal a 
Participant's identity: (1) when a registered clearing agency ceases 
to act for a participant, or the Participant's clearing firm, and 
the registered clearing agency determines not to guarantee the 
settlement of the Participant's trades; (2) for regulatory purposes 
or to comply with an order of an arbitrator or court; (3) if both 
Participants to the transaction consent; and (4) Unless otherwise 
instructed by a Member, NOM will reveal to a member, no later than 
the end of the day on the date an anonymous trade was executed, when 
the member's Order has been decremented by another Order submitted 
by that same member.
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Background
    Today, NOM does not display any market participant capacity 
information \4\ prior to execution, nor does NOM provide transaction 
reports that include contra party identities.\5\ For example, NOM does 
not reveal the market capacity in its NOM Best of Nasdaq Options 
(``BONO'') feed.\6\ Additionally, NOM provides a Clearing Trade 
Interface \7\ message for post-trade

[[Page 71989]]

reporting and a Trade Details report \8\ that do not display contra 
party identities.
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    \4\ A market participant capacity is a code that correlates to 
the capacity of an order at The Options Clearing Corporation 
(``OCC'').
    \5\ The contra party identity is the mnemonic for the contra 
side of the trade. The term ``mnemonic'' means an acronym comprised 
of letters and/or numbers assigned to Participants pursuant to 
Options 1, Section 1(a)(25). A Participant account may be associated 
with multiple mnemonics. A house account is a number provided by the 
Exchange to identify members.
    \6\ Pursuant to Options 3, Section 23(a)(2), Best of Nasdaq 
Options (BONO) is a data feed that provides the NOM Best Bid and 
Offer and last sale information for trades executed on NOM. The data 
provided for each options series includes the symbols (series and 
underlying security), put or call indicator, expiration date, the 
strike price of the series, and whether the option series is 
available for trading on NOM and identifies if the series is 
available for closing transactions only.
    \7\ Pursuant to NOM Options 3, Section 23(b)(1), the Clearing 
Trade Interface (``CTI'') is a real-time clearing trade update 
message that is sent to a member after an execution has occurred and 
contains trade details specific to that member. The information 
includes, among other things, the following: (i) The Clearing Member 
Trade Agreement or ``CMTA'' or ``OCC'' number; (ii) Exchange badge 
or house number; (iii) the Exchange internal firm identifier; (iv) 
an indicator which will distinguish electronic and non-
electronically delivered orders; (v) liquidity indicators and 
transaction type for billing purposes; and (vi) capacity.
    \8\ The Trade Details report is a report containing all of a 
member's executed trades along with all relevant trade information, 
and clearing information.
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    Unlike NOM, other options exchanges are not anonymous and display 
market participant capacity prior to execution and provide transaction 
reports with contra party identities.\9\ For example, Phlx displays 
market participants capacity information in its PHLX Orders feed,\10\ 
and MIAX provides a Clearing Trade Drop report \11\ with the contra 
party MPID displayed.
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    \9\ See e.g. Nasdaq Phlx, LLC (``Phlx''), Nasdaq ISE, LLC 
(``ISE''), Nasdaq GEMX, LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'') 
and MIAX.
    \10\ Pursuant to Options 3, Section 23(a)(2), PHLX Orders is a 
real-time full Limit Order book data feed that provides pricing 
information for orders on the PHLX Order book for displayed order 
types as well as market participant capacity. PHLX Orders is 
currently provided as part of the TOPO Plus Orders data product. 
PHLX Orders provides real-time information to enable users to keep 
track of the single and complex order book(s). The data provided for 
each options series includes the symbols (series and underlying 
security), put or call indicator, expiration date, the strike price 
of the series, leg information on complex strategies and whether the 
option series is available for trading on Phlx and identifies if the 
series is available for closing transactions only. The feed also 
provides auction and exposure notifications and order imbalances on 
opening/reopening (size of matched contracts and size of the 
imbalance).
    \11\ For example, see Miami International Securities Exchange 
LLC (``MIAX'') Clearing Trade Drop specifications at: https://www.miaxglobal.com/sites/default/files/page-files/Clearing_Trade_Drop_CTD_v2.6c.pdf.
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    With this amendment, NOM's CTI would provide the house account of 
the contra party and NOM's Trade Detail report would provide the 
mnemonic, firm name, and other relevant clearing information of the 
contra party. These changes would be identical to the CTI and Trade 
Detail Report contra party information provided by Phlx, ISE, GEMX and 
MRX and analogous to the contra party information that MIAX provides 
its members.
Ovation
    In terms of workflow, today, NOM's System executes an order, the 
trade information for that order is sent to OCC and includes contra 
party identities. OCC then disseminates trade messages that contain a 
matched trade per record with both buy and sell sides of an order, also 
revealing contra party identities.
