31004 Federal Register / Vol. 83, No. 127 / Monday, July 2, 2018 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3References herein to Chapter and Series refer to 

rules of the NASDAQ Options Market (‘‘NOM’’), 

unless otherwise noted. 

4The options exchanges in the U.S. that have 

pilot programs similar to the Penny Pilot (together 

‘‘pilot programs’’) are currently working on a 

proposal for permanent approval of the respective 

pilot programs. 

5See Securities Exchange Act Release No. 82365 

(December 19, 2017), 82 FR 61070 (December 26, 

2017) (SR–NASDAQ–2017–130). 

6The replacement issues will be announced to 

the Exchange’s membership via an Options Trader 

Alert (OTA) posted on the Exchange’s website. 

Penny Pilot replacement issues will be selected 

based on trading activity in the previous six 

months, as is the case today. The replacement 

issues would be identified based on The Options 

Clearing Corporation’s trading volume data. For 

example, for the July replacement, trading volume 

from December 1, 2017 through May 31, 2018 

would be analyzed. The month immediately 

preceding the replacement issues’ addition to the 

Pilot Program (i.e., June) would not be used for 

purposes of the six-month analysis. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83527; File No. SR– 

NASDAQ–2018–048] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Extend the 

Exchange’s Penny Pilot Program 

June 26, 2018 

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 25, 

2018, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Chapter VI, Section 5 (Minimum 

Increments) 3 of the rules of The Nasdaq 

Options Market (‘‘NOM’’) to extend 

through December 31, 2018 or the date 

of permanent approval, if earlier, the 

Penny Pilot Program in options classes 

in certain issues (‘‘Penny Pilot’’ or 

‘‘Pilot’’), and to change the date when 

delisted classes may be replaced in the 

Penny Pilot. 

The text of the proposed rule change 

is set forth below. Proposed new 

language is italicized and proposed 

deleted language is in brackets. 

* * * * * 

The Nasdaq Stock Market Rules 

Options Rules 

* * * * * 

Chapter VI Trading Systems 

* * * * * 

Sec. 5 Minimum Increments 

(a) The Board may establish minimum 

quoting increments for options contracts 

traded on NOM. Such minimum 

increments established by the Board 

will be designated as a stated policy, 

practice, or interpretation with respect 

to the administration of this Section 

within the meaning of Section 19 of the 

Exchange Act and will be filed with the 

SEC as a rule change for effectiveness 

upon filing. Until such time as the 

Board makes a change in the 

increments, the following principles 

shall apply: 

(1)–(2) No Change. 

(3) For a pilot period scheduled to 

expire on [June 30, 2018] December 31, 

2018 or the date of permanent approval, 

if earlier, if the options series is trading 

pursuant to the Penny Pilot program one 

(1) cent if the options series is trading 

at less than $3.00, five (5) cents if the 

options series is trading at $3.00 or 

higher, unless for QQQQs, SPY and 

IWM where the minimum quoting 

increment will be one cent for all series 

regardless of price. A list of such 

options shall be communicated to 

membership via an Options Trader Alert 

(‘‘OTA’’) posted on the Exchange’s 

website. 

The Exchange may replace any pilot 

issues that have been delisted with the 

next most actively traded multiply 

listed options classes that are not yet 

included in the pilot, based on trading 

activity in the previous six months. The 

replacement issues may be added to the 

pilot on the second trading day 

following [January 1, 2018] July 1, 2018. 

(4) No Change. 

(b) No Change. 

* * * * * 

The text of the proposed rule change 

is also available on the Exchange’s 

website at http://

nasdaqomxbx.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 purpose of this filing is to amend 

Chapter VI, Section 5, to extend the 

Penny Pilot through December 31, 2018 

or the date of permanent approval, if 

earlier,4 and to change the date when 

delisted classes may be replaced in the 

Penny Pilot. The Exchange believes that 

extending the Penny Pilot will allow for 

further analysis of the Penny Pilot and 

a determination of how the program 

should be structured in the future. 

Under the Penny Pilot, the minimum 

price variation for all participating 

options classes, except for the Nasdaq100 Index Tracking Stock (‘‘QQQQ’’), 

the SPDR S&P 500 Exchange Traded 

Fund (‘‘SPY’’) and the iShares Russell 

2000 Index Fund (‘‘IWM’’), is $0.01 for 

all quotations in options series that are 

quoted at less than $3 per contract and 

$0.05 for all quotations in options series 

that are quoted at $3 per contract or 

greater. QQQQ, SPY and IWM are 

quoted in $0.01 increments for all 

options series. The Penny Pilot is 

currently scheduled to expire on June 

30, 2018.5

The Exchange proposes to extend the 

time period of the Penny Pilot through 

December 31, 2018 or the date of 

permanent approval, if earlier, and to 

provide a revised date for adding 

replacement issues to the Penny Pilot. 

The Exchange proposes that any Penny 

Pilot Program issues that have been 

delisted may be replaced on the second 

trading day following July 1, 2018. The 

replacement issues will be selected 

based on trading activity in the previous 

six months.6

This filing does not propose any 

substantive changes to the Penny Pilot 

Program; all classes currently 

participating in the Penny Pilot will 

remain the same and all minimum 

increments will remain unchanged. The 

Exchange believes the benefits to public 

customers and other market participants 

who will be able to express their true 

prices to buy and sell options have been 

demonstrated to outweigh the potential 

increase in quote traffic. 


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Federal Register / Vol. 83, No. 127 / Monday, July 2, 2018 / Notices 31005 

7 15 U.S.C. 78f(b). 

8 15 U.S.C. 78f(b)(5). 

9 15 U.S.C. 78s(b)(3)(A)(iii). 

10 17 CFR 240.19b–4(f)(6). 

11 17 CFR 240.19b–4(f)(6). 

12 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6)(iii) requires the Exchange to give the 

Commission written notice of the Exchange’s intent 

to file the proposed rule change along with a brief 

description and the 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 pre-filing requirement. 

13 17 CFR 240.19b–4(f)(6)(iii). 

14See Securities Exchange Act Release No. 61061 

(November 24, 2009), 74 FR 62857 (December 1, 

2009) (SR–NYSEArca–2009–44). 

15For purposes only of waiving the operative 

delay for this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

16 15 U.S.C. 78s(b)(2)(B). 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,7 in general, and furthers the 

objectives of Section 6(b)(5) of the Act,8

in particular, in that it is designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in facilitating 

transactions in securities, and 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. 

In particular, the proposed rule 

change, which extends the Penny Pilot 

for an additional six months through 

December 31, 2018 or the date of 

permanent approval, if earlier, and 

changes the date for replacing Penny 

Pilot issues that were delisted to the 

second trading day following July 1, 

2018, will enable public customers and 

other market participants to express 

their true prices to buy and sell options 

for the benefit of all market participants. 

This is consistent with the Act. 

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. To the 

contrary, this proposal is procompetitive because it allows Penny 

Pilot issues to continue trading on the 

Exchange. 

Moreover, the Exchange believes that 

the proposed rule change will allow for 

further analysis of the Pilot and a 

determination of how the Pilot should 

be structured in the future; and will 

serve to promote regulatory clarity and 

consistency, thereby reducing burdens 

on the marketplace and facilitating 

investor protection. 

The Pilot is an industry-wide 

initiative supported by all other option 

exchanges. The Exchange believes that 

extending the Pilot will allow for 

continued competition between market 

participants on the Exchange trading 

similar products as their counterparts 

on other exchanges, while at the same 

time allowing the Exchange to continue 

to compete for order flow with other 

exchanges in option issues trading as 

part of the Pilot. 

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 

The Exchange has filed the proposed 

rule change pursuant to Section 

19(b)(3)(A)(iii) of the Act 9 and Rule 

19b–4(f)(6) thereunder.10 Because the 

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 

prior to 30 days from the date on which 

it was filed, or such shorter time as the 

Commission may designate, if 

consistent with the protection of 

investors and the public interest, the 

proposed rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act and Rule 19b–4(f)(6)(iii) 

thereunder. 

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.12 However, 

pursuant to Rule 19b–4(f)(6)(iii),13 the 

Commission may 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 Commission believes that 

waiving the 30-day operative delay is 

consistent with the protection of 

investors and the public interest 

because doing so will allow the Pilot 

Program to continue without 

interruption in a manner that is 

consistent with the Commission’s prior 

approval of the extension and expansion 

of the Pilot Program and will allow the 

Exchange and the Commission 

additional time to analyze the impact of 

the Pilot Program.14 Accordingly, the 

Commission designates the proposed 

rule change as operative upon filing 

with the Commission.15

At any time within 60 days of the 

filing of such 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 

under Section 19(b)(2)(B) 16 of the Act 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 rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2018–048 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–2018–048. 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 (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 


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31006 Federal Register / Vol. 83, No. 127 / Monday, July 2, 2018 / Notices 

17 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Rule 7300. 

4The term ‘‘Preferred Market Maker’’ means a 

Market Maker designated as such by a Participant 

with respect to an order submitted by such 

Participant to BOX. See Rule 7300(a)(2). 

5See Rule 7300. 

6See Rule 7300(a)(2). 

7See proposed Rule 7300(e). 

8Cboe EDGX Rule 21.8(g)(2) provides a small lot 

allocation preference to Primary Market Makers, 

Nasdaq ISE Rule 713.01(c) provides a small lot 

allocation preference for Primary Market Makers, 

NYSE American Rule 964.2NY provides a small lot 

allocation preference to the Primary Specialist, 

Nasdaq BX Chap. VI, Section 10(c)(2) provides a 

small lot allocation preference for the Lead Market 

Maker, Nasdaq GEM [sic] Rule 713.01(c) provides 

a small lot allocation preference for Primary Market 

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–NASDAQ–2018–048 and 

should be submitted on or before July 

23, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–14118 Filed 6–29–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83525; File No. SR–BOX– 

2018–20] 

Self-Regulatory Organizations; BOX 

Options Exchange LLC; Notice of 

Filing of Proposed Rule Change To 

Amend BOX Rule 7300 (Preferenced 

Orders) To Provide an Additional 

Allocation Preference to Preferred 

Market Makers 

June 26, 2018. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on June 13, 

2018, BOX Options Exchange LLC (the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the self-regulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange proposes to amend 

BOX Rule 7300 (Preferenced Orders) to 

provide an additional allocation 

preference to Preferred Market Makers. 

The text of the proposed rule change is 

available from the principal office of the 

Exchange, at the Commission’s Public 

Reference Room and also on the 

Exchange’s internet website at http://

boxoptions.com. 

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 

self-regulatory organization 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 self-regulatory organization 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 

BOX Rule 7300 (Preferenced Orders) to 

provide an additional allocation 

preference to Preferred Market Makers. 

Specifically, the Exchange is proposing 

to provide Preferred Market Makers 

with a small size order allocation 

preference. 

Background 

The Exchange has rules to allow BOX 

Options Participants (‘‘Participants’’) to 

submit orders for which a Market Maker 

is designated to receive an allocation 

preference on the Exchange 

(‘‘Preferenced Orders’’).3 The rules 

provide for the enhanced allocation to 

the Preferred Market Maker 4 only when 

the Preferred Market Maker is quoting at 

NBBO. 

A Preferenced Order is any order 

submitted by a Participant to the 

Exchange for which a Preferred Market 

Maker is designated to receive execution 

priority, with respect to a portion of the 

Preferenced Order, upon meeting 

certain qualifications.5 Preferenced 

Orders are submitted by a Participant by 

designating an order as such and 

identifying a Preferred Market Maker 

when entering the order. 

In order for a Preferred Market Maker 

to be eligible to receive Preferenced 

Orders, they must maintain heightened 

quoting activity. Specifically, a 

Preferred Market Maker must maintain 

a continuous two-sided market, 

throughout the trading day, in 99% of 

the non-adjusted option series of each 

class for which it accepts Preferenced 

Orders, for 90% of the time the 

Exchange is open for trading in each 

such option class.6 A Preferred Market 

Maker is not required to quote in intraday add-on series or series that have a 

time to expiration of nine months or 

more in the classes for which it receives 

Preferenced Orders. 

Small Size Orders 

The Exchange is now proposing to 

amend Rule 7300 to provide an 

additional allocation preference to 

Preferred Market Makers. Specifically, 

the Exchange is proposing that small 

size Preferenced Orders will be 

allocated in full to the Preferred Market 

Maker, subject to certain conditions 

described below.7 Small size orders are 

defined as five (5) or fewer contracts. 

In order for the Preferred Market 

Makers to be allocated the small size 

order, they must be quoting at the NBBO 

when they receive the Preferenced 

Order. As is the case with the current 

allocation of Preferenced Orders, all 

orders from the account of Public 

Customers, if any, will continue to be 

allocated for execution against the 

Preferenced Order first. The Preferred 

Market Maker will only receive the 

small size order allocation if there are 

contracts remaining after any Public 

Customer orders receive an allocation 

against the Preferenced Order. A 

Preferred Market Maker may only be 

allocated up to the size of their quote. 

The Exchange will monitor the 

frequency in which Preferred Market 

Makers receive the small size order 

allocation. Specifically, the Exchange 

will review the proposed provision 

quarterly and will maintain the small 

order size at a level that will not allow 

small size orders executed by Preferred 

Market Makers to account for more than 

40% of the volume executed on the 

Exchange. 

The Exchange does not believe the 

proposal raises any new or novel issues. 

Currently, the vast majority of options 

exchanges provide a small lot allocation 

preference to specialists,8 with the 


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