Document ID: SEC-2021-0722-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq BX, Inc.
Posted Date: 2021-05-17T04:00Z

[Federal Register Volume 86, Number 93 (Monday, May 17, 2021)]
[Notices]
[Pages 26750-26753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10273]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91838; File No. SR-BX-2021-020]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend BX Rules 
at Options 3, Section 7, Types of Orders and Order and Quote Protocols, 
and Options 3, Section 15, Risk Protections

May 11, 2021.
    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 April 29, 2021, Nasdaq BX, Inc. (``BX'' 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.
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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 Options 3, Section 7, 
Types of Orders and Order and Quote Protocols, and Options 3, Section 
15, Risk Protections.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend BX's Rules at Options 3, Section 15, 
Risk Protections, to describe Size Limitation and note its application 
to Opening Only Orders and Immediate-or-Cancel Orders within Options 3, 
Section 7(b)(1) and (2), respectively. Also, technical changes are 
proposed within Options 3, Section 7(e)(1)(B) which describes the 
Specialized Quote Feed or ``SQF''.\3\ Each change is described below.
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    \3\ SQF is an interface that allows Market Makers to connect, 
send, and receive messages related to quotes, Immediate-or-Cancel 
Orders, and auction responses 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; (8) opening imbalance 
messages; (9) auction notifications; and (10) auction responses. The 
SQF Purge Interface only receives and notifies of purge requests 
from the Market Maker. Market Makers may only enter interest into 
SQF in their assigned options series. Immediate-or-Cancel Orders 
entered into SQF are not subject to the Order Price Protection or 
the Market Order Spread Protection in Options 3, Section 15(a)(1) 
and (a)(2), respectively. See Options 3, Section 7(e)(1)(B).
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Options 3, Section 15
    The Exchange proposes to amend Options 3, Section 15, Risk 
Protections, to add a new section (b)(2) to describe within its rules a 
current limitation that exists today as to number of contracts an 
incoming order or quote may specify. Specifically, the maximum number 
of contracts, which shall not be less than 10,000, is established by 
the Exchange from time-to-time. Orders or quotes that exceed the 
maximum number of contracts are rejected. This System limitation is the 
same on all Nasdaq affiliated exchanges.\4\ Today, Nasdaq ISE, LLC 
(``ISE''), Nasdaq GEMX, LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'') 
describe this limitation within those rules at Options 3, Section 
15(a)(2)(B). BX proposes to similarly describe this limitation in its 
rules.
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    \4\ The Exchange will propose a similar rule change to Nasdaq 
Phlx LLC and The Nasdaq Stock Market LLC.
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    The Exchange also proposes to amend Options 3, Section 7(b)(1) 
which describes an Opening Only or ``OPG'' order. Today, an OPG order 
can only be executed in the Opening Process pursuant to Options 3, 
Section 8. The rule currently states that this order type is not 
subject to any protections listed

[[Page 26751]]

