Document ID: SEC-2016-1197-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ BX, Inc.
Posted Date: 2016-07-13T04:00Z

[Federal Register Volume 81, Number 134 (Wednesday, July 13, 2016)]
[Notices]
[Pages 45334-45336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16491]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78249; File No. SR-BX-2016-038]

Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Extend PRISM 
Pilot Program Through January 18, 2017

July 7, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 29, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit

[[Page 45335]]

comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BX rules at Chapter VI, Section 9, 
concerning a price-improvement mechanism, ``PRISM'' to extend, through 
January 18, 2017, a pilot program (the ``pilot'') concerning (i) the 
early conclusion of the PRISM Auction (as described below); (ii) an 
unrelated market or marketable limit order (against the BX BBO) on the 
opposite side of the market from the PRISM Order received during the 
Auction will not cause the Auction to end early and will execute 
against interest outside of the Auction; and (iii) no minimum size 
requirement of orders. The current pilot is scheduled to expire July 
18, 2016.\3\
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    \3\ See Securities Exchange Release No. 76301 (October 29, 
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqbx.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to extend certain 
pilots within Chapter VI, Section 9, entitled ``Price Improvement 
Auction (``PRISM''), through January 18, 2017.
Background
    The Exchange adopted PRISM in November 2015 as a price-improvement 
mechanism on the Exchange.\4\ This mechanism permits a Participant (an 
``Initiating Participant'') to electronically submit for execution an 
order it represents as agent on behalf of a Public Customer,\5\ 
Professional customer, broker dealer, or any other entity (``PRISM 
Order'') against principal interest or against any other order it 
represents as agent (an ``Initiating Order''), provided it submits the 
PRISM Order for electronic execution into the PRISM Auction 
(``Auction'') pursuant to the Chapter VI, Section 9.\6\ All options 
traded on the Exchange are eligible for PRISM.
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    \4\ Id.
    \5\ A Public Customer order does not include a Professional 
order, and therefore a Professional would not be entitled to Public 
Customer priority as described herein. A Public Customer means a 
person that is not a broker or dealer in securities. See BX Options 
Rules at Chapter I, Section 1(a)(50). A Public Customer order does 
not include a Professional order for purposes of BX Rule at Chapter 
VI, Section 10(1)(C)(1)(a), which governs allocation priority. A 
``Professional'' means any person or entity that (i) is not a broker 
or dealer in securities, and (ii) places more than 390 orders in 
listed options per day on average during a calendar month for its 
own beneficial account(s). A Participant or a Public Customer may, 
without limitation, be a Professional. All Professional orders shall 
be appropriately marked by Participants. See BX Rules at Chapter I, 
Section 1(a)(49).
    \6\ BX will only conduct an auction for Simple Orders.
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Pilot Program
    Three components of PRISM were approved by the Commission on a 
pilot basis: (1) The early conclusion of the PRISM Auction; \7\ (2) an 
unrelated market or marketable limit order (against the BX BBO) on the 
opposite side of the market from the PRISM Order received during the 
Auction will not cause the Auction to end early and will execute 
against interest outside of the Auction; \8\ and (3) no minimum size 
requirement of orders. The Exchange has provided the following 
additional information on a monthly basis.\9\ The pilots were approved 
for a pilot period expiring on July 18, 2016.\10\
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    \7\ See Chapter VI, Section 9(ii)(B)(4).
    \8\ See Chapter VI, Section 9(ii)(D).
    \9\ See Chapter VI, Section 9(vii).
    \10\ See note 3 above.
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    The Exchange notes that during the pilot period it has been 
required to submit, and has been submitting, certain data periodically 
as required by the Commission, to provide supporting evidence that, 
among other things, there is meaningful competition for all size orders 
and that there is an active and liquid market functioning on the 
Exchange outside of the Auction mechanism. Specifically, the Exchange 
has submitted the following data as specified in its approval order: 
\11\
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    \11\ Id.
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    (1) The number of contracts (of orders of 50 contracts or greater) 
entered into the PRISM;
    (2) The number of contracts (of orders of fewer than 50 contracts) 
entered into the PRISM;
    (3) The number of orders of 50 contracts or greater entered into 
the PRISM; and
    (4) The number of orders of fewer than 50 contracts entered into 
the PRISM.
    The Exchange will continue to provide such data. The Exchange 
believes that, because the pilot has been operating for a relatively 
short amount of time, the proposed extension should afford the 
Commission additional time to evaluate the pilot. The Exchange proposes 
to extend the pilot through January 18, 2017.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\12\ in general and with 
Section 6(b)(5) of the Act,\13\ in that it is 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, 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; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the Exchange.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \14\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
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    \14\ 15 U.S.C. 78f(b)(8).
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    Specifically, the Exchange believes that PRISM, including the rules 
to which the pilot applies, results in increased liquidity available at 
improved prices, with competitive final pricing out of the Initiating 
Participant's complete control. The Exchange believes that PRISM 
promotes and fosters competition and affords the opportunity for price 
improvement to more options contracts. The extension proposal allows 
additional time for the Commission to evaluate the pilot.

[[Page 45336]]

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. The proposal extends existing 
pilots that apply to all Exchange members, and enables the Exchange to 
be competitive in respect of other option exchanges that have similar 
programs.

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) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(a).
    \16\ 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requested 
that the Commission waive the 30-day operative delay. The Exchange 
stated that the proposed rule change does not involve any substantive 
changes to the Exchange's Rules and only seeks to extend the previously 
approved PRISM pilot. The Exchange also stated that the extension will 
ensure fair competition among exchanges by allowing the Exchange to 
continue with this pilot similar to other options exchanges that 
operate auctions. Finally, the Exchange stated that the waiver is 
consistent with the protection of investors and the public interest 
because it will permit the PRISM pilot to continue without interruption 
and will allow the Exchange to gather more information in connection 
with the pilot.
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the PRISM pilot to continue uninterrupted, thereby 
avoiding any potential investor confusion that could result from a 
temporary interruption in the pilot. Therefore, the Commission 
designates the proposed rule change to be operative on July 18, 
2016.\19\
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    \19\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    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.

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-BX-2016-038 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-BX-2016-038. 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 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 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 Exchange. 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 Number SR-BX-2016-038 and should be 
submitted on or before August 3, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-16491 Filed 7-12-16; 8:45 am]
 BILLING CODE 8011-01-P