Document ID: SEC-2018-1791-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2018-11-23T05:00Z

[Federal Register Volume 83, Number 226 (Friday, November 23, 2018)]
[Notices]
[Pages 59433-59434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25467]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84610; File No. SR-Phlx-2018-59]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Approving a 
Proposed Rule Change To Amend Rules 1000, 1064, and 1069 To Allow for 
the Snapshot Functionality of the Floor-Based Management System To Be 
Used for All Orders

November 16, 2018.

I. Introduction

    On September 18, 2018, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
allow the Snapshot functionality of the Floor-Based Management System 
(``FBMS'') to be used for all orders on the trading floor. The proposed 
rule change was published for comment in the Federal Register on 
October 2, 2018.\3\ The Commission received no comment letters on the 
proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 84290 (September 26, 
2018), 83 FR 49596 (``Notice'').
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II. Description of the Proposed Rule Change

    The ``Snapshot'' functionality of the FBMS allows a Floor Broker, 
Registered Options Trader (``ROT''), or Specialist to ``provisionally 
execute'' \4\ a trade in the trading crowd and capture and record the 
market conditions that exist at the time of the provisional 
execution.\5\ Once the member triggers the Snapshot, the member has up 
to 30 seconds to use the information recorded on the Snapshot for 
purposes of entering the terms of the provisionally-executed trade into 
FBMS and submitting the trade to the Trading System.\6\ Once submitted, 
the Trading System will only execute the trade if it is consistent with 
the applicable priority and trade-through rules based upon the 
prevailing market as reflected on the Snapshot at the time of the 
provisional execution. The Trading System will reject a trade that is 
subject to a Snapshot if it would violate trade-though or priority 
rules.\7\
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    \4\ A ``provisional execution'' occurs in the trading crowd when 
either (1) the participants to a trade reach a verbal agreement in 
the trading crowd as to the terms of the trade; or (ii) a member 
announces that he is crossing an order in accordance with Phlx Rule 
1064(a). See Phlx Rule 1069(a)(i)(A). See also Notice, supra note 3, 
at 49596-97 n.5.
    \5\ See Securities Exchange Act Release No. 81980 (October 30, 
2017), 82 FR 51313 (November 3, 2017) (SR-Phlx-2017-34) (approving 
the Snapshot functionality as an exception to Phlx Rule 1000(f)) 
(``Snapshot Approval''). See also Securities Exchange Act Release 
No. 83656 (July 17, 2018), 82 FR 34899 (July 23, 2018) (SR-Phlx-
2018-40) (expanding the availability of the Snapshot feature to ROTS 
and Specialists).
    \6\ See Notice, supra note 3, at 49596-97.
    \7\ See id. at 49597.
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    Currently, the ``Snapshot'' feature of the FBMS may only be used to 
provisionally execute certain types of orders in the trading crowd. 
Specifically, Floor Brokers, Specialists, and ROTS may only use 
Snapshot to provisionally execute multi-leg orders and simple orders in 
options on Exchange Traded Funds (``ETFs'') that are included in the 
Options Penny Pilot.\8\ The Exchange proposes to expand the use of the 
Snapshot functionality to all orders on the trading floor, subject to 
the current procedures for and the limitations on the use of 
Snapshot.\9\ The Exchange believes that

[[Page 59434]]