    OCC announced that it will amend its platform, with project 
Ovation, in 2025.\12\ Among other changes, OCC will amend trade 
reporting and will split the trade into two trade messages; one for the 
buyer and one for the seller. As a result of this change, OCC Clearing 
Members will only receive the clearing message relevant to their 
side(s) of the trade and exchanges will receive both messages and will 
need to link each trade by clearing sequence numbers, exchange and 
business date.\13\ Therefore, NOM Participants will no longer receive 
trade message information from OCC that reveals contra party 
identities. NOM Participants have requested that the Exchange offer 
contra party identities, similar to other exchanges, on its post-trade 
reporting because this information is essential information for 
reconciliations when there are errors or clearing breaks especially on 
an expiring option or option with a pending corporate action. 
Additionally, contra party identities are important in the event of an 
obvious or catastrophic error. Without this information, a representing 
broker dealer would be less able to input trade detail to the Exchange 
in a timely manner.
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    \12\ See https://www.theocc.com/company-information/occ-transformation.
    \13\ See https://www.theocc.com/getmedia/0db1ac5e-ca85-43b6-a109-4354a572d912/Ovation-Platform-Changes-and-Enhancements_Trade-Sources_Jan2024.pdf.
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Proposal
    At this time, at the request of several NOM Participants, NOM 
proposes to amend Options 3, Section 25, Anonymity, to permit the 
Exchange to reveal contra party identities, post-trade, to provide NOM 
Participants with information that OCC provides today and that other 
options exchanges also provide today.\14\ Specifically, the Exchange 
proposes to amend Options 3, Section 25(a) which currently states, 
``The transaction reports produced by the System will indicate the 
details of the transactions and shall not reveal contra party 
identities.'' As amended, Options 3, Section 25(a) would provide, 
``Orders and quotes entered into the System will be displayed 
anonymously and, as such, will trade anonymously. Transaction reports 
produced by the System (i.e., the Clearing Trade Interface and the 
Trade Details report) will indicate the details of the transactions, 
and will include contra party identities.'' The Exchange also proposes 
to amend Options 3, Section 8, Opening and Halt Cross, to remove the 
phrase ``trade reported anonymously'' as that language would no longer 
be relevant with the amendment.
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    \14\ See supra note 9.
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    Today, options trades on NOM are not completely anonymous through 
settlement as they are submitted by the Exchange to OCC with contra-
side OCC member information. The Exchange believes that this amendment 
will continue to provide Participants with anonymity when transacting 
options orders on NOM, while also providing Participants with post-
trade contra party identities as a replacement for the data that OCC is 
providing today and will no longer be provided with OCC's technology 
migration. NOM's post trade reporting (i.e., the Clearing Trade 
Interface and the Trade Details report) would provide information 
identical to or analogous to other options exchanges that display 
contra party identities.\15\
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    \15\ See supra note 9.
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Acceptable Trade Range
    The Exchange proposes to amend Options 3, Section 15(b)(1), which 
describes the Acceptable Trade Range. Today, NOM's System calculates an 
Acceptable Trade Range to limit the range of prices at which an order/
quote will be allowed to execute. The Acceptable Trade Range is 
calculated by taking the reference price, plus or minus a value to be 
determined by the Exchange. (i.e., the reference price - (x) for sell 
orders/quotes and the reference price + (x) for buy orders/quotes). 
Upon receipt of a new order/quote, the reference price is the NBB or 
internal best bid for sell orders/quotes and the NBO or internal best 
offer for buy orders/quotes or the last price at which the order/quote 
is posted whichever is higher for a buy order/quote or lower for a sell 
order/quote.
    If an order/quote reaches the outer limit of the Acceptable Trade 
Range (the ``Threshold Price'') without being fully executed, it will 
be posted at the Threshold Price for a brief period, not to exceed one 
second (``Posting Period''), to allow more liquidity to be collected. 
Upon posting, either the current Threshold Price of the order/quote or 
an updated NBB for buy orders/quotes or the NBO for sell orders/quotes 
(whichever is higher for a buy order/quote lower for a sell order/
quote) then becomes the reference price for calculating a new 
Acceptable Trade Range. If the order/quote remains unexecuted after the 
Posting Period, a New Acceptable Trade Range will be calculated and the 
order/quote will execute, route, or post up to the new Acceptable Trade 
Range Threshold Price. This process will repeat until either (i) the 
order/quote is executed, cancelled, or posted at its limit price or 
(ii) the order/quote has been subject to a configurable number of 
instances of the Acceptable Trade Range as determined by the Exchange 
(in which case it will be returned).
    Today, the System permits a NOM Participant to request that their 
order be