in Options 3, Section 15 describing risk protections. With the proposed 
addition of Size Limitation to proposed new Options 3, Section 
15(b)(2), the Exchange proposes to note within Options 3, Section 
7(b)(1) that OPG orders are subject to Size Limitation. OPG orders are 
entered during the Opening Process utilizing ``Financial Information 
eXchange'' or ``FIX''.\5\
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    \5\ FIX is an interface that allows Participants and their 
Sponsored Customers to connect, send, and receive messages related 
to orders and auction orders and responses to and from the Exchange. 
Features include the following: (1) Execution messages; (2) order 
messages; and (3) risk protection triggers and cancel notifications. 
See Options 3, Section 7(e)(1)(A).
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    Similarly, the Exchange proposes to amend Options 3, Section 
7(b)(2) which describes an Immediate-or-Cancel Order or ``IOC'' order. 
Today, the Exchange describes an IOC order as a Market Order or Limit 
Order to be executed in whole or in part upon receipt. Any portion not 
so executed is cancelled.\6\ Options 3, Section 7(b)(2)(B) provides 
that IOC orders may be entered through FIX or SQF, provided that an IOC 
Order entered by a Market Maker or a Lead Market Maker \7\ through SQF 
is not subject to the Order Price Protection or the Market Order Spread 
Protection in Options 3, Section 15(a)(1) and (a)(2) respectively. With 
the proposed addition of the Size Limitation to proposed new Options 3, 
Section 15(b)(2), the Exchange also proposes to note that the Size 
Limitation does not apply to IOC orders entered through SQF.
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    \6\ See BX Options 3, Section 7(b)(2). The Exchange also notes 
that IOC orders entered with a TIF of IOC are not eligible for 
routing.
    \7\ The Exchange proposes to utilize the word ``BX Options 
Market Maker'' to collectively refer to Lead Market Makers and 
Market Makers throughout the remainder of this rule change.
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    The Exchange notes that while only orders are entered into FIX, SQF 
is a quote protocol which also permits BX Options Market Makers to 
enter IOC orders that do not rest on the order book. The Exchange has 
not elected to utilize Size Limitation on SQF orders as it did for FIX 
because BX Options Market Makers only utilize SQF to enter IOC orders 
and BX Options Market Makers are professional traders with their own 
risk settings. FIX, on the other hand, is utilized by all market 
participants who may not have their own risk settings, unlike BX 
Options Market Makers.
    BX Options Market Makers utilize IOC orders to trade out of 
accumulated positions and manage their risk when providing liquidity on 
the Exchange. Proper risk management, including using these IOC orders 
to offload risk, is vital for BX Options Market Makers, and allows them 
to maintain tight markets and meet their quoting and other obligations 
to the market. BX Options Market Makers handle a large amount of risk 
when quoting and in addition to the risk protections required by the 
Exchange, BX Options Market Makers utilize their own risk management 
parameters when entering orders, minimizing the likelihood of a BX 
Options Market Maker's erroneous order from being entered. The Exchange 
believes that BX Options Market Makers, unlike other market 
participants, have the ability to manage their risk when submitting IOC 
orders through SQF and should be permitted to elect this method of 
order entry to obtain efficiency and speed of order entry, particularly 
in light of the continuous quoting obligations the Exchange imposes on 
these participants.
    The Exchange believes that allowing BX Options Market Makers to 
submit IOC orders through their preferred protocol increases their 
efficiency in submitting such orders and thereby allows them to 
maintain quality markets to the benefit of all market participants that 
trade on the Exchange. Further, unlike other market participants, BX 
Options Market Makers provide liquidity to the market place and have 
obligations.\8\ Thus, the Exchange opted to not offer Order Price 
Protection, Market Order Spread Protection, and Size Limitation for IOC 
orders entered through SQF because BX Options Market Makers have more 
sophisticated infrastructures than other market participants and are 
able to manage their risk.
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    \8\ BX Options Market Makers have intra-day quoting obligations 
as specified in Options 2, Section 5.
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Other Non-Substantive Amendments
    The Exchange proposes to amend the description of a Specialized 
Quote Feed within Options 3, Section 7(e)(1)(B) to make plural the word 
``request'' and also add an ``.,'' after an e.g., to conform the 
punctuation in the paragraph.
    The Exchange also proposes to remove the final sentence of Options 
3, Section 7(e)(1)(B) that states, ``Immediate-or-Cancel Orders entered 
into SQF are not subject to the Order Price Protection or the Market 
Order Spread Protection in Options 3, Section 15(a)(1) and (a)(2), 
respectively.'' This sentence is duplicative of information contained 
within Options 3, Section 7(b)(2)(B), which the Exchange is amending in 
this proposal. The Exchange proposes to remove the final sentence of 
Options 3, Section 7(e)(1)(B) as the information is contained 
elsewhere.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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Options 3, Section 15
    The Exchange's proposal to amend Options 3, Section 15, Risk 
Protections, to add a new section (b)(2) is consistent with the Act. 
The proposed amendment is intended to describe a current limitation 
that exists today as to the number of contracts an incoming order or 
quote may specify. Specifically, the maximum number of contracts, which 
shall not be less than 10,000, is established by the Exchange from 
time-to-time. Orders or quotes that exceed the maximum number of 
contracts are rejected. This System limitation is the same on all 
Nasdaq affiliated exchanges.\11\ Today, ISE, GEMX and MRX describe this 
limitation within those rules at Options 3, Section 15(a)(2)(B). BX 
proposes to similarly describe this limitation in its rules.
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    \11\ See supra note 4.
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    The Exchange's proposal to amend Options 3, Section 7(b)(1) to make 
clear that Size Limitation applies to OPG orders is consistent with the 
Act as this rule text will clarify the existing language and make clear 
that Size Limitation is applicable to this order type. OPG orders are 
entered during the Opening Process utilizing FIX.
    The Exchange's proposal to amend Options 3, Section 7 with respect 
to IOC orders is consistent with the Act. Today, the Exchange describes 
an IOC Order as a Market Order or Limit Order to be executed in whole 
or in part upon receipt. Any portion not so executed is cancelled.\12\ 
BX Options 3, Section 7(b)(2)(B) provides that IOC orders may be 
entered through FIX or SQF, provided that an IOC Order entered by a BX 
Options Market Maker through SQF is not subject to the Order Price 
Protection or the Market Order Spread Protection in Options 3, Section 
15(a)(1) and (a)(2) respectively. With the proposed addition of Size 
Limitation to proposed new Options 3, Section 15(b)(2), the Exchange 
also proposes to note that the Size Limitation does not apply to IOC 
orders entered through