its proposed expansion of the use of Snapshot will make the 
functionality simpler, more consistent, and more useful in a greater 
number of circumstances than it is currently.\10\ To effectuate these 
changes, the Exchange proposes several modifications to Phlx Rules 
1000, 1064, and 1069.\11\
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    \8\ See Phlx Rule 1069(a)(i)(A).
    \9\ See Notice, supra note 3, at 49596-97. The procedures and 
limitations regarding the current use of Snapshot are currently set 
forth in Phlx Rule 1069 and will continue to apply.
    \10\ See Notice, supra note 3, at 49597.
    \11\ A more detailed description of the proposal appears in the 
Notice.
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    The Exchange represents that it does not anticipate that the use of 
Snapshot to provisionally execute all orders, rather than just multi-
leg or simple orders in options on ETFs that are included in the 
Options Penny Pilot, will materially increase the risk that Snapshot 
will be overused or abused relative to its current use.\12\ Therefore, 
the Exchange proposes to utilize the same methods it currently uses to 
surveil its members' use of the Snapshot functionality and represents 
that if Surveillance detects a significant uptick in improper usage, 
the Exchange will evaluate whether additional controls are 
necessary.\13\
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    \12\ See Notice, supra note 3, at 49597.
    \13\ See id.
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    Finally, the Exchange notes that it expects to make Snapshot 
available for all orders before the end of the fourth quarter of 2018 
and represents that it will notify its members via an Options Trader 
Alert, to be posted on the Exchange's website, at least seven calendar 
days prior to the date when Snapshot will be available for expanded 
use.\14\
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    \14\ See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\15\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\16\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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 facilitating transactions in securities and, in general, to protect 
investors and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \15\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that use of the Snapshot functionality for 
certain orders is one of the current exceptions set forth in Phlx Rule 
1000(f), and allows Floor Brokers, ROTS, and Specialists to 
provisionally execute, in the options trading crowd (as opposed to 
through FBMS), multi-leg orders and simple orders in options on ETFs 
that are included in the Options Penny Pilot.\17\ According to the 
Exchange, Snapshot promotes just and equitable principles of trade and 
serves the interests of investors and the public by increasing the 
likelihood that investors will be able to execute their orders and do 
so in line with their expectations.\18\ The Exchange further represents 
that Snapshot is designed to mitigate the risk that the Trading System 
will reject a trade due to a change in market conditions that occurs 
between the time when the parties to a trade negotiate a valid trade on 
the trading floor and the time when the Trading System receives the 
trade. The Exchange believes that expanding the availability of 
Snapshot to all orders will broaden the scope of these protections to 
the benefit of investors and will make the exchange's trading floor 
more competitive with other trading venues because it will make the 
trading floor operate more efficiently.\19\
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    \17\ See Phlx Rule 1000(f)(iii)(E).
    \18\ See Notice, supra note 3, at 49597.
    \19\ See id. at 49597-98.
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    Further, the Exchange represents that the proposal is consistent 
with Rule 611 of Regulation NMS, which requires the Exchange to 
establish policies and procedures that are reasonably designed to 
prevent trade-throughs of protected quotations. The Exchange notes that 
although the proposal will change the time of execution of a trade for 
purposes of verifying compliance with trade-though and priority rules, 
the current automated compliance verification process will continue to 
apply and will systematically prevent any violation of the trade-though 
and priority rules.\20\ Finally, as noted above, the Exchange does not 
believe that the proposal will increase the risk that Snapshot will be 
used improperly and believes that its existing design controls are 
sufficient to continue to closely monitor Snapshot usage by its 
members.\21\
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    \20\ See id. at 49598.
    \21\ See id. at 49597.
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    The Commission notes that, at the time Snapshot was adopted, the 
Exchange adopted several measures to help ensure that Snapshot 
operates, and is used by members, in a manner that is consistent with 
the Act and Phlx's rules.\22\ The Commission notes that these measures 
will continue to apply to the expanded application of Snapshot to all 
orders and should continue to ensure that the Snapshot functionality 
will be used in a manner that is consistent with the Act and Phlx's 
Rules. For example, Phlx Rule 1069(a)(i)(B) will continue to prohibit 
all members from triggering the Snapshot feature for the purpose of 
obtaining favorable, or avoiding unfavorable, priority or trade-through 
conditions. In addition, the Exchange represents that its surveillance 
staff will monitor the expanded use of Snapshot and will evaluate 
whether additional controls are needed if the Exchange detects a 
significant uptick in improper usage.\23\
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    \22\ See Snapshot Approval, supra note 5, at 51316.
    \23\ See Notice, supra note 3, at 49597.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \24\ and the 
rules and regulations thereunder applicable to national securities 
exchanges.
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    \24\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-Phlx-2018-59) be, and hereby 
is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25467 Filed 11-21-18; 8:45 am]
BILLING CODE 8011-01-P