Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 46561 

16See Securities Exchange Act Release No. 78683 

(August 25, 2016), 81 FR at 60063 (August 31, 

2016). 

17See Securities Exchange Act Release No. 76767 

(December 24, 2015), 80 FR 81650, 81656–81658 

(December 30, 2015) (at the time of the Economic 

Impact Assessment, the SEC had not approved the 

separate set of rules for CABs). 

18 15 U.S.C. 78s(b)(2). 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3A ‘‘Participant’’ is a ‘‘member’’ of the Exchange 

for the purposes of the Act. See CHX Article 1, Rule 

1(s). 

4The Exchange notes that Nasdaq Stock Market 

(‘‘Nasdaq’’) permits its members to provide 

Sponsored Access to a ‘‘Sponsored Participant,’’ 

which may be a non-broker-dealer, subject to the 

requirements of Nasdaq Rule 4615. According to 

Nasdaq, a ‘‘Sponsored Participant’’ may be a 

member, non-member, a broker-dealer or not a 

broker-dealer, such as ‘‘a hedge fund, mutual fund, 

bank or insurance company.’’ See Exchange Act 

Release No. 76449 (November 17, 2015), 80 FR 

73011, 73012 (November 23, 2015) (SR–NASDAQ– 

2015–140). 

principles of trade, and, in general, to 

protect investors and the public interest. 

Specifically, the Commission finds that 

the proposed rule change is consistent 

with the Exchange Act for the reasons 

expressed in the Order Approving a 

Proposed Rule Change to Adopt FINRA 

Rule 2030—namely, that this proposed 

rule will discourage CABs, like nonCAB member firms, from engaging in 

pay-to-play practices that may create 

market distortions, impede a free and 

open market, and harm investors and 

the public interest.16

The Commission agrees with FINRA 

that the proposed rule change will 

clarify that CABs and non-CAB member 

firms are subject to the same rule regime 

as they engage in distribution or 

solicitation activities with government 

entities on behalf of investment 

advisers. Without the proposed rule 

change, under the SEC’s Pay-to-Play 

Rule, CABs could not be retained by 

investment advisers to engage in 

distribution and solicitation activities 

with government entities on their behalf 

because the rule set for CABs does not 

expressly provide that FINRA Rule 2030 

applies to CABs. The Commission also 

agrees with FINRA that having such 

rules in place will deter CABs from 

engaging in pay-to-play practices, and 

that clarifying the application of FINRA 

Rules 2030 and 4580 to CABs is a more 

effective regulatory response to 

concerns regarding third-party 

solicitations than an outright ban on 

such activity. 

Lastly, the Commission agrees with 

FINRA that the proposed rule change 

will not result in any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. In the 

Notice, FINRA explained that the 

proposed rule change would subject 

CABs to the same pay-to-play rules as 

non-CAB member firms, and therefore, 

the economic impacts associated with 

the proposal were contemplated in the 

Economic Impact Assessment 

accompanying the filing of FINRA Rules 

2030 and 4580. FINRA’s Economic 

Impact Assessment in the Proposing 

Release for FINRA Rules 2030 and 4580 

considered the impact on all FINRA 

member firms, including firms that at 

that time engaged solely in activities 

that were later deemed permissible for 

CABs.17

Taking into consideration the 

foregoing, the Commission believes that 

the proposal is consistent with the 

Exchange Act. The Commission believes 

that the proposal will help protect 

investors and the public interest by, 

among other things, clarifying that CABs 

and non-CAB member firms are subject 

to the same rule regime as they engage 

in distribution or solicitation activities 

with government entities on behalf of 

investment advisers, and by deterring 

pay-to-play practices. Accordingly, the 

Commission believes that the approach 

proposed by FINRA is appropriate and 

designed to protect investors and the 

public interest, consistent with Section 

15A(b)(6) of the Exchange Act and the 

rules and regulations thereunder. 

V. Conclusion 

It is therefore ordered pursuant to 

Section 19(b)(2) of the Exchange Act 18

that the proposal (SR–FINRA–2017– 

027), be and hereby is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Eduardo A. Aleman 

Assistant Secretary. 

[FR Doc. 2017–21413 Filed 10–4–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81764; File No. SR–CHX– 

2017–13] 

Self-Regulatory Organizations; 

Chicago Stock Exchange, Inc.; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change Related to 

Sponsored Access 

September 29, 2017. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on 

September 15, 2017, the Chicago Stock 

Exchange, Inc. (‘‘CHX’’ or 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 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 

CHX proposes to amend the Rules of 

the Exchange (‘‘CHX Rules’’) related to 

Sponsored Access. The text of this 

proposed rule change is available on the 

Exchange’s Web site at (www.chx.com) 

and in 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 

CHX included statements concerning 

the purpose of and basis for the 

proposed rule changes 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 

CHX 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 

Changes 

1. Purpose 

The Exchange proposes to amend 

CHX Rules to effect the following 

changes: 

• Amend Article 1, Rule 1 to adopt 

the following defined terms: 

‘‘Sponsoring Participant,’’ ‘‘Sponsored 

Person’’ and ‘‘Sponsored Access.’’ 

• Amend Article 5, Rule 3 to permit 

Sponsoring Participants to provide 

Sponsored Access to the Exchange to 

Sponsored Persons, subject to enhanced 

requirements. Current Article 5, Rule 3 

only permits Sponsoring Participants to 

provide authorized access to the 

Exchange’s trading facilities to nonParticipant 3 broker-dealers. The 

proposal would permit Participants, 

non-Participants, broker-dealers and 

firms that are not broker-dealers to 

receive Sponsored Access to the 

Exchange.4


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46562 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 

5CHX Article 1, Rule 1(ee) defines ‘‘Clearing 

Participant’’ as ‘‘a Participant which has been 

admitted to membership in a Qualified Clearing 

Agency pursuant to the provisions of the Rules of 

the Qualified Clearing Agency.’’ Current CHX 

Article 1, Rule 1(ff) defines ‘‘Qualified Clearing 

Agency’’ as ‘‘a clearing agency as defined in Section 

3(a)(23) of the Exchange Act which is registered 

with the Commission pursuant to the provisions of 

Section 17A(b)(2) of the Exchange Act or has 

obtained from the Commission an exemption from 

registration granted specifically to allow the 

clearing agency to provide confirmation and 

affirmation services. 

6The Market Access Rule, among other things, 

requires broker-dealers providing others with access 

to an exchange or alternative trading system to 

establish, document, and maintain a system of risk 

management controls and supervisory procedures 

reasonably designed to manage the financial, 

regulatory, and other risks of providing such access. 

See Securities Exchange Act Release No. 63241 

(November 3, 2010), 75 FR 69792 (November 15, 

2010). 

7 Incidentally, under current Article 5, Rule 4(a), 

the Exchange proposes to replace reference to 

‘‘Market Regulation Department’’ with ‘‘Regulatory 

Operations Division.’’ Since the Market Regulation 

Department is a department of the Regulatory 

Operations Division, the Exchange believes that it 

is appropriate for denial of access authority to rest 

more broadly with the Regulatory Operations 

Division. 

8 17 CFR 240.15c3–5. 

(1) Current Article 5, Rule 3 

Current Article 5, Rule 3(a) provides 

that a Sponsoring Participant may 

provide authorized access to the 

Exchange for a non-Participant brokerdealer, through a clearing arrangement 

or otherwise, only if the Sponsoring 

Participant, the non-Participant brokerdealer and the Exchange (as 

appropriate) enter into one or more 

written agreements, in a form acceptable 

to the Exchange, prior to any access to 

the Exchange, that contain all of the 

following terms: (1) All orders 

submitted by the non-Participant 

broker-dealer, and any executions 

resulting from those orders, are binding 

in all respects on the Sponsoring 

Participant; (2) the Sponsoring 

Participant is responsible for all actions 

taken and fees incurred in connection 

with any order submitted or transaction 

executed by the non-Participant brokerdealer (and any person acting on behalf 

of the non-Participant broker-dealer); (3) 

in all matters relating to the nonParticipant broker-dealer’s access to the 

Exchange and its use of Exchange 

facilities, the Exchange shall 

communicate with the Sponsoring 

Participant and shall not be required to 

communicate with the non-Participant 

broker-dealer at any time; (4) the nonParticipant broker-dealer agrees that it 

will have reasonable procedures to 

maintain the physical security of the 

equipment used to access the Exchange 

to prevent improper use of, or access to, 

the Exchange; and (5) the Sponsoring 

Participant agrees that it will indemnify 

and hold the Exchange harmless from 

any liability, loss, claim or expense 

which the Exchange may incur in 

connection with the agreement. In 

addition, current Article 5, Rule 3(b) 

provides that the Sponsoring Participant 

must provide signed copies of the 

agreements required by section (a) to the 

Exchange prior to the non-participant’s 

access to the Exchange through the 

Sponsoring Participant. 