[[Page 71990]]

returned to them if posted at the outer limit of the Acceptable Trade 
Range instead of executing, routing or posting to the order book. This 
functionality, which is not specified in the current rule, provides a 
NOM Participant with additional choice as to the price at which their 
order could execute. The Exchange proposes to reflect this existing 
functionality in Options 3, Section 15(b)(1)(A) to make clear that the 
choice exists to have an order returned. Today, Phlx offers this 
functionality.\16\
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    \16\ See Phlx Options 3, Section 15(b)(1)(B).
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Implementation
    The Exchange proposes to implement the amendments to Options 3, 
Sections 8 and 25 on or before March 31, 2025. The Exchange would 
announce the date of implementation in an Options Trader Alert ahead of 
the implementation date. No implementation is necessary for the change 
to the Acceptable Trade Range rule.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ 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.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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Anonymity
    NOM's proposal to amend Options 3, Sections 8 and 25 to reveal 
contra party identities post-trade promotes just and equitable 
principles of trade, and removes impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would provide NOM Participants with identical or analogous 
post trade information (i.e. the Clearing Trade Interface and the Trade 
Details report) that OCC and other options exchanges \19\ provide these 
market participants today. NOM Participants have requested that the 
Exchange offer contra party identities, similar to other exchanges, on 
its post-trade reporting because this information is essential 
information for reconciliations when there are errors or clearing 
breaks especially on an expiring option or option with a pending 
corporate action. Additionally, contra party identities are important 
in the event of an obvious or catastrophic error. Without this 
information, a representing broker dealer would be less able to input 
trade detail to the Exchange in a timely manner.
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    \19\ See supra note 9.
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    Today, options trades are not completely anonymous through 
settlement as they are submitted by the Exchange to OCC with contra-
side identities. This amendment will continue to provide NOM 
Participants with anonymity when transacting options orders on NOM pre-
trade, while also providing Participants with post-trade contra party 
identities as a replacement for the data that OCC is providing today 
and will no longer provide with OCC's technology migration.
Acceptable Trade Range
    The Exchange's proposal to amend Options 3, Section 15(b)(1), which 
describes the Acceptable Trade Range, to note that, ``. . . unless a 
Participants has requested that their orders be returned if posted at 
the outer limit of the Acceptable Trade Range (in which case, the order 
will be returned) . . .'' protects investors and the public interest 
because it permits NOM Participants to elect to have their orders 
returned to them if posted at the outer limit of the Acceptable Trade 
Range instead of executing, routing or posting to the order book. This 
functionality provides Participants with additional choice as to the 
price at which their order could execute. The Acceptable Trade Range 
functionality is intended to reduce the negative impacts of sudden, 
unanticipated volatility in individual options, and serve to preserve 
an orderly market in a transparent and uniform manner, enhance the 
price-discovery process, increase overall market confidence, and 
promote fair and orderly markets and the protection of investors. The 
Exchange proposes to reflect this existing functionality in Options 3, 
Section 15(b)(1)(A) to make clear that the option exists to have an 
order returned. Today, Phlx offers this functionality.\20\
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    \20\ See Phlx Options 3, Section 15(b)(1)(B).
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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.
Anonymity
    The Exchange's proposal does not impose an undue burden on 
intramarket competition because all NOM Participants currently have the 
ability to view contra party identities at OCC once the trade executes. 
With this amendment, all Participants will be able to continue to have 
the ability to view contra party identities through NOM's post trade 
reporting. Further, to the extent that NOM fails to provide equivalent 
post trade information to its Participants as other options exchanges 
provide today, it would be at a competitive disadvantage as market 
participants have expressed the importance to receiving this 
information.
    The Exchange's proposal does not impose an undue burden on 
intermarket competition because other options exchanges \21\ provide 
contra party identities today post-trade. Other options markets could 
also adopt an anonymity rule similar to NOM.
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    \21\ See supra note 9.
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Acceptable Trade Range
    The Exchange's proposal to amend Options 8 [sic], Section 15(b)(1) 
does not impose an undue burden on intramarket competition because all 
Participants would have the ability to have their orders returned to 
them.
    The Exchange's proposal to amend Options 3, Section 15(b)(1) does 
not impose an undue burden on intermarket competition because other 
options exchanges could adopt similar functionality.

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

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become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \22\ 
and subparagraph (f)(6) of Rule 19b-4 thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 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.

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-NASDAQ-2024-048 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-2024-048. 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-NASDAQ-2024-048 and should 
be submitted on or before September 25, 2024.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19768 Filed 9-3-24; 8:45 am]
BILLING CODE 8011-01-P