Document ID: SEC-2018-1337-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2018-08-24T04:00Z

[Federal Register Volume 83, Number 165 (Friday, August 24, 2018)]
[Notices]
[Pages 42954-42957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18294]

-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \3\ Today the Exchange offers FIX, SQF and QUO (formerly known 
as OTTO) to its Participants.
    \4\ Rules have been filed for Nasdaq ISE, LLC (``ISE''), Nasdaq 
GEMX, LLC (``GEMX''), Nasdaq MRX, LLC (``MRX''), Nasdaq BX, Inc. and 
Nasdaq Phlx, LLC.
---------------------------------------------------------------------------

    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

[[Page 42955]]

obligations. In contrast orders that NOM Market Makers send through QUO 
will count toward market maker quoting obligations because orders 
submitted through QUO will rest on the order book and allow NOM Market 
Makers to provide liquidity on NOM. NOM Market Makers cannot use QUO to 
submit quotes. As noted below in the section on QUO, specifically 
orders would count toward meeting quoting obligations for purposes of 
Rule 701, Opening, and Rule 804(e), regarding intra-day quoting.
    The Exchange proposes to title proposed new Section 21 as ``Order 
and Quote Protocols'' and codify descriptions of the various current 
and new protocols that Participants may use to enter quotes and orders 
on NOM. Proposed new section (a) to Chapter VI, Section 21 would be 
entitled ``Entry and Display of Orders and Quotes.'' Proposed new 
Chapter VI, Section 21(a) would provide, ``Participants may enter 
orders and quotes into the System as specified below.'' The Exchange 
proposes to add a section Chapter VI, Section 21(a)(i) which states, 
``The Exchange offers Participants the following protocols for entering 
orders and quotes respectively.'' Each protocol will be explained in 
greater detail below.

A. Financial Information eXchange Ports

    This protocol is not memorialized within the Exchange's Rulebook, 
however rule changes describing FIX were filed previously.\5\ The 
Exchange proposes to codify a description of FIX at Rule 1080(a)(i)(a) 
to add even greater specificity to this protocol. The Exchange proposes 
to state that FIX is an interface that allows Participants (Market 
Makers and non-Market Maker Participants) and their Sponsored Customers 
to connect, send and receive messages related to orders to and from the 
Exchange. Features include the following: (1) Execution messages; (2) 
order messages; and (3) risk protection triggers and cancel 
notifications.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 74616 (April 6, 
2015), 80 FR 18450 (March 31, 2015) (SR-NASDAQ-2015-027). The FIX 
port was previously referred to as the ``Order Entry Port'' and 
described as a connection to routing orders to the Exchange via an 
external order entry port. NOM Participants access the Exchange's 
network through order entry ports. A NOM Participant may have more 
than one order entry port. The Exchange recently renamed the ``Order 
Entry Port'' as the ``FIX Port'' in the Exchange's Pricing Schedule. 
See Securities Exchange Act Release No. 83192 [sic] (May 9, 2018), 
83 FR 22570 [sic] (May 15, 2018) (SR-NASDAQ-2018-036).
---------------------------------------------------------------------------

B. Specialized Quote Feed Ports

    This protocol is not memorialized within the Exchange's Rulebook, 
however rule changes describing SQF were filed previously.\6\ The 
Exchange proposes to more specifically define an SQF Port. The Exchange 
proposes the following definition:
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 83193 (May 9, 2018), 
83 FR 22539 (May 15, 2018) (SR-NASDAQ-2018-036). This rule change 
generally described SQF as an interface that allows market makers to 
send quotes, sweeps and auction responses into the Exchange.
---------------------------------------------------------------------------

    SQF is an interface that allows Market Makers to connect, send, and 
receive messages related to quotes and Immediate-or-Cancel Orders into 
and from the Exchange. Features include the following: (1) Options 
symbol directory messages (e.g underlying instruments); (2) system 
event messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) quote messages; (6) Immediate-or-Cancel Order 
messages; (7) risk protection triggers and purge notifications; and (8) 
opening imbalance messages. The SQF Purge Interface only receives and 
notifies of purge request from the Market Maker.\7\
---------------------------------------------------------------------------

    \7\ All of the notification messages available on SQF ports as 
described above (i.e., options symbol directory messages, system 
event messages, trading action messages, etc.) are configurable in 
that NOM Market Makers can select the specific types of 
notifications they wish to receive on their SQF ports. As such, SQF 
Purge Interface ports are a subpart of SQF ports that have been 
configured to only receive and notify of purge requests.
---------------------------------------------------------------------------

    The Exchange believes that this information provides a more 
thorough description of SQF.

