Document ID: SEC-2017-1796-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ BX, Inc.
Posted Date: 2017-11-01T04:00Z

[Federal Register Volume 82, Number 210 (Wednesday, November 1, 2017)]
[Notices]
[Pages 50714-50716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23734]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81953; File No. SR-BX-2017-044]

Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Remove 
References To Surrender Feature for Auto-Match Submissions in the Price 
Improvement Auction

October 26, 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 October 16, 2017, 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, 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.
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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 modify BX rules at Chapter VI, Section 9, 
entitled ``Price Improvement Auction (``PRISM'')'' to correct an error.
    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.

[[Page 50715]]

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

1. Purpose
    The Exchange filed a proposed rule change to establish a price 
improvement mechanism.\3\ By way of background, this price improvement 
mechanism or ``PRISM'' includes auto-match functionality in which a 
Participant (an ``Initiating Participant'') may electronically submit 
for execution an order it represents as agent on behalf of a Public 
Customer, 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 proposed Rule.\4\ To initiate the 
Auction, the Initiating Participant must mark the PRISM Order for 
Auction processing, and specify either: (a) A single price at which it 
seeks to execute the PRISM Order (a ``stop price''); (b) that it is 
willing to automatically match as principal or as agent on behalf of an 
Initiating Order the price and size of all PRISM Auction Notifications 
(``PAN'') responses, and trading interest (``auto-match'') in which 
case the PRISM Order will be stopped at the NBBO on the Initiating 
Order side; \5\ or (c) that it is willing to either: (i) Stop the 
entire order at a single stop price and auto-match PAN responses and 
trading interest at a price or prices that improve the stop price to a 
specified price (a ``No Worse Than'' or ``NWT'' price); (ii) stop the 
entire order at a single stop price and auto-match all PAN responses 
and trading interest at or better than the stop price; or (iii) stop 
the entire order at the NBBO on the Initiating Order side, and auto-
match PAN responses and trading interest at a price or prices that 
improve the stop price up to the NWT price. In all cases, if the BX BBO 
on the same side of the market as the PRISM Order represents a limit 
order on the book, the stop price must be at least the Minimum 
Increment better than the booked limit order's limit price.
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    \3\ See Securities Exchange Act Release No. 76301 (October 29, 
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032).
    \4\ BX only conducts auctions for Simple Orders. Only one 
Auction may be conducted at a time in any given series. Once 
commenced, an Auction may not be cancelled.
    \5\ This is accomplished by marking the Initiating Order with a 
market (MKT) price.
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    When starting an Auction, the Initiating Participant may submit the 
Initiating Order with a designation of ``surrender'' to other PRISM 
Participants (``Surrender''), which will result in the Initiating 
Participant forfeiting priority and trade allocation privileges. If 
Surrender is specified the Initiating Order will only trade if there is 
not enough interest available to fully execute the PRISM Order at 
prices which are equal to or improve upon the stop price.\6\ At the 
time the Exchange filed to permit Surrender within the BX PRISM 
auction,\7\ the rule text at Chapter VI, Section 9(ii)(A)(1) provided 
that, ``When starting an Auction, the Initiating Participant may submit 
the Initiating Order with a designation of ``surrender'' to the other 
PRISM Participants (``Surrender'') which will result in the Initiating 
Participant forfeiting the priority and trade allocation privileges 
which he is otherwise entitled to as per Section 9(ii)(E)(2)(a) and (b) 
and Section 9(ii)(F)(2)(a) and (b).'' Section 9(ii)(E)(2)(b) and 
Section 9(ii)(F)(2)(b) refer to the auto-match functionality. The 
Exchange has not offered Surrender with respect to auto-match. The 
Exchange does not believe that auto-match is suitable for Surrender. By 
definition the purpose of the auto-match feature is that the Initiating 
Participant is going to match all responses and seek a greater 
allocation. This language is at odds with the Surrender feature where 
the Initiating Participant is not seeking allocation. Depending on the 
option selected, the Initiating Participant may elect in the single 
stop option selection to give up the allocation priority, if Surrender 
is selected,\8\ or with the auto-match option the Initiating 
Participant will only be allocated the remainder in accordance with the 
allocation percentages in Section 9(ii)(E)(2)(b).\9\ This similarly 
applies to Section 9(ii)(F)(2)(b).\10\