The Exchange now proposes to amend 

CHX Rules to permit Sponsoring 

Participants to provide Sponsored 

Access to the Exchange to any 

Sponsored Person, subject to the 

requirements of amended Article 5, Rule 

3. Amended Article 5, Rule 3 is based, 

in part, on Nasdaq Rule 4615. The 

Exchange believes that the proposed 

rule change will permit a broader group 

of market participants, such as 

institutional investors, to obtain 

Sponsored Access to the Exchange, 

which may result in reduced transaction 

costs to such market participants in 

furtherance of the protection investors 

and the public interest. 

(2) Proposed Definitions 

Proposed CHX Article 1, Rule 1(vv) 

provides that ‘‘Sponsored Person’’ 

means a person which has entered into 

a sponsorship arrangement with a 

Sponsoring Participant pursuant to 

amended Article 5, Rule 3. 

Proposed CHX Article 1, Rule 1(ww) 

provides that a ‘‘Sponsoring 

Participant’’ means a Participant who 

has been designated by a Sponsored 

Person to execute, clear and settle 

transactions resulting from the Trading 

Facilities. The rule continues by 

providing that the Sponsoring 

Participant shall be either (1) a Clearing 

Participant 5 or (2) a correspondent firm 

with a clearing arrangement with a 

Clearing Participant. 

Proposed Article 1, Rule 1(xx) 

provides that ‘‘Sponsored Access’’ 

means an arrangement whereby a 

Sponsoring Participant permits its 

Sponsored Persons to enter orders into 

the Matching System that bypass the 

Sponsoring Participant’s trading system 

and are routed directly to the Exchange, 

including through a service bureau or 

other third party technology provider. 

The Exchange is proposing to adopt a 

definition for ‘‘Sponsored Access’’ to 

clarify the type of market access 

arrangement that is subject to amended 

Article 5, Rule 3. This definition was 

derived from the Commission’s 

description of Sponsored Access used in 

the release approving the Market Access 

Rule.6

(3) Amended Article 5, Rule 3 

The Exchange proposes to amend 

current Article 5, Rule 3 to permit 

Sponsoring Participants to provide 

Sponsored Access to Sponsored 

Persons, subject to the requirements of 

amended Article 5, Rule 3. Initially, the 

Exchange proposes to amend the title to 

Rule 3 to reflect that it applies to 

‘‘Sponsored Persons.’’ 

Under paragraph (a), the Exchange 

proposes to (1) replace a reference to 

‘‘Participant (the ‘Sponsoring 

Participant’)’’ with ‘‘Sponsoring 

Participant’’; (2) replace reference to 

‘‘authorized access’’ with the proposed 

defined term ‘‘Sponsored Access’’; (3) 

define the required written agreements 

between Sponsoring Participant, 

Sponsored Person and the Exchange 

that permit a Sponsored Person to 

receive Sponsored Access to the 

Exchange as ‘‘Sponsored Access 

Agreements.’’ Under both paragraphs (a) 

and (b), as well as Article 5, Rule 4 

(Denial of Access),7 the Exchange 

proposes to replace references to the 

terms ‘‘non-Participant broker-dealer’’ 

or ‘‘non-Participant’’ with ‘‘Sponsored 

Person.’’ 

The Exchange further proposes to 

adopt proposed paragraphs (a)(6)–(11) to 

provide additional terms that must be 

included in Sponsored Access 

Agreements. Proposed paragraph (a)(6) 

provides that the Sponsoring Participant 

and Sponsored Person must comply 

with Rule 15c3–5 under the Exchange 

Act.8 Pursuant to amended Article 5, 

Rule 3, the Sponsoring Participant is 

responsible for the activities of the 

Sponsored Person. Sponsoring 

Participants may have multiple 

Sponsored Access relationships in place 

at a given time. The Exchange’s 

examination program assesses 

compliance with Article 5, Rule 3, 

among other rules. As such, proposed 

paragraph (a)(6) clarifies the Sponsoring 

Participant’s and Sponsored Person’s 

obligations to comply with the Market 

Access Rule, with which Participants 

are currently required to comply. The 

Exchange believes that specifying the 

obligation to comply with the Market 

Access Rule specifically will reinforce 

that amended Article 5, Rule 3 

presupposes compliance with the 

Market Access Rule. 

Proposed paragraph (a)(7) provides 

that the Sponsoring Participant shall 

comply with the Exchange’s Certificate 

of Incorporation, Bylaws, Rules and 

procedures and the Sponsored Person 

shall comply with the Exchange’s 

Certificate of Incorporation, Bylaws, 

Rules and procedures with regard to the 


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Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 46563 

9 15 U.S.C. 78f(b). 

10 15 U.S.C. 78f(b)(5). 11 15 U.S.C. 78f(b)(1). 

12See supra note 4. 

13 15 U.S.C. 78s(b)(3)(A). 

14 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, 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 requirement. 

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

Exchange, as if the Sponsored Person 

were a Participant. The Exchange 

believes that proposed paragraph (a)(7) 

will ensure that Sponsored Persons that 

are non-Participants are subject to the 

same regulatory requirements as 

Participants. 

Proposed paragraphs (a)(8)–(11) 

would impose obligations on Sponsored 

Persons to ensure appropriate use of, 

and security of access to, the Exchange’s 

trading facilities, as well as compliance 

with the applicable Sponsored Access 

Agreement. Specifically, proposed 

paragraph (a)(8) provides that the 

Sponsored Person shall maintain, keep 

current and provide to the Sponsoring 

Participant a list of individuals 

authorized to obtain Sponsored Access 

to the Exchange on behalf of the 

Sponsored Person. Proposed paragraph 

(a)(9) provides that the Sponsored 

Person shall familiarize its authorized 

individuals with all of the Sponsored 

Person’s obligations under this Rule and 

will assure that they receive appropriate 

training prior to any use or access to the 

Exchange pursuant to any Sponsored 

Access Agreement. Proposed paragraph 

(a)(10) provides that the Sponsored 

Person may not permit anyone other 

than authorized individuals to use or 

obtain access to the Exchange pursuant 

to any Sponsored Access Agreement. 

Proposed paragraph (a)(11) provides 

that the Sponsored Person shall 

establish, maintain and enforce written 

supervisory procedures and a 

supervisory system that is reasonably 

designed to ensure that the use or access 

to the Exchange that takes place 

pursuant to a Sponsored Access 

Agreement and by any Sponsored 

Person or authorized individual 

complies with the terms of the 

Sponsored Access Agreement and all 

applicable CHX and SEC rules and 

regulations. 

(4) Operative Date 

The Exchange proposes to make the 

proposed rule change operative on a 

date after the 30-day preoperative delay 

and pursuant to at least one week’s 

notice to Participants. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) of the Act in general,9 and 

furthers the objectives of Section 6(b)(5) 

in particular,10 in that it is designed to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments and perfect the 

mechanisms of a free and open market, 

and, in general, to protect investors and 

the public interest; and is not designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

Specifically, the Exchange believes 

that the proposed rule change will 

remove impediments and perfect the 

mechanisms of a free and open market 

by permitting Sponsoring Participants to 

provide Sponsored Access to customers 

that are not broker-dealers, such as 

institutional investors, as well as brokerdealers that are not Participants, which 

may result in reduced transaction costs 

to such market participants in 

furtherance of the protection investors 

and the public interest. 

Also, the Exchange believes that the 

additional required terms for Sponsored 

Access Agreements under proposed 

Article 5, Rule 3(a)(6)–(11) will protect 

investors and the public interest by 

enhancing the ability of the Exchange to 

monitor, enforce and compel 

compliance with CHX Rules and the 

Market Access Rule by Sponsoring 

Participants and Sponsored Persons. In 

particular, proposed paragraph (a)(6) 

will clarify that any Sponsored Access 

arrangement under amended Article 5, 

Rule 3 must be effected in accordance 

with the Market Access Rule; proposed 

paragraph (a)(7) will ensure that both 

Participant and non-Participant 

Sponsored Persons will be subject to the 

CHX Rules; and proposed paragraphs 

(a)(8)–(11) will impose affirmative 

obligations on Sponsored Persons that 

will enhance the security of the 

Exchange. 

Moreover, the Exchange believes that 

proposed definitions of ‘‘Sponsoring 

Participant,’’ ‘‘Sponsored Person,’’ 

‘‘Sponsored Access’’ and ‘‘Sponsored 

Access Agreements’’ provide clarity to 

the meaning and scope of amended 

Article 5, Rule 3, which furthers the 

objectives of Section 6(b)(1) 11 in that it 

further enables the Exchange to be so 

organized as to have the capacity to be 

able to carry out the purposes of the Act 

and to comply, and to enforce 

compliance by its Participants and 

persons associated with its Participants, 

with the provisions of the Act, the rules 

and regulations thereunder, and the 

rules of the Exchange. 

B. Self-Regulatory Organization’s 

Statement of 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. The 

Exchange notes that other national 

securities exchanges, such as Nasdaq,12

currently permit its members to provide 

Sponsored Access to members, nonmembers, broker-dealers and firms that 

are not broker-dealers. As such, the 

proposal will enhance competition 

among the national securities exchanges 

by permitting the Exchange to allow 

Sponsoring Participants to provide 

Sponsored Access to its customers on 

similar terms. 

C. Self-Regulatory Organization’s 

Statement on Comments Regarding the 

Proposed Rule Changes Received From 

Members, Participants or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Changes 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 13 and Rule 19b– 

4(f)(6) thereunder.14

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 

under Section 19(b)(2)(B) of the Act 15 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 proposal is 

consistent with the Act. Comments may 

be submitted by any of the following 

methods: 


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46564 Federal Register / Vol. 82, No. 192 / Thursday, October 5, 2017 / Notices 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Rule 716(c). 

4See Rule 716(a). 

5A ‘‘Response’’ is an electronic message that is 

sent by members in response to a broadcast 

message. See Rule 716(b). 

6See Supplementary Material .04 to Rule 716. 

7Responses and orders and quotes on the order 

book at the time the block order is executed that 

are priced better than the block execution price are 

executed at the block execution price. See Rule 

716(c)(2)(i). 

8See Rule 716(c)(2). 

9The term ‘‘Professional Order’’ means an order 

that is for the account of a person or entity that is 

not a Priority Customer. See Rule 100(a)(37C). 

10See Rule 716(d). 

11See Rule 716(e). 

12See Rule 723. 

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 No. SR– 

CHX–2017–13 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 No. 

SR–CHX–2017–13. 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 Web site (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 changes 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 Web site 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 CHX. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File No. SR–CHX–2017– 

13 and should be submitted on or before 

October 26, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21401 Filed 10–4–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81770; File No. SR–GEMX– 

2017–43] 

Self-Regulatory Organizations; Nasdaq 

GEMX, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Rule 716(c) on 

the Block Order Mechanism 

September 29, 2017. 

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 

September 18, 2017, Nasdaq GEMX, 

LLC (‘‘GEMX’’ or ‘‘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 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 

Rule 716(c) to more accurately describe 

the allocation methodology used in the 

Block Order Mechanism, and add 

language regarding how the block 

execution price is determined. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at www.ise.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 Block Order Mechanism is a 

process by which a member can obtain 

liquidity for the execution of blocksized orders,3 defined as orders for fifty 

contracts or more.4 When an order is 

entered in the Block Order Mechanism, 

that order is exposed to members who 

are given an opportunity to respond 

with the prices and sizes at which they 

would be willing to trade with the 

block-sized order.5 The exposure period 

is designated by the Exchange via 

circular, but must be no less than 100 

milliseconds and no more than 1 

second.6 At the conclusion of the 

exposure period, either an execution 

will occur at a single block execution 

price,7 or the order will be cancelled.8

The purpose of the proposed rule 

change is to amend Rule 716(c) to more 

accurately describe the allocation 

methodology used in the Block Order 

Mechanism, and add language regarding 

how the block execution price is 

determined. The Exchange believes that 

these changes will increase 

transparency around the operation of 

the Block Order Mechanism to the 

benefit of members and market 

participants. 

Currently, Rule 716(c)(2)(ii) provides 

that Responses, quotes, and Professional 

Orders 9 at the block execution price 

will participate in the execution of the 

block-size order according to Rule 

713(e)—i.e., the Exchange’s regular 

allocation rule. As implemented today, 

however, interest that is executed in the 

Block Order Mechanism follows the 

customer priority pro-rata allocation 

methodology designed for the 

Exchange’s auction mechanisms, 

including, for example, the Facilitation 

Mechanism,10 Solicited Order 

Mechanism,11 and Price Improvement 

Mechanism,12 with the exception that 

those two-sided auction mechanisms 

also allocate contracts against the contra 

order. This auction allocation 

methodology is similar to the 

Exchange’s regular allocation 

methodology but does not provide 

enhanced allocations to the Primary 

Market Maker (‘‘PMM’’) pursuant to 


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