C. Quote Using Orders (Formerly OTTO)

    Today, the Exchange offers a protocol named ``Ouch to Trade 
Options'' or ``OTTO.'' The Exchange has filed a description of the 
current OTTO in prior rule changes stating OTTO is a protocol which 
permits the transmission of orders to the Exchange by a Participant.\8\ 
Further, the prior filing noted Immediate-or- Cancel orders will not be 
cancelled pursuant to this Chapter VI, Section 6 because, by 
definition, these orders will cancel if not executed.\9\ All 
Participants have the ability to utilize OTTO. Today, orders submitted 
by NOM Market Makers over this interface are treated as quotes.\10\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 78480 (August 4, 
2016), 81 FR 52926 (August 10, 2016) (SR-NASDAQ-2016-097).
    \9\ Id.
    \10\ Id.
---------------------------------------------------------------------------

    The Exchange proposes to rename the current OTTO as ``Quote Using 
Orders'' or ``QUO'' and amend the protocol by restricting it to NOM 
Market Makers only because this protocol is predominately utilized by 
NOM Market Makers. Further, the Exchange is offering non-Market Makers 
the new OTTO protocol, described below, which some Participants, who 
are also members of ISE, GEMX and MRX,\11\ utilize today. The Exchange 
also notes QUO users will be subject to certain quote protections 
specified in Chapter VI, Section 18(c) which are specific to NOM Market 
Makers and would otherwise not apply to non-Market Makers. This 
interface would continue to allow NOM Market Makers to connect, send, 
and receive messages related to single-sided orders to and from the 
Exchange. The Exchange proposes to add additional granularity to this 
protocol by stating that the order features include the following: (1) 
Options symbol directory messages (e.g., underlying); (2) system event 
messages (e.g., start of trading hours messages and start of opening); 
(3) trading action messages (e.g., halts and resumes); (4) execution 
messages; (5) order messages; and (6) risk protection triggers and 
cancel notifications. Similar to how the protocol operates today, 
orders submitted by NOM Market Makers over this interface are treated 
as quotes. These orders would therefore count toward meeting quoting 
obligations for purposes of Rule 701, Opening, and Rule 804(e), 
regarding intra-day quoting.
---------------------------------------------------------------------------

    \11\ The new OTTO protocol is the same protocol offered on ISE, 
GEMX and MRX.
---------------------------------------------------------------------------

D. New Ouch to Trade Options

    The Exchange proposes to introduce a new interface similar to OTTO 
offered on affiliated markets which would be available to all NOM 
Participants (Market Makers and non-Market Makers). In order to bring 
conformance to the protocols across its affiliated markets, the 
Exchange proposes to name the new interface ``Ouch to Trade Options'' 
or ``OTTO'' similar to the other markets.\12\ This new protocol would 
allow Participants and their Sponsored Customers to connect, send, and 
receive messages related to orders to and from the Exchange. Features 
would include the following: (1) Options symbol directory messages 
(e.g., underlying); (2) system event messages (e.g., start of trading 
hours messages and start of opening); (3) trading action messages 
(e.g., halts and resumes); (4) execution messages; (5) order messages; 
and (6) risk protection triggers and cancel notifications.\13\ Orders 
submitted by NOM Market Makers through the

[[Page 42956]]

new OTTO will not count toward their quoting obligations.
---------------------------------------------------------------------------

    \12\ To allow for the conformance suggested herein, the Exchange 
is proposing to rename the current protocol ``Quote Using Orders'' 
or ``QUO.''
    \13\ Unlike the current OTTO, orders submitted through the 
proposed new OTTO protocol would not be treated as quotes for 
purposes of Market Maker quoting obligations.
---------------------------------------------------------------------------

Implementation
    The Exchange proposes to rename the current OTTO to QUO and 
introduce the new OTTO protocol in Q4. The Exchange would issue an 
Options Trader Alert announcing the date on which these protocols would 
be available.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest by adding greater transparency to the order and 
quote protocols available on NOM.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with the protection of investors and the public interest as it codifies 
the current FIX and SQF protocols used to connect to the Exchange's 
System. With respect to these protocols in particular, the Exchange 
believes that including a description of the various order entry 
protocols into the Rulebook will benefit Participants by increasing 
transparency around the operation of the Exchange. Furthermore, the 
proposed descriptions of all protocols in one rule will reflect 
information available on these protocols, and will be harmonized with 
language to be included in the rules of its affiliated exchanges to the 
extent that the protocols operate in the same manner.
    With respect to the renamed and amended QUO protocol the Exchange 
believes that restricting it to NOM Market Makers and further expanding 
the description of the protocol is consistent with the Act because the 
Exchange is also proposing to add a new protocol on NOM which would be 
available to all Participants. NOM is restricting QUO to Market Makers 
because it is already predominately utilized by Market Makers today. 
The Exchange is offering non-Market Makers the new OTTO protocol, which 
some Participants, who are also members of ISE, GEMX and MRX, utilize 
today. The Exchange also notes QUO users will be subject to certain 
quote protections specified in Chapter VI, Section 18(c) which are 
specific to NOM Market Makers and would otherwise not apply to non-
Market Makers. The amended definition will provide greater transparency 
concerning this protocol which is in use today.
    Adopting a new protocol and naming it OTTO will bring greater 
conformance to the protocols across Nasdaq affiliated markets. The 
Exchange believes that the new proprietary protocol will offers 
Participants a range of important features including the ability to 
submit orders other than through FIX, while continuing to perform 
functions necessary to manage trading on the Exchange. The proposed new 
OTTO offers all NOM Participants the ability to send orders, similar to 
QUO. The new OTTO is intended to continue to permit non-Market Makers 
to have a protocol similar to the QUO (formerly OTTO) protocol offered 
on NOM today. The functionality offered on new OTTO mirrors the 
protocols offered on ISE, GEMX and MRX. The Exchange desires to conform 
its protocols across Nasdaq affiliated markets. The Exchange believes 
adopting and codifying this protocol will increase transparency to the 
Participants. The Exchange also notes that today this protocol is 
offered on ISE, GEMX and MRX.

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. As explained above, the 
Exchange is codifying the quote and order entry protocols for FIX, SQF, 
renamed QUO and the new OTTO. Participants utilize the FIX, SQF and 
current OTTO protocols to connect to the Exchange's System. The 
Exchange will offer a new OTTO protocol and rename current OTTO to QUO. 
The Exchange does not believe that codifying these existing and new 
protocols in the Rulebook will have any competitive impact.
    The Exchange does not believe limiting QUO to only Market Makers 
presents an undue burden on competition because, today, this protocol 
is predominately utilized by Market Makers. The Exchange is offering 
non-Market Makers the new OTTO protocol which some Participants, who 
are also members of ISE, GEMX and MRX, utilize today. The Exchange also 
notes QUO users will be subject to certain quote protections specified 
in Chapter VI, Section 18(c) which are specific to NOM Market Makers 
and would otherwise not apply to non-Market Makers.
    Locating all the protocol descriptions within a single rule and 
adding context around each protocol will increase transparency around 
the operation of the Exchange without having any impact on inter-market 
or intra-market competition. All market participants have the ability 
to subscribe to the protocols for order entry. The quoting protocols 
are limited to the market participants who are permitted by rule to 
quote on NOM, but the function is uniformly available to these eligible 
participants. Further, adopting OTTO will provide market participants 
with additional choices in selecting an order protocol other than FIX. 
Market Makers will be able to utilize either SQF or QUO to comply with 
quoting obligations. Every market participant will have more than one 
protocol available to utilize.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    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 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.

[[Page 42957]]

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 [email protected]. Please include 
File Number SR-NASDAQ-2018-069 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-2018-069. 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-NASDAQ-2018-069 and should be submitted 
on or before September 14, 2018.
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18294 Filed 8-23-18; 8:45 am]
 BILLING CODE 8011-01-P