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    \6\ Surrender is not applied if both the Initiating Order and 
PRISM Order are Public Customer Orders.
    \7\ See note 3 above.
    \8\ See Chapter VI, Section 9(ii)(E)(2)(a) and Section 
9(ii)(F)(2)(a).
    \9\ See Chapter VI, Section 9(ii)(E)(2)(b), which states, ``If 
the Initiating Participant selected the auto-match option of the 
PRISM Auction the Initiating Participant shall be allocated an equal 
number of contracts as the aggregate size of all other quotes, 
orders and PAN responses at each price point until a price point is 
reached where the balance of the order can be fully executed, except 
that the Initiating Participant shall be entitled to receive up to 
40% (multiple competing quotes, orders or PAN responses) or 50% (one 
competing quote, order or PAN response) of the contracts remaining 
at the final price point (including situations where the stop price 
is the final price) after Public Customer interest has been 
satisfied but before remaining interest. If there are other quotes, 
orders and PAN responses at the final price point the contracts will 
be allocated to such interest pursuant to Chapter VI, Section 
9(ii)(E)(3) through (5) below. Any remaining contracts shall be 
allocated to the Initiating Participant.'' There is no reference to 
the Surrender provision in this paragraph similar to reference at 
Chapter VI, Section 9(ii)(E)(2)(a).
    \10\ See Chapter VI, Section 9(ii)(F)(2)(b), which states, ``If 
the Initiating Participant selected the auto-match option of the 
PRISM Auction the Initiating Participant shall be allocated an equal 
number of contracts as the aggregate size of all other quotes, 
orders and PAN responses at each price point until a price point is 
reached where the balance of the order can be fully executed, except 
that the Initiating Participant shall be entitled to receive up to 
40% (multiple competing quotes, orders or PAN responses) or 50% (one 
competing quote, order or PAN response) of the contracts remaining 
at the final price point (including situations where the stop price 
is the final price), after Public Customer interest has been 
satisfied but before remaining interest. If there are other quotes, 
orders and PAN responses at the final price point the contracts will 
be allocated to such interest pursuant to Chapter VI, Section 
9(ii)(F)(3) through (4) below. Any remaining contracts shall be 
allocated to the Initiating Participant.'' There is no reference to 
the Surrender provision in this paragraph similar to reference at 
Chapter VI, Section 9(ii)(F)(2)(a).
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    The Exchange inadvertently included the references to Section 
9(ii)(E)(2)(b) and Section 9(ii)(F)(2)(b) when discussing Surrender. 
Surrender only applies to the single stop price feature. The Exchange 
proposes to amend its rule text to update its rules to delete these 
references to make the rule text accurate.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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, by updating references in the PRISM rule which indicate 
Surrender applies to the auto-match feature. The Exchange inadvertently 
referenced the auto-match feature. The Surrender feature only applies 
to the single stop price feature. The Exchange does not believe that 
auto-match is suitable for Surrender. By definition the purpose of the 
auto-match feature is that the Initiating Participant is going to match 
all responses and seek a greater allocation. This language is at odds 
with the Surrender feature where the Initiating Participant is not 
seeking allocation. The Exchange believes that correcting the rule text 
to remove the references to auto-match will perfect the mechanism of a 
free and open market and a national market system, and, in

[[Page 50716]]

general to protect investors and the public interest, by updating these 
references to the BX PRISM rule. This amendment will correct the 
references within the BX PRISM rule to make clear the manner in which 
the auction operates.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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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 Exchange inadvertently 
referenced the auto-match feature as applicable to Surrender provision. 
No BX Participant is able today to utilize the Surrender feature when 
selecting auto-match. This amendment will correct the references within 
the BX PRISM rule to make clear the manner in which the auction 
operates.

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 \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \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 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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    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. 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-BX-2017-044 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2017-044. 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. 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-2017-044 and should be 
submitted on or before November 22, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23734 Filed 10-31-17; 8:45 am]
 BILLING CODE 8011-01-P