[[Page 26752]]

SQF. The Exchange notes these exceptions within this rule to make clear 
that this information is available to market participants within the 
description of an IOC.
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    \12\ See BX Options 3, Section 7(b)(2).
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    The Exchange notes that while only orders are entered into FIX, SQF 
is a quote protocol which also permits BX Options Market Makers to 
enter IOC orders that do not rest on the order book. The Exchange has 
not elected to utilize Size Limitation on SQF orders as it did for FIX 
because BX Options Market Makers only utilize SQF to enter IOC orders 
and BX Options Market Makers are professional traders with their own 
risk settings. FIX, on the other hand, is utilized by all market 
participants who unlike BX Options Market Makers may not have their own 
risk settings. BX Options Market Makers utilize IOC orders to trade out 
of accumulated positions and manage their risk when providing liquidity 
on the Exchange. Proper risk management, including using these IOC 
orders to offload risk, is vital for BX Options Market Makers, and 
allows them to maintain tight markets and meet their quoting and other 
obligations to the market. BX Options Market Makers handle a large 
amount of risk when quoting and in addition to the risk protections 
required by the Exchange. BX Options Market Makers utilize their own 
risk management parameters when entering orders, minimizing the 
likelihood of a BX Options Market Maker's erroneous order from being 
entered. The Exchange believes that BX Options Market Makers, unlike 
other market participants, have the ability to manage their risk when 
submitting IOC orders through SQF and should be permitted to elect this 
method of order entry to obtain efficiency and speed of order entry, 
particularly in light of the continuous quoting obligations the 
Exchange imposes on these participants.
    The Exchange believes that allowing BX Options Market Makers to 
submit IOC orders through their preferred protocol increases their 
efficiency in submitting such orders and thereby allows them to 
maintain quality markets to the benefit of all market participants that 
trade on the Exchange. Further, unlike other market participants, BX 
Options Market Makers provide liquidity to the market place and have 
obligations.\13\ The Exchange believes not offering Size Limitation for 
IOC orders entered through SQF is consistent with the Act because BX 
Options Market Makers have more sophisticated infrastructures than 
other market participants and are able to manage their risk.
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    \13\ See supra note 8.
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Other Non-Substantive Amendments
    The Exchange's proposal to amend the description of Specialized 
Quote Feed within Options 3, Section 7(e)(1)(B) to make plural the word 
``request'' and also add an ``.,'' after an e.g., to conform the 
punctuation in the paragraph is consistent with the Act. These 
amendments are non-substantive.
    The Exchange's proposal to remove the final sentence of Options 3, 
Section 7(e)(1)(B) that states, ``Immediate-or-Cancel Orders entered 
into SQF are not subject to the Order Price Protection or the Market 
Order Spread Protection in Options 3, Section 15(a)(1) and (a)(2), 
respectively'' is consistent with the Act. This sentence is duplicative 
of information contained within Options 3, Section 7(b)(2)(B), which 
the Exchange is amending in this proposal. The Exchange proposes to 
remove the final sentence of Options 3, Section 7(e)(1)(B) as the 
information is contained elsewhere.

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.
Options 3, Section 15
    The Exchange's proposal to amend Options 3, Section 15, Risk 
Protections, to add a new section (b)(2) does not impose an undue 
burden on competition. The proposed amendment is intended to describe a 
current limitation that exists today as to the number of contracts an 
incoming order or quote may specify. This System limitation is the same 
on all Nasdaq affiliated exchanges.\14\ Today, ISE, GEMX and MRX 
describe this limitation within its rules at Options 3, Section 
15(a)(2)(B). BX proposes to similarly describe this limitation in its 
rules.
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    \14\ See supra note 4.
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    The Exchange's proposal to amend Options 3, Section 7(b)(1) to make 
clear that Size Limitation applies to OPG orders does not impose an 
undue burden on competition as this rule text will clarify the existing 
language and make clear that Size Limitation is applicable to this 
order type. OPG orders are entered during the Opening Process utilizing 
FIX.
    The Exchange's proposal to amend Options 3, Section 7 with respect 
to IOC orders does not impose an undue burden on competition. With the 
proposed addition of Size Limitation to proposed new Options 3, Section 
15(b)(2), the Exchange also proposes to note that the Size Limitation 
does not apply to IOC orders entered through SQF. Unlike other market 
participants, BX Options Market Makers provide liquidity to the market 
place and have obligations.\15\
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    \15\ See supra note 8.
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Other Non-Substantive Amendments
    The Exchange's proposal to amend the description of Specialized 
Quote Feed within Options 3, Section 7(e)(1)(B) to make plural the word 
``request'' and also add an ``.,'' after an e.g., to conform the 
punctuation in the paragraph does not impose an undue burden on 
competition. These amendments are non-substantive.
    The Exchange's proposal to remove the final sentence of Options 3, 
Section 7(e)(1)(B) that states, ``Immediate-or-Cancel Orders entered 
into SQF are not subject to the Order Price Protection or the Market 
Order Spread Protection in Options 3, Section 15(a)(1) and (a)(2), 
respectively'' does not impose an undue burden on competition. This 
sentence is duplicative of information contained within Options 3, 
Section 7(b)(2)(B), which the Exchange is amending in this proposal. 
The Exchange proposes to remove the final sentence of Options 3, 
Section 7(e)(1)(B) as the information is contained elsewhere.

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

    No written comments were solicited or received with respect to 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)(iii) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
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    \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.

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[[Page 26753]]

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission notes that other exchanges have 
substantively similar rules regarding size limitation for certain 
incoming orders or quotes.\18\ In addition, the non-substantive 
amendments will correct typographical errors and remove duplicative 
text, which will bring greater clarity to BX's rules. Thus, the 
Commission believes waiver of the 30-day operative delay is consistent 
with the protection of investors and the public interest. The 
Commission therefore waives the 30-day operative delay and designates 
this proposal operative upon filing.\19\
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    \18\ See ISE, GEMX and MRX rules at Options 3, Section 
15(a)(2)(B).
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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-2021-020 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-2021-020. 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-BX-2021-020 and should be submitted on 
or before June 1, 2021.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10273 Filed 5-14-21; 8:45 am]
BILLING CODE 8011-01-P