Document ID: SEC-2018-1134-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq BX, Inc.
Posted Date: 2018-07-20T04:00Z

[Federal Register Volume 83, Number 140 (Friday, July 20, 2018)]
[Notices]
[Pages 34639-34645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15502]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83642; File No. SR-BX-2018-029]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend BX Rules 
at Chapter VII, Section 6 Related to Market Maker Quotations, Section 
14 Related to Lead Market Maker Quotations and Section 15 Related to 
Directed Market Maker Quotations

July 16, 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 July 2, 2018, 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 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 VII, Section 6 
related to Market Maker quotations, Section 14 related to Lead Market 
Maker quotations and Section 15 related to Directed Market Maker 
quotations.
    The text of the proposed rule change is available on the Exchange's 
website 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
    BX proposes to amend the current rule text of Chapter VII, Section 
6(d), Section 14 and Section 15 related to quoting obligations for 
Market Makers, Lead Market Makers and Directed Market Makers, to 
restructure the current rule to mirror rule text utilized on Nasdaq 
Phlx LLC.\3\ The Exchange does not propose to amend the current quoting 
obligations, rather the Exchange proposes to more clearly state the 
current quoting obligations utilizing the same format as Phlx Rule 
1081(c).
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    \3\ Phlx Rule 1081(c)(ii).
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Chapter VII, Section 6(d)(i)
    The Exchange proposes to amend Chapter VII, Section 6(d) to remove 
the word ``continuous'' from this first sentence in the rule. The 
Exchange is removing the word ``continuous'' because the Exchange notes 
that Market Makers quote a percentage of the day and therefore the word 
continuous may not accurately reflect the manner in which Market Makers 
quote on BX. The Exchange proposes to retitle Section 6(d) as ``Intra-
day Quotes.''
    The Exchange also proposes to replace references to ``continuous'' 
with ``intra-day'' within the Rulebook. The Exchange proposes to amend 
Chapter V, Section 3 to replace ``continuous quoting'' with ``intra-day 
quoting.'' The Exchange proposes to amend proposed Chapter VII, Section 
14(f)(4) to replace ``continuous electronic quote obligation'' with 
``intra-day electronic quote obligation.'' The Exchange proposes to 
amend proposed Chapter VII, Section 14(g) to replace ``continuous 
quotes'' with ``intra-day quotes.'' The Exchange proposes to amend 
Chapter VII, Section 15(iii)(d) to replace ``continuous electronic 
quote obligation'' with ``intra-day electronic quote obligation.'' The 
Exchange proposes to amend Chapter X, Section 7(c) to replace 
``continuous quotes'' and ``continuous bids and offers'' with ``intra-
day quotes'' and ``intra-day bids and offers.''
    The Exchange proposes to amend Chapter VII, Section 6(d)(i) to 
delete the

[[Page 34640]]

first sentence of this paragraph, ``On a daily basis, a Market Maker 
must during regular market hours make markets consistent with the 
applicable quoting requirements specified in these rules, on a 
continuous basis in options in which the Market Maker is registered.'' 
The Exchange believes that a Market Maker's obligation to enter bids 
and offers for the options to which it is registered is currently noted 
in proposed Chapter VII, Section 6(d). The Exchange proposes to 
specifically detail a Market Maker's quoting obligations in the 
proposed rule text and therefore believes that this sentence is not 
necessary because the following sentences replaces this sentence with 
the exception of the intra-day aspect as described below.
    The Exchange proposes to add new rule text to Chapter VII, Section 
6(d)(i). The first new sentence will provide ``A Market Maker must 
enter bids and offers for the options to which it is registered, except 
in an assigned options series listed intra-day \4\ on the Exchange.'' 
The Exchange believes this sentence is more specific than Section 6(d) 
because it accepts [sic] the intra-day quotes. Today, a Market Maker is 
not held to quote an intra-day add of a series because the options 
series was not available for trading the entire day. The Exchange is 
adding this exception to the rule text to make clear that Market Makers 
would not be responsible for quoting an intra-day addition. The 
Exchange believes that not counting intra-day adds of a series that 
were not available for the entire day of trading is consistent with the 
Act because the Market Maker would not have the opportunity to trade 
that particular options series for the entire trading day. The Exchange 
also proposes to note, ``On a daily basis, a Market Maker must make 
markets consistent with the applicable quoting requirements specified 
below.'' The Exchange proposes to note within the new rule text the 
specific quoting obligations for each type of Market Maker.
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    \4\ An intra-day add of a series shall be defined, for purposes 
of this Phlx Rule 1081 [sic], as an option series that is added 
manually on the same day the series begins trading.
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    The Exchange is also adding rule text to explain the interplay 
between the quoting obligations for BX Market Makers who may also 
qualify as a Lead Market Maker, pursuant to Chapter VII, Section 14 or 
Directed Market Maker pursuant to Chapter VII, Section 15. 
Specifically, the Exchange proposes to add, similar to Phlx Rules,\5\ 
``An Options Participant will be required to meet each market making 
obligation separately. A Market Maker who is also the Lead Market 
Maker, pursuant to Chapter VII, Section 14, will be held to the Lead 
Market Maker obligations in options series in which the Lead Market 
Maker is assigned and will be held to Market Maker obligations in all 
other options series where assigned. A Market Maker who receives a 
Directed Order,\6\ as described in Chapter VII [sic], Section 10, shall 
be held to the standard of a Directed Market Maker, as described in 
Chapter VII, Section 15.'' The Exchange proposes to make clear that a 
BX Options Participant who is a Market Maker, Lead Market Maker and 
Directed Market Maker will have quoting obligations which may need to 
be separately met depending on the role.
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    \5\ See Phlx Rule 1081(c).
    \6\ The term ``Directed Order'' means an order to buy or sell 
which has been directed, provided it is properly marked as such, to 
a particular market maker (``Directed Market Maker''). Directed 
Orders are handled within the System pursuant to Chapter VII [sic], 
Section 10. Directed Orders may be available only in certain 
options. See Chapter VII [sic], Section 1(e)(2).
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Chapter VII, Section 6(d)(i)(1)
    The Exchange proposes to remove the following sentence from Chapter 
VII, Section (d)(i)(1), ``To satisfy this requirement, a Market Maker 
must quote 60% of the trading day (as a percentage of the total number 
of minutes in such trading day) or such higher percentage as BX may 
announce in advance.'' The Exchange proposes to replace this language 
with language that more technically defines the quoting obligation. The 
Exchange proposes the following rule text:

    Market Makers, associated with the same Options Participant, are 
collectively required to provide two-sided quotations in 60% of the 
cumulative number of seconds, or such higher percentage as BX may 
announce in advance, for which that Options Participant's assigned 
options series are open for trading. Notwithstanding the foregoing, 
a Market Maker shall not be required to make two-sided markets 
pursuant to this Chapter VII, Section 6(d)(i)(1) in any Quarterly 
Option Series, any Adjusted Option Series, and any option series 
with an expiration of nine months or greater.

The 60% requirement and the manner in which it is calculated is not 
being amended. The Exchange does not propose to amend the current 
quoting obligations, rather the Exchange proposes to more clearly state 
the current quoting obligations utilizing the same format as Phlx Rule 
1081(c)(ii)(A). The Exchange notes the quoting obligations expressed as 
the cumulative number of seconds rather than 60% of the trading day. 
While the current rule indicates that the Exchange currently reviews 
quoting as a percentage of the total number of minutes, the two 
standards are otherwise equivalent. Adding ``associated with the same 
Options Participant'' to the first sentence also makes clear that the 
obligation is at the firm level and that all associated Market Makers 
will be counted in arriving at the calculation for quoting obligations. 
The Exchange also states, ``Notwithstanding the foregoing, a Market 
Maker shall not be required to make two-sided markets pursuant to this 
Chapter VII, Section 6(d)(i)(1) in any Quarterly Option Series, any 
Adjusted Option Series, and any option series with an expiration of 
nine months or greater.'' This exception exists today for BX and is 
simply being carried over into the new text from current Section 
6(d)(i)(2). The definition of an adjusted option series is currently 
defined at Section 6(d)(i)(2) as an option series wherein one option 
contract in the series represents the delivery of other than 100 shares 
of underlying stock or Exchange-Traded Fund Shares. This definition is 
being relocated to 6(d)(i)(1)(a), similar to Phlx's structure and is 
defined as ``Adjusted Options Series'' throughout this rule.
Chapter VII, Section 6(d)(i)(2)
    The Exchange proposes to add new rule text at Chapter VII, Section 
6(d)(i)(2) which provides the method by which the Exchange will 
calculate the BX Market Maker quoting obligations. The Exchange 
proposes to state, that the Exchange will (i) take the total number of 
seconds the Options Participant disseminates quotes in each assigned 
options series, excluding Quarterly Option Series, any Adjusted Option 
Series, and any option series with an expiration of nine months or 
greater; and (ii) divide that time by the eligible total number of 
seconds each assigned option series is open for trading that day. 
Similar to Phlx Rule 1081(c)(ii)(D), the Exchange believes that the 
addition of this language will bring greater transparency to the manner 
in which the Exchange calculated the quoting obligation. The Exchange 
is not amending the manner in which the quoting obligation is 
calculated, rather the Exchange is simply adding to the current rule 
the exact manner in which the Exchange determines the quoting 
percentage. The Exchange proposes to add, ``Quoting is not required in 
every assigned options series.'' This sentence is not currently 
contained in the rule. The Exchange is not proposing to amend its 
current practice, rather the Exchange is clearly stating that quoting 
is not required in every assigned options series to make clear the 
current

[[Page 34641]]

obligation. Also, the Exchange proposes to state, ``Compliance with 
this requirement is determined by reviewing the aggregate of quoting in 
assigned options series for the Options Participant.'' This language is 
similar to the language currently being removed from Chapter VII, 
Section 6(d)(i)(1), ``This obligation will apply to all of a Market 
Maker's registered options collectively to all appointed issues, rather 
than on an option-by-option basis.'' The proposed new language simply 
conforms the text to Phlx's Rule 1081(c)(ii)(D).
Chapter VII, Section 6(d)(i)(3)
    The Exchange proposes to also delete the following language from 
Chapter VII, Section 6(d)(i)(3), ``This obligation will apply to all of 
a Market Maker's registered options collectively to all appointed 
issues, rather than on an option-by-option basis. Compliance with this 
obligation will be determined on a monthly basis. However, determining 
compliance with the continuous quoting requirement on a monthly basis 
does not relieve a Market Maker of the obligation to provide continuous 
two-sided quotes on a daily basis, nor will it prohibit the Exchange 
from taking disciplinary action against a Market Maker for failing to 
meet the continuous quoting obligation each trading day.'' The Exchange 
proposes to replace this language with the following language proposed 
in Section 6(d)(i)(3), ``For purposes of the Exchange's surveillance of 
an Options Participant compliance with this rule, the Exchange may 
determine compliance on a monthly basis. The Exchange's monthly 
compliance evaluation of the quoting requirement does not relieve an 
Options Participant of the obligation to provide two-sided quotes on a 
daily basis, nor will it prohibit the Exchange from taking disciplinary 
action against an Options Participant for failing to meet the quoting 
obligation each trading day.'' The Exchange's amendment is not 
substantive, rather the amendment conforms the rule text to Phlx Rule 
1081(c)(iii).
    The Exchange proposes to remove the entire paragraph at current 
Section 6(d)(i)(2). As explained above this language is being relocated 
within the proposed rule text to Section 6(d)(i)(1) and subsection (a) 
to that paragraph. The Exchange notes that the sentence ``Accordingly, 
the continuous quotation obligations set forth in this rule shall not 
apply to Market Makers respecting Quarterly Option Series, adjusted 
option series, and series with an expiration of nine months or 
greater'' is being deleted and not relocated because this sentence is 
redundant. Also, the Exchange proposes to amend current Section 
6(d)(i)(3) by renumbering it (4) and also capitalizing ``System'' which 
is a defined term and renumbering a cross-reference.
Chapter VII, Section 14(f)
    BX's Rules at Chapter VII, Section 14(f) related to Lead Market 
Maker or ``LMM'' quotations. The Exchange is amending BX's Rules to 
conform to Phlx's Rules with respect to Specialists which are the 
equivalent of an LMM on BX. Similar to the changes for BX Market 
Makers, the Exchange proposes to more specifically state within Section 
14(f) that an LMM must enter two-sided quotations. Further, ``An LMM 
that enters a bid (offer) in a series of an option in which he is 
registered on BX must enter an offer (bid), except in an assigned 
options series listed intra-day \7\ on BX. These quotations must meet 
the legal quote width requirements specified in Chapter VII, Section 
14(b)(iv), (v) and (vi).''
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    \7\ See note 4 above.
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    The Exchange is removing the words ``may enter quotations only in 
the issues included in its appointment.'' The Exchange is revising this 
paragraph to state, ``An LMM must enter two-sided quotations. An LMM 
that enters a bid (offer) in a series of an option in which he is 
registered on BX must enter an offer (bid), except in an assigned 
options series listed intra-day on BX. These quotations must meet the 
legal quote width requirements specified in Chapter VII, Section 
14(b)(iv), (v) and (vi). A Market Maker who is also the Lead Market 
Maker, pursuant to this Chapter VII, Section 14, will be held to the 
Lead Market Maker obligations in options series in which the Lead 
Market Maker is assigned and will be held to Market Maker obligations 
in all other options series where assigned pursuant to Chapter VII, 
Section 6(d).'' The deletion of the words from this paragraph are 
replaced with the same concept in the new sentences where it is stating 
that the LMM enter a bid (offer) in a series of an options in which he 
is registered on BX.
    Today, an LMM is not held to quote an intra-day add of a series 
because the options series was not available for trading the entire 
day. The Exchange is adding this exception to the rule text to make 
clear that LMMs would not be responsible for quoting an intra-day 
addition. The Exchange believes that not counting intra-day adds of a 
series that were not available for the entire day of trading is 
consistent with the Act because the LMM would not have the opportunity 
to trade that particular options series for the entire trading day. As 
is the case today, an LMM must meet the legal quote width requirements 
specified in Section 14(b)(iv), (v) and (vi).
    The Exchange also proposes to add to this paragraph the following 
sentence, ``A Market Maker who is also the Lead Market Maker, pursuant 
to this Chapter VII, Section 14, will be held to the Lead Market Maker 
obligations in options series in which the Lead Market Maker is 
assigned and will be held to Market Maker obligations in all other 
options series where assigned pursuant to Chapter VII, Section 6(d).'' 
This language will parallel the language currently proposed on Chapter 
VII, Section 6(d) and make clear that a BX Options Participant who is a 
Market Maker and a Lead Market Maker will have quoting obligations, 
which may need to be separately met depending on the role.
Chapter VII, Section 14(f)(1)
    The Exchange proposes to remove the following sentence from Chapter 
VII, Section 14(f)(1), ``An LMM must provide continuous two-sided 
quotations throughout the trading day in its appointed issues for 90% 
of the time the Exchange is open for trading in each issue. Such 
quotations must meet the legal quote width requirements herein. These 
obligations will apply to all of the LMMs appointed issues 
collectively, rather than on an option-by-option basis. Compliance with 
this obligation will be determined on a monthly basis.'' The Exchange 
proposes to replace this language with language that more technically 
defines the quoting obligation. The Exchange proposes the following 
rule text:

    LMMs, associated with the same Options Participant, are 
collectively required to provide two-sided quotations in 90% of the 
cumulative number of seconds, or such higher percentage as BX may 
announce in advance, for which that Option Participant's assigned 
options series are open for trading. An LMM shall not be required to 
make two-sided markets in any Quarterly Option Series, any Adjusted 
Option Series, and any option series with an expiration of nine 
months or greater. However, a LMM may still receive a participation 
entitlement in such series if it elects to quote in such series and 
otherwise satisfies the requirements of Chapter VI, Section 10.

The 90% requirement and the manner in which it is calculated is not 
being amended. The Exchange does not propose to amend the current 
quoting obligations, rather the Exchange proposes to more clearly state 
the current quoting obligations utilizing the same format as Phlx Rule 
1081(c)(ii)(B).

[[Page 34642]]

The Exchange notes the quoting obligations expressed as the cumulative 
number of seconds rather than 90% of the trading day. The two standards 
are equivalent. The rule text in current Section 14(f)(1) is being 
revised and certain text is being relocated. The legal quote width 
obligations are now in Section 14(f) generally and the compliance 
obligations are being relocated to Section 14(f)(3) as described in 
more detail below. The rule text related to making a two-sided market 
in Quarterly Option Series, any adjusted option series, and any option 
series with an expiration of nine months or greater is being relocated 
from Section 14(f)(4) along with the definition for an Adjusted Option 
Series which is being relocated to Section 14(f)(1)(a) and is being 
defined. The Exchange is also relocating this sentence ``However, a LMM 
may still receive a participation entitlement in such series if it 
elects to quote in such series and otherwise satisfies the requirements 
of Chapter VI, Section 10'' from current Chapter VII, Section 14(f)(4). 
The Exchange is conforming the adjusted series definition to that of 
Phlx,\8\ which provides ``An adjusted option series is an option series 
wherein one option contract in the series represents the delivery of 
other than 100 shares of underlying stock or Exchange-Traded Fund 
Shares.'' \9\ The amendment of the definition will not result in an 
adjusted option series being treated differently for purposes of BX 
Rules.
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    \8\ See Phlx Rule 1081(c)(ii)(A)(i).
    \9\ Chapter VII, Section 14(f)(4) provides the following 
definition for an adjusted options series, ``For purposes of this 
Rule, an adjusted option series is an option series wherein, as a 
result of a corporate action by the issuer of the underlying 
security, one option contract in the series represents the delivery 
of other than 100 shares of underlying security.''
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Chapter VII, Section 14(f)(2)
    The Exchange proposes to add new rule text at Chapter VII, Section 
14(f)(2) which provides the method by which the Exchange will calculate 
the BX LMM quoting obligations. The Exchange proposes to state, that 
the Exchange will (i) take the total number of seconds the Options 
Participant disseminates quotes in each assigned options series, 
excluding Quarterly Option Series, any Adjusted Option Series, and any 
option series with an expiration of nine months or greater for Market 
Makers; and (ii) divide that time by the eligible total number of 
seconds each assigned option series is open for trading that day. This 
language conforms to the language also proposed for Chapter VII, 
Section 6(d)(i)(2). Similar to Phlx, the Exchange believes that the 
addition of this language will bring greater transparency to the manner 
in which the Exchange calculated the quoting obligation. The Exchange 
proposes to add, ``Quoting is not required in every assigned options 
series.'' This sentence is not currently contained in the rule. The 
Exchange is not proposing to amend its current practice, rather the 
Exchange is clearly stating that quoting is not required in every 
assigned options series to make clear the current obligation. Also, the 
Exchange proposes to state, ``Compliance with this requirement is 
determined by reviewing the aggregate of quoting in assigned options 
series for the Options Participant.'' This language is similar to the 
language currently being removed from Chapter VII, Section 14(f)(1), 
``These obligations will apply to all of the LMMs appointed issues 
collectively, rather than on an option-by-option basis.'' The proposed 
new language simply conforms the text to Phlx's Rule 1081(c)(ii)(D).
Chapter VII, Section 14(f)(3)
    The Exchange proposes to relocate the following rule text from 
current Section 14(f)(1) to new (f)(3) ``BX Regulation may consider 
exceptions to the requirement to quote 90% (or higher) of the trading 
day based on demonstrated legal or regulatory requirements or other 
mitigating circumstances.'' The Exchange proposes to replace this rule 
text in current Section 14(f)(1), ``However, determining compliance 
with the continuous quoting requirement on a monthly basis does not 
relieve an LMM of the obligation to provide continuous two-sided quotes 
on a daily basis, nor will it prohibit the Exchange from taking 
disciplinary action against an LMM for failing to meet the continuous 
quoting obligation each trading day'' with the following rule text:

    For purposes of the Exchange's surveillance of an Options 
Participant compliance with this rule, the Exchange may determine 
compliance on a monthly basis. The Exchange's monthly compliance 
evaluation of the quoting requirement does not relieve an Options 
Participant of the obligation to provide two-sided quotes on a daily 
basis, nor will it prohibit the Exchange from taking disciplinary 
action against an Options Participant for failing to meet the 
quoting obligation each trading day.

The Exchange is not amending the manner in which the surveillance 
functions today. The Exchange proposes to conform this rule text 
throughout the rule to mirror language utilized in Phlx Rule 
1081(c)(iii) and also proposed new Chapter VII, Section 6(d)(i)(3). 
This rule text mirrors language currently contained in Section 
14(f)(1).
Chapter VII, Section 14(f)(2), (3) and (4)
    The Exchange proposes to renumber current Section 14(f)(1)(i) as 
Section 14(f)(4). As noted herein, current Section 14(f)(4) is being 
relocated to within the rule text as explained above. The Exchange also 
proposes to renumber Section 14(f)(2) and (3), which are not being 
amended, as 14(g) and (h), respectively.
Chapter VII, Section 15(iii)
    The Exchange proposes to amend Section 15(iii) related to Directed 
Market Maker quoting requirements to similarly add text to conform to 
Phlx Rule 1081(c)(ii)(C). The Exchange proposes to add to Section 
15(iii), ``A Directed Market Maker must enter two-sided quotations. A 
Directed Market Maker that enters a bid (offer) in a series of an 
option in which he is registered on BX must enter an offer (bid), 
except in an assigned options series listed intra-day on BX. These 
quotations must meet the legal quote width requirements specified in 
Chapter VII, Section 6(d)(ii).'' Similar to the changes for BX Market 
Makers and Lead Market Makers, the Exchange proposes to more 
specifically state within Section 15(iii) that an Directed Market Maker 
must enter two-sided quotations. Today, a Directed Market Maker is not 
held to quote an intra-day add of a series because the options series 
was not available for trading the entire day. The Exchange is adding 
this exception to the rule text to make clear that Directed Market 
Makers would not be responsible for quoting an intra-day addition. The 
Exchange believes that not counting intra-day adds of a series that 
were not available for the entire day of trading is consistent with the 
Act because the Directed Market Maker would not have the opportunity to 
trade that particular options series for the entire trading day. As is 
the case today, a Directed Market Maker must meet the legal quote width 
requirements specified in Chapter VII, Section 6(d)(ii).
    The Exchange also proposes to add to this paragraph the following 
sentence, ``A Market Maker who receives a Directed Order, as described 
in Chapter VII [sic], Section 10, shall be held to the standard of a 
Directed Market Maker as described in Chapter VII, Section 15.'' This 
language will make clear where a Market Maker receives a Directed Order 
and what the quoting standard shall be for that Directed Market Maker.

[[Page 34643]]

Chapter VII, Section 15(iii)(a)
    The Exchange proposes to adopt a new Section 15(iii)(a) and 
provide, Directed Market Makers, associated with the same Options 
Participant, are collectively required to provide two-sided quotations 
in 90% of the cumulative number of seconds, or such higher percentage 
as BX may announce in advance, for which that Options Participant's 
assigned options series are open for trading. An Options Participant 
shall be considered directed in all assigned options once the Options 
Participant receives a Directed Order in any option in which they are 
assigned and shall be considered a Directed Market Maker until such 
time as an Options Participant notifies the Exchange that they are no 
longer directed. Notwithstanding the foregoing, an Options Participant 
shall not be required to make two-sided markets in any Quarterly Option 
Series, any Adjusted Option Series, and any option series with an 
expiration of nine months or greater. Notwithstanding the obligations 
specified in subparagraph (iii) above, a DMM may still receive a 
participation entitlement in such series if it elects to quote in such 
series and otherwise satisfies the requirements of Chapter VII [sic], 
Section 10.
    The Exchange notes that it is not amending the quoting obligations 
for Directed Market Makers. The Exchange is simply conforming the text 
to Phlx Rule 1081(c)(ii)(C). The Exchange is adding rule text to make 
clear, similar to Phlx Rule 1081(c)(ii)(C), when a Directed Market 
[sic] is considered to be directed. Similar to Phlx, an Options 
Participant shall be considered directed in all assigned options once 
the Options Participant receives a Directed Order in any option in 
which they are assigned and shall be considered a Directed Market Maker 
until such time as an Options Participant notifies the Exchange that 
they are no longer directed. The Exchange, similar to today, shall not 
apply quoting obligations to Quarterly Option Series, any Adjusted 
Option Series, and any option series with an expiration of nine months 
or greater.\10\ The Exchange is relocating language to Section 
15(iii)(a) from Section 15(iv) which states, ``a DMM may still receive 
a participation entitlement in such series if it elects to quote in any 
Quarterly Option Series, any Adjusted Option Series, and any option 
series with an expiration of nine months or greater series and 
otherwise satisfies the requirements of Chapter VII [sic], Section 
10.''
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    \10\ See current Chapter VII, Section 15(iv).
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Chapter VII, Section 15(iii)(a)(i)
    The Exchange proposes to adopt a definition of an adjusted option 
series in subparagraph (i) similar to Phlx \11\ which provides ``An 
adjusted option series is an option series wherein one option contract 
in the series represents the delivery of other than 100 shares of 
underlying stock or Exchange-Traded Fund Shares,'' \12\ and define it. 
The amendment of the definition will not result in an adjusted option 
series being treated differently for purposes of BX Rules.
---------------------------------------------------------------------------

    \11\ See Phlx Rule 1081(c)(ii)(A)(i).
    \12\ Chapter VII, Section 15(iv) provides the following 
definition for an adjusted options series, ``For purposes of this 
Rule, an adjusted option series is an option series wherein, as a 
result of a corporate action by the issuer of the underlying 
security, one option contract in the series represents the delivery 
of other than 100 shares of underlying security.''
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Chapter VII, Section 15(iii)(b)
    The Exchange proposes to add new rule text at Chapter VII, Section 
15(iii)(b) which provides the method by which the Exchange will 
calculate the BX Directed Market Maker quoting obligations. The 
Exchange proposes to state, that the Exchange will (i) take the total 
number of seconds the Options Participant disseminates quotes in each 
assigned options series, excluding Quarterly Option Series, any 
Adjusted Option Series, and any option series with an expiration of 
nine months or greater; and (ii) divide that time by the eligible total 
number of seconds each assigned option series is open for trading that 
day. Similar to Phlx, the Exchange believes that the addition of this 
language will bring greater transparency to the manner in which the 
Exchange calculated the quoting obligation.
    The Exchange proposes to add, ``Quoting is not required in every 
assigned options series.'' This sentence is not currently contained in 
the rule. The Exchange is not proposing to amend its current practice, 
rather the Exchange is clearly stating that quoting is not required in 
every assigned options series to make clear the current obligation.
    Also, the Exchange proposes to state, ``Compliance with this 
requirement is determined by reviewing the aggregate of quoting in 
assigned options series for the Options Participant.'' This language is 
similar to the language currently being removed from Chapter VII, 
Section 15(iii) ``These obligations will apply collectively to all 
series in all of the issues, rather than on an issue-by-issue basis.'' 
The proposed new language simply conforms the text to Phlx's Rule 
1081(c)(ii)(D).
Chapter VII, Section 15(iii)(c)
    The Exchange proposes to relocate the following rule text from 
current Section 15(iii) to new 15(iii)(c) ``BX Regulation may consider 
exceptions to the requirement to quote 90% (or higher) of the trading 
day based on demonstrated legal or regulatory requirements or other 
mitigating circumstances.'' The Exchange proposes to add,

    For purposes of the Exchange's surveillance of an Options 
Participant compliance with this rule, the Exchange may determine 
compliance on a monthly basis. The Exchange's monthly compliance 
evaluation of the quoting requirement does not relieve an Options 
Participant of the obligation to provide two-sided quotes on a daily 
basis, nor will it prohibit the Exchange from taking disciplinary 
action against an Options Participant for failing to meet the 
quoting obligation each trading day.

The Exchange is not amending the manner in which the surveillance 
functions today. The Exchange proposes to conform this rule text 
throughout the rule to mirror language utilized in Phlx Rule 
1081(c)(iii). The Exchange proposes to relocate and revise this 
language, ``provide continuous two-sided quotations throughout the 
trading day in all options issues for which the Directed Market Maker 
is assigned for 90% of the time the Exchange is open for trading in 
each issue. Such quotations must meet the legal quote width 
requirements of Chapter VII, Section 6. These obligations will apply 
collectively to all series in all of the issues, rather than on an 
issue-by-issue basis. Compliance with this obligation will be 
determined on a monthly basis'' as described herein into Sections 
15(iii) and Section 15(iii)(a).
Chapter VII, Section 15(iii)(d)
    The rule text concerning a technical failure is being relocated 
from Section 15(iii) to Section 15(iii)(d). The word ``system'' is 
being capitalized as that term is defined within the Rulebook. As noted 
herein, Section 15(iv) is being relocated to Section 15(iii)(a) and 
Sections 15(iii)(a)(i).
    The Exchange believes this proposed rule will allow Market Makers 
to quickly compare obligations across Nasdaq affiliated markets.\13\
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    \13\ The Exchange intends to file a similar proposal for The 
Nasdaq Stock Market, LLC, Nasdaq ISE, LLC, Nasdaq GEMX, LLC and 
Nasdaq MRX, LLC.

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[[Page 34644]]

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, 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. The Exchange believes that its proposