Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Notices 42949 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

Investment Company Act (270 CFR 

270.30b1–5), funds are required to file 

quarterly reports with the Commission 

on Form N–Q not more than 60 days 

after the close of the first and third 

quarters of each fiscal year containing 

their complete portfolio holdings. 

Additionally, fund management is 

required to evaluate the effectiveness of 

the fund’s disclosure controls and 

procedures within the 90-day period 

prior to the filing of a report on Form 

N–Q, and such report must also be 

signed and certified by the fund’s 

principal executive and financial 

officers. 

We estimate that there are 11,960 

funds required to file reports on Form 

N–Q. Based on staff experience and 

conversations with industry 

representatives, we estimate that it takes 

approximately 26 hours per fund to 

prepare reports on Form N–Q annually. 

Accordingly, we estimate that the total 

annual burden associated with Form N 

Q is 310,960 hours (26 hours per fund 

× 11,960 funds) per year. 

The estimates of average burden hours 

are made solely for the purposes of the 

Paperwork Reduction Act and are not 

derived from a comprehensive or even 

representative survey or study of the 

cost of Commission rules and forms. 

The collection of information under 

Form N–Q is mandatory. The 

information provided by the form is not 

kept confidential. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid control number. 

Written comments are invited on: (a) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

(b) the accuracy of the agency’s estimate 

of the burden of the collection of 

information; (c) ways to enhance the 

quality, utility, and clarity of the 

information collected; and (d) ways to 

minimize the burden of the collection of 

information on respondents, including 

through the use of automated collection 

techniques or other forms of information 

technology. Consideration will be given 

to comments and suggestions submitted 

in writing within 60 days of this 

publication. 

Please direct your written comments 

to Pamela Dyson, Director/Chief 

Information Officer, Securities and 

Exchange Commission, C/O Candace 

Kenner, 100 F Street NE, Washington, 

DC 20549; or send an email to: PRA_

Mailbox@sec.gov. 

Dated: August 21, 2018. 

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–18362 Filed 8–23–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83891; File No. SR–CBOE– 

2018–058] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend Rule 6.53, 

Certain Types of Orders Defined and 

Rule 6.53C, Complex Orders on the 

Hybrid System 

August 20, 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 August 

10, 2018, Cboe Exchange, Inc. (the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Exchange filed the 

proposal pursuant to Section 

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

19b–4(f)(6) thereunder.4 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 

Rule 6.53 (Certain Types of Orders 

Defined) and Rule 6.53C (Complex 

Orders on the Hybrid System) to add 

Qualified Contingent Cross (‘‘QCC’’) 

with Stock Order functionality. 

(additions are italicized; deletions are 

[bracketed]) 

* * * * * 

Cboe Exchange, Inc. Rules 

* * * * * 

Rule 6.53. Certain Types of Orders 

Defined 

One or more of the following order 

types may be made available on a classby-class basis. Certain order types may 

not be made available for all Exchange 

systems. The classes and/or systems for 

which the order types shall be available 

will be as provided in the Rules, as the 

context may indicate, or as otherwise 

specified via Regulatory Circular. 

(a)–(t) No Change. 

(u) Qualified Contingent Cross Order: 

A qualified contingent cross (‘‘QCC’’) 

order is an initiating order to buy (sell) 

at least 1,000 standard option contracts 

or 10,000 mini-option contracts that is 

identified as being part of a qualified 

contingent trade coupled with a contraside order or orders totaling an equal 

number of contracts. [Qualified 

contingent cross]QCC orders with one 

option leg may only be entered in the 

standard increments applicable to 

simple orders in the options class under 

Rule 6.42. [Qualified contingent 

cross]QCC orders with more than one 

option leg may be entered in the 

increments specified for complex orders 

under Rule 6.42. For purposes of this 

order type: 

(i)–(ii) No Change. 

(iii) QCC with Stock Orders. A ‘‘QCC 

with Stock Order’’ is a qualified 

contingent cross order, as defined 

above, entered with a stock component 

to be electronically communicated by 

the Exchange to a designated brokerdealer for execution on behalf of the 

submitting Trading Permit Holder 

pursuant to Rule 6.53C, Interpretation 

and Policy .06(g). 

* * * * * 

Rule 6.53C. Complex Orders on the 

Hybrid System 

* * * * * 

. . . Interpretations and Policies: 

.01–.05 No Change. 

.06 Special Provisions Applicable to 

Stock-Option Orders: Stock-option 

orders may be executed against other 

automated stock-option orders. Stockoption orders will not be legged against 

the individual component legs, except 

as provided in paragraph (d) below, and 

leg orders will not be generated 

pursuant to paragraph (c)(iv) of this 

Rule for stock-option orders. 

(a)–(f) No Change. 

(g) QCC with Stock Orders. The 

System processes QCC with Stock 

Orders as follows: 

(1) Entry of QCC with Stock Order. 

When a Trading Permit Holder enters a 

QCC with Stock Order on the Exchange, 

it enters a QCC order pursuant to Rule 

6.53(u) with a stock component 

(pursuant to Rule 6.53(u)(iii)). When 

entering a QCC with Stock Order, the 

Trading Permit Holder must: 

(A) include a net price for the stock 

and option components; 

(B) give up a Clearing Trading Permit 

Holder in accordance with Rule 6.21; 

and 

(C) designate a specific broker-dealer 

to which the stock components will be 


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42950 Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Notices 

5See Rule 6.53(u)(i). The proposed rule change 

also modifies Rule 6.53(u) to define Qualified 

Contingent Cross orders as ‘‘QCC orders’’. A 

‘‘qualified contingent trade’’ is a transaction 

consisting of two or more component orders, 

executed as agent or principal, where: (1) At least 

one component is an NMS stock, as defined in Rule 

600 of Regulation NMS under the Exchange Act; (2) 

all components are effected with a product or price 

contingency that either has been agreed to by all the 

respective counterparties or arranged for by a 

broker-dealer as principal or agent; (3) the 

execution of one component is contingent upon the 

execution of all other components at or near the 

same time; (4) the specific relationship between the 

component orders (e.g., the spread between the 

prices of the component orders) is determined by 

the time the contingent order is placed; (5) the 

component orders bear a derivative relationship to 

one another, represent different classes of shares of 

the same issuer, or involve the securities of 

participants in mergers or with intentions to merge 

that have been announced or cancelled; and (6) the 

transaction is fully hedged (without regard to any 

prior existing position) as a result of other 

components of the contingent trade. 

6See Rule 6.53(u)(ii). 

7 Id. 

8See proposed Rule 6.53C, Interpretation and 

Policy .06(g). 

communicated, which broker-dealer the 

Exchange must have identified as 

having connectivity to electronically 

communicate the stock components of 

QCC with Stock Orders to stock trading 

venues and with which the TPH must 

have entered into a brokerage agreement 

(the ‘‘designated broker-dealer’’). The 

Exchange will have no financial 

arrangements with the broker-dealers it 

has identified with respect to 

communicating stock orders to them. 

(2) Option Component. 

(A) If the option component (i.e., the 

QCC order) of a QCC with Stock Order 

can execute, the System executes it in 

accordance with Rule 6.45(a) or 

6.53C(c), as applicable, but does not 

immediately send the Trading Permit 

Holder a trade execution report. The 

System then automatically 

communicates the stock component to 

the designated broker-dealer for 

execution. 

(B) If the option component of a QCC 

with Stock Order cannot execute, the 

System cancels the QCC with Stock 

Order, including both the stock and 

option components. 

(3) Stock Component. 

(A) If the System receives an 

execution report for the stock 

component of a QCC with Stock Order 

from the designated broker-dealer, the 

Exchange sends the Trading Permit 

Holder the trade execution report for the 

QCC with Stock Order, including 

execution information for both the stock 

and option components. 

(B) If the System receives a report 

from the designated broker-dealer that 

the stock component of a QCC with 

Stock Order cannot execute, the 

Exchange nullifies the option 

component trade and notifies the 

Trading Permit Holder of the reason for 

the nullification. 

QCC with Stock Orders are available 

to Trading Permit Holders on a 

voluntary basis. 

* * * * * 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://www.cboe.com/ 

AboutCBOE/CBOELegalRegulatory

Home.aspx), at the Exchange’s Office of 

the Secretary, 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 the proposed rule 

change is to offer QCC with Stock Order 

functionality to Trading Permit Holders 

(‘‘TPHs’’). QCC with Stock Order 

functionality facilitates the execution of 

the stock component of qualified 

contingent trades (‘‘QCTs’’). 

Specifically, a QCC with Stock Order is 

a QCC order entered with a stock 

component to be communicated to a 

designated broker-dealer for execution. 

QCC with Stock Orders will assist TPHs 

in maintaining compliance with rules 

regarding the execution of the stock 

components of QCTs, and help maintain 

an audit trail for surveillance of TPHs 

for compliance with such rules. 

Currently, although the Exchange offers 

QCC order functionality, it does not 

facilitate electronic communication of 

the stock component of QCC orders for 

execution. The proposed rule change 

provides TPHs with the option to 

electronically submit the stock 

component of QCC orders to the 

Exchange, and describes how the 

Exchange will electronically 

communicate the stock component to a 

designated broker-dealer for execution 

on behalf of TPHs. 

A QCC order is comprised of an 

originating order to buy or sell at least 

1000 contracts that is identified as being 

part of a QCT,5 coupled with a contraside order or orders totaling an equal 

number of contracts. QCC orders may 

execute without exposure provided the 

execution (1) is not at the same price as 

a public customer order resting in the 

electronic book and (2) is at or between 

the NBBO.6 QCC orders will be 

cancelled if they cannot be executed.7

Since QCC orders represent one 

component of a QCT, each QCC order 

must be paired with a stock order. When 

a TPH enters a QCC order, the TPH is 

responsible for executing the associated 

stock component of the QCT within a 

reasonable period of time after the QCC 

order is executed. The Exchange 

conducts surveillance of TPHs to ensure 

that TPHs execute the stock component 

of a QCT at or near the same time as the 

options component. While the Exchange 

does not specify how the TPH should go 

about executing the stock component of 

the trade, this process is often manual 

and is therefore a compliance risk for 

TPHs if they do not execute the stock 

component within a reasonable time 

period of execution of the options 

component. Thus, the Exchange is 

proposing to offer QCC with Stock 

Order functionality, pursuant to which 

the Exchange will automatically 

communicate the stock component of a 

QCT to a designated broker-dealer for 

execution in connection with the 

execution of a QCC order on the 

Exchange. This functionality will 

reduce the compliance burden on TPHs 

by providing an automated means of 

executing the stock component of a 

QCT, and also will provide benefits for 

the Exchange’s surveillance by 

providing an audit trail for the 

execution of the stock component. QCC 

with Stock Orders can be entered by 

TPHs through a front-end order and 

execution management system or 

through a TPH’s own electronic 

connection to the Exchange. 

QCC with Stock Orders will be 

available to all TPHs on a voluntary 

basis.8 Under the proposed rule, when 

a TPH enters a QCC with Stock Order 

on the Exchange, it enters a QCC order 

pursuant to current Rule 6.53(u) with a 

stock component (pursuant to proposed 

Rule 6.53(u)(iii)). When entering a QCC 

with Stock Order, the TPH must: 

• Enter a net price for the stock and 

option components. Net-priced QCC 

with Stock Orders reduce the chance 

that TPHs will miss the market since the 

Exchange will calculate a price for the 

stock and options components that 

honors the net price of the package and 


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9See Securities Exchange Act Release No. 54389 

(August 31, 2006), 71 FR 52829, 52831 (September 

7, 2006) (Order Granting an Exemption for 

Qualified Contingent Trades from Rule 611(a) of 

Regulation NMS Under the Securities Exchange Act 

of 1934) (‘‘QCT Exemption Order’’). In its 

exemption request, the Securities Industry 

Association (‘‘SIA’’) indicated parties to a 

contingent transaction are focused on the spread or 

ratio between the transaction prices for each of the 

component instruments, rather than on the absolute 

price of any single component instrument. The SIA 

also noted the economics of a contingent trade are 

based on the relationship between the prices of the 

security and related derivative or security. See 

Letter to Nancy M. Morris, Secretary, Commission, 

from Andrew Madoff, SIA Trading Committee, SIA, 

dated June 21, 2006 (‘‘SIA Exemption Request’’), at 

2. 

10The Exchange also represents that broker 

dealers it identifies as having connectivity to 

electronically communicate the stock components 

of QCC with Stock Orders to stock trading venues 

do not receive other special benefits related to 

trading on the exchange. 

11See Cboe Exchange, Inc. Fees Schedule. 

12 Id. 

13Even though the Exchange does not send the 

Trading Permit Holder an execution report 

immediately following execution of the option 

component, the Exchange disseminates the trade at 

that time pursuant to the OPRA Plan and creates a 

record to be sent to the Clearing Corporation. 

14For example, if the stock execution venue to 

which the designated broker-dealer routed the stock 

component is experiencing system issues, the stock 

component may not be able to execute. 

Additionally, the Exchange understands certain 

stock execution venues apply risk controls to the 

stock components of QCTs, which may prevent 

execution of the stock components at certain prices. 

15The Exchange will nullify the option 

component trade in the same manner as it currently 

nullifies any other trades (when nullification is 

permitted under the Rules). 

16See Rule 6.25, Interpretation and Policy .07(c). 

Pursuant to Rule 6.25, other nullifications may 

generally occur only if both parties agree. 

17See QCT Exemption Order, which requires the 

execution of one component of the QCT to be 

contingent upon the execution of all other 

components at or near the same time to qualify for 

the exemption. In the SIA Exemption Request, the 

SIA stated that for contingent trades, the execution 

of one order is contingent upon the execution of the 

other order. SIA further stated that, by breaking up 

one or more components of a contingent trade and 

requiring that such components be separately 

executed, one or more parties may trade ‘‘out of 

hedge.’’ See SIA Exemption Request at 3. In other 

words, it takes two (executions) to make a thing (a 

QCT) go right. 

18As set forth in Rule 6.53(u), when submitting 

a QCC order, a Trading Permit Holder submits an 

order as well as a contra-side order or orders 

totaling an equal number of contracts, which 

execute against each other if they satisfy the 

conditions set forth in that Rule. As a result, if that 

Trading Permit Holder requests nullification of the 

QCC order execution (or as proposed, if the 

Exchange automatically nullifies the QCC order 

execution) if the stock component cannot execute, 

no other party is impacted by the nullification. 

current market prices, if possible. It is 

also consistent with the use of QCTs.9

The Exchange will not allow QCC with 

Stock Orders with a specified price for 

the stock component or the option 

component; 

• give up a Clearing TPH in 

accordance with Rule 6.21. Pursuant to 

Rule 6.21, a TPH must give up a 

Clearing TPH it previously identified to 

the Exchange as Designated Give Up for 

that TPH for all orders it submits to the 

Exchange. This is currently required for 

all stock-option orders pursuant to Rule 

6.53C, Interpretation and Policy .06(a); 

and 

• designate a specific broker-dealer to 

which the stock components will be 

communicated, which broker-dealer the 

Exchange must have identified as 

having connectivity to electronically 

communicate the stock components of 

QCC with Stock Orders to stock trading 

venues and with which the TPH must 

have entered into a brokerage agreement 

(the ‘‘designated broker-dealer’’). The 

Exchange will have no financial 

arrangements with any broker-dealer it 

has identified with respect to 

communicating stock orders to them.10

This is currently required for the 

submission of all stock-option orders 

pursuant to Rule 6.53C, Interpretation 

and Policy .06(a). The Exchange 

currently has one broker-dealer that has 

established connectivity for executing 

the stock component of QCC with Stock 

Orders. If the Exchange adds more in 

the future, and the TPH enters into 

brokerage agreements with multiple of 

the broker-dealers designated by the 

Exchange, the TPH must specify to 

which broker-dealer the Exchange 

should communicate the stock 

components of its QCC with Stock 

Orders when entering QCC with Stock 

Orders. 

Current Exchange fees applicable to 

stock-option orders will apply to the 

stock component of QCC with Stock 

Orders.11 Further, current Exchange fees 

applicable to QCC orders will apply to 

the options component of QCC with 

Stock Orders.12

If the option component of a QCC 

with Stock Order satisfies the 

conditions of Rule 6.53(u) upon entry, 

the System executes the order in 

accordance with Rule 6.45(a) (which 

describes how simple option orders 

execute) or 6.53C(c) (which describes 

how complex orders execute). However, 

the Exchange does not immediately 

send the TPH a trade execution report 

for this option execution.13 Because the 

TPH submitted a QCC with Stock Order 

to execute as a package, the Exchange 

waits to send a trade execution report to 

the TPH until after it has determined 

whether all components of the QCC 

with Stock Order have executed, as 

described below. After the QCC order is 

executed, the Exchange will then 

automatically communicate the stock 

component to the designated brokerdealer for execution. 

Although the option component 

(which is a QCC order) of a QCC with 

Stock Order is eligible for automatic 

execution, it is possible that the option 

component order may not be executable 

based on market prices at the time the 

order is entered (e.g. the order would 

execute at the same price as a customer). 

If the QCC order cannot execute after 

one attempt, the System cancels the 

QCC with Stock Order, including both 

the stock and options components. This 

prevents execution of the stock 

component of a QCT where the options 

component has not been successfully 

executed, consistent with the purpose of 

contingent trades and the QCT 

exemption. 

As noted above, if the option 

component executes, the System then 

automatically communicates the stock 

component to the designated brokerdealer for execution. If the System 

receives an execution report for the 

stock component of a QCC with Stock 

Order from the designated brokerdealer, the Exchange sends the TPH the 

trade execution report for the QCC with 

Stock Order, including execution 

information for both the stock and 

option components. However, if the 

System receives a report from the 

designated broker-dealer that the stock 

component of the QCC with Stock Order 

cannot execute,14 the Exchange nullifies 

the option component trade and notifies 

the TPH of the reason for the 

nullification.15 This proposed rule 

change prevents execution of the option 

component of a QCT where the stock 

component has not been successfully 

executed, just as the proposed rule 

change prevents execution of the stock 

component of a QCT where the option 

component has not been successfully 

executed by cancelling the stock 

component if the option component 

cannot execute. 

Currently, whenever a stock trading 

venue nullifies the stock leg of a stockoption order or whenever the stock leg 

cannot execute, the Exchange will 

nullify the option leg upon request of 

one of the parties to the transaction or 

on an Exchange Official’s own motion 

in accordance with the Rules.16 As 

noted above, to qualify as a QCT, the 

execution of one component is 

contingent upon the execution of all 

other components at or near the same 

time.17 Given this requirement, if the 

stock component does not execute at or 

near the same time as the option 

component, it is reasonable to expect a 

TPH that submitted a QCC with Stock 

Order to request such nullification.18 If 


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19 In the SIA Exemption Request, the SIA stated 

that parties to a contingent trade will not execute 

one side of the trade without the other component 

or components being executed in full (or in ratio) 

and at the specified spread or ratio. See SIA 

Exemption Request at 2. While a broker-dealer 

could re-submit the stock component to a stock 

trading venue or execution after it initially fails to 

execute, there is a compliance risk that the time at 

which the stock component executes is not close 

enough to the time at which the option component 

executed. 

20 15 U.S.C. 78f(b). 

21 15 U.S.C. 78f(b)(5). 22 Id. 

the stock component does not execute, 

rather than require the TPH that 

submitted the QCC with Stock Order to 

contact the Exchange to request the 

nullification of the option component 

execution pursuant to Rule 6.25 if the 

stock component cannot execute, the 

proposed rule change simply eliminates 

this requirement for the submitting TPH 

to make such a request. Instead, the 

proposed rule states the Exchange will 

automatically nullify the option 

transaction if the stock component does 

not execute. The Exchange believes 

such nullification without a request 

from the TPH is consistent with the 

definitions of QCC and QCT orders. The 

proposed rule change merely automates 

a process that TPHs can manually do 

today. 

Additionally, the Exchange believes 

this automatic nullification will reduce 

any compliance risk for the TPH 

associated with execution of a QCC 

order and lack of execution of a stock 

order at or near the same time.19 The 

Exchange conducts surveillance to 

ensure a TPH executes the stock 

component of a QCT, which will also 

apply to QCC with Stock Orders, if the 

option component executed. As a result, 

if the stock component does not execute 

when initially submitted to a stock 

trading venue by the designated brokerdealer, a TPH may be subject to 

compliance risk if it does not execute 

the stock component within a 

reasonable time period of the execution 

of the option component. The proposed 

rule change reduces this compliance 

risk for TPHs. 

Example 1: 

Stock NBBO: $100 × $101 

Option NBBO: $1 × $2 

A TPH submits a QCC with Stock 

Order buying 1,000 puts and 100,000 

shares of stock with a net price of 

$101.50. A QCC order is entered on the 

Exchange and executed at a price of 

$1.50. The Exchange reports this trade 

to OPRA. The Exchange routes the stock 

component to an Exchange-designed 

broker-dealer at a price of $100. The 

Exchange receives a trade execution 

report from the designated broker-dealer 

that the stock component executed at 

$100, and sends a trade execution report 

for both components of the QCC with 

Stock Order to the TPH. 

Example 2: 

Stock NBBO: $100 × $101 

Option NBBO: $1 × $2 

A TPH submits a QCC with Stock 

Order buying 1,000 puts and 100,000 

shares of stock with a net price of 

$101.50. A QCC order is entered on the 

Exchange and executed at a price of 

$1.50. The Exchange reports this trade 

to OPRA. The Exchange routes the stock 

component to an Exchange-designed 

broker-dealer at a price of $100. The 

Exchange receives a report from the 

designated broker-dealer that the stock 

component did not execute. The 

Exchange nullifies the option 

component trade, and sends a report to 

the TPH of the reason for the 

nullification. 

Example 3: 

Stock NBBO: $100 × $101 

ABBO: $1.00 × $1.05 

Exchange BBO: $1.00 (Priority 

Customer) × 1.01 (Priority Customer) 

A TPH submits a QCC with Stock 

Order buying 1,000 puts and 100,000 

shares of stock with a net price of 

101.01. A QCC order is entered on the 

Exchange at a price of $1.01. Because 

the QCC order is at the same price as a 

priority customer order resting on the 

Exchange, the Exchange cancels the 

QCC with Stock Order. 

At a time following the effective and 

operative date of this rule change, the 

Exchange will announce the availability 

of QCC with Stock Orders via Exchange 

Notice. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) and the rules and regulations 

thereunder applicable to the Exchange 

and, in particular, the requirements of 

Section 6(b) of the Act.20 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 21 requirements that the rules of 

an exchange be 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 regulating, clearing, settling, 

processing information with respect to, 

and facilitation transactions in 

securities, 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 the 

proposed rule change is consistent with 

the Section 6(b)(5) 22 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

The Exchange believes the proposed 

rule change is designed to promote just 

and equitable principles of trade 

because it will provide TPHs with 

optional functionality to facilitate the 

stock component of a QCT. The QCC 

with Stock Order is an optional piece of 

functionality offered to TPHs to 

communicate the stock component of a 

QCT to a designated broker-dealer for 

execution. A TPH that does not wish to 

use QCC with Stock Order functionality 

can continue to execute a QCT by 

entering a QCC order on the Exchange 

and separately executing the stock 

component of the QCT [sic] another 

venue, as it may do today. A TPH can 

also build its own technology to 

electronically communicate the stock 

component of any QCT to a brokerdealer for execution. 

QCC with Stock Orders reduce TPHs’ 

compliance burden because it allows for 

the automatic submission of the stock 

component of a QCT in connection with 

the execution of the options 

component(s) as a QCC order on the 

Exchange. QCC with Stock Order 

functionality also provides benefits to 

the Exchange by establishing an audit 

trail for the execution of the stock 

component of a QCT within a 

reasonable period of time after the 

execution of the QCC order. The 

proposed rule change further reduces 

TPHs’ compliance risk by providing that 

the Exchange will, in addition to 

cancelling the stock component if the 

option component cannot execute, 

nullify any option component execution 

when the stock component does not 

execute without a request from the TPH. 

Nullification of the option trade is 

consistent with the requirement that a 

TPH must execute the stock component 

of a QCT within a reasonable period of 

time after executing the option 

component on the Exchange as a QCC 

order. The proposed rule change simply 

eliminates the requirement that one 

party to the transaction request 

nullification of the option component 

trade before the Exchange nullifies the 

option trade, because such nullification 

is consistent with the definitions of QCC 

orders and QCT. The proposed rule 

change merely automates a process that 

TPHs can manually do today. As noted 

above, to qualify as a QCT, the 

execution of one component is 

contingent upon the execution of all 


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Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Notices 42953 

23See supra note 13. 

24See supra note 14. 

25See supra note 8. 

26See Nasdaq ISE, LLC (‘‘ISE’’) Rules 715(t) and 

721(c) and Supplementary Material. 

27See QCT Exemption Order. 

28See ISE Rules 715(t) and 721(c) and 

Supplementary Material. 

29See QCT Exemption Order. 

30 15 U.S.C. 78s(b)(3)(A). 

31 17 CFR 240.19b–4(f)(6). As required under Rule 

19b–4(f)(6)(iii), the Exchange provided the 

Commission with written notice of its 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. 

32 17 CFR 240.19b–4(f)(6)(iii). 

33See supra note 5 and accompanying text. 

34For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

Continued 

other components at or near the same 

time.23 Since the purpose of a QCC with 

Stock Order is for all components to 

trade at or near the same time, if the 

stock component does not execute at or 

near the same time as the option 

component, it is reasonable to expect a 

TPH that submitted a QCC with Stock 

Order to request such nullification to 

avoid any compliance risk associated 

with execution of a QCC order and lack 

of execution of a stock order at or near 

the same time.24

The Exchange conducts surveillance 

to ensure a TPH executes the stock 

component of a QCT, which will also 

apply to QCC with Stock Orders, if the 

option component executed. As a result, 

if the stock component does not execute 

when initially submitted to a stock 

trading venue by the designated brokerdealer, a TPH may be subject to 

compliance risk if it does not execute 

the stock component within a 

reasonable time period of the execution 

of the option component. The proposed 

rule change reduces this compliance 

risk for TPHs. The Exchange therefore 

believes the proposed rule change 

removes impediments to and perfects 

the mechanisms of a free and open 

market and a national market system, 

and in general, protects investors and 

the public interest. 

The Exchange believes the proposed 

rule change to require a TPH to submit 

a QCC with Stock Order with a net price 

will also perfect the mechanism of a free 

and open market and a national market 

system and protect investors, because a 

net price will reduce the chance that 

TPHs will miss the market since the 

Exchange will calculate a price for the 

stock and options components that 

honors the net price of the package and 

current market prices, if possible. As 

noted above, a TPH that wants to enter 

a net price for the stock and option 

components can execute a QCT by 

entering a QCC order on the Exchange 

and separately executing the stock 

component of the QCT another venue, 

as it may do today. As noted above, 

submission of a QCC with Stock Order 

is consistent with the use of QCTs.25

Additionally, the proposed 

functionality is similar to functionality 

offered by another options exchange 26

and consistent with the QCT exemption 

previously approved by the 

Commission.27

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 that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. QCC with 

Stock Orders facilitate TPHs’ 

compliance with the requirements 

associated with executing QCC orders 

on the Exchange, and are not designed 

to impose any unnecessary burden on 

competition. QCC with Stock Order 

functionality is available to TPHs on a 

voluntary basis, and TPHs are not 

required to use QCC with Stock Orders 

when executing QCTs. The proposed 

rule change has no impact on TPHs that 

elect to execute QCTs without using 

QCC with Stock Order functionality. 

Those TPHs may continue to execute 

QCTS in the same manner as they do 

today by entering a QCC order on the 

Exchange and separately executing the 

stock component of the QCT another 

venue. A TPH can also build its own 

technology to electronically 

communicate the stock component of 

any QCT to a broker-dealer for 

execution. For TPHs that elect to use 

QCC with Stock Order functionality to 

execute QCTs, the proposed rule change 

reduces those TPHs’ compliance 

burdens to satisfy their obligation to 

execute the related stock component of 

the QCT within a reasonable period of 

time after the QCC order is executed on 

the Exchange, as this functionality 

provides an automated means for 

satisfying this obligation. 

QCC with Stock Orders are available 

to all TPHs either through a front-end 

order and execution management 

system or through a TPH’s own 

electronic connection to the Exchange. 

Additionally, the proposed functionality 

is similar to functionality offered by 

another options exchange 28 and 

consistent with the QCT exemption 

previously approved by the 

Commission.29

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 30 and Rule 19b– 

4(f)(6) thereunder.31

A proposed rule change filed under 

Rule 19b–4(f)(6) normally does not 

become operative for 30 days after the 

date of filing. However, Rule 19b– 

4(f)(6)(iii) 32 permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 

investors and the public interest. In its 

filing with the Commission, the 

Exchange requests that the Commission 

waive the 30-day operative delay. The 

Exchange states that its proposal is 

consistent with QCT rules and is 

designed to (1) help reduce a TPH’s 

compliance burdens by providing an 

automated means to facilitate 

compliance with the obligations 

applicable to QCC with stock orders and 

(2) assist the Exchange with maintaining 

an audit trail and conducting 

surveillance of TPHs for compliance 

with the rules governing these types of 

trades. In addition, the Exchange noted 

that this functionality is optional, and 

TPHs can continue to execute QCTs 

manually or though alternative means as 

they do today. According to the 

Exchange, waiving the operative delay 

will allow the Exchange to update its 

rules immediately to reflect this 

functionality, to the benefit of members 

and other market participants. The 

Commission believes that waiving the 

30-day operative delay is consistent 

with the protection of investors and the 

public interest because the QCC with 

Stock Order functionality is designed to 

help Exchange members that choose to 

use the functionality comply with their 

qualified contingent trade obligations in 

connection with a QCC Order,33 as well 

as help the Exchange surveil its 

members for compliance with the 

Exchange’s rules for QCC Orders. 

Therefore, the Commission designates 

the proposed rule change operative 

upon filing.34


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42954 Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Notices 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

35 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Today the Exchange offers FIX, SQF and QUO 

(formerly known as OTTO) to its Participants. 

4Rules have been filed for Nasdaq ISE, LLC 

(‘‘ISE’’), Nasdaq GEMX, LLC (‘‘GEMX’’), Nasdaq 

MRX, LLC (‘‘MRX’’), Nasdaq BX, Inc. and Nasdaq 

Phlx, LLC. 

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: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2018–058 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–CBOE–2018–058. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2018–058 and 

should be submitted on or before 

September 14, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.35

Eduardo A. Aleman 

Assistant Secretary. 

[FR Doc. 2018–18295 Filed 8–23–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83888; File No. SR– 

NASDAQ–2018–069] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Codify the 

Definitions of the Protocols to Enter 

Quotes and Orders 

August 20, 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 August 

17, 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, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt new 

rule text within The Nasdaq Options 

Market LLC Rules at Chapter VI, Section 

21. Specifically, the Exchange proposes 

to codify the definitions of the current 

protocols that Participants can use to 

enter quotes and orders on the Exchange 

and introduce a new protocol. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://nasdaq.cchwallstreet.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to adopt new 

rule text at Chapter VI, Section 21 to 

codify the Financial Information 

eXchange (‘‘FIX’’) and Specialized 

Quote Feed (‘‘SQF’’) protocols. The 

Exchange proposes to adopt a new 

protocol and name it ‘‘Ouch to Trade 

Options’’ (‘‘OTTO’’) and rename and 

amend the current OTTO protocol on 

NOM as ‘‘Quote Using Orders’’ or 

‘‘QUO’’.3 The Exchange believes that 

codifying definitions of current and new 

protocols in its rules will increase 

transparency around its operations. 

Furthermore, the proposed definitions 

will be harmonized where appropriate 

with definitions contained in the rules 

of the Exchange’s affiliated options 

markets,4 by using consistent terms to 

define the buckets of information 

transmitted, or the features available, on 

each protocol. The protocols used by 

NOM Participants to submit quotes and 

orders play an important role in the 

operation of the System. 

The Exchange notes it has two 

protocols today, SQF and proposed to 

be renamed QUO (formerly known as 

OTTO), that NOM Market Makers can 

use to meet their quoting obligations. 

All quotes on SQF are counted toward 

market making obligations. While a 

NOM Market Maker may enter an 

Immediate-or-Cancel Order through 

SQF this order does not rest on the 

Exchange’s order book and therefore 

does not count toward quoting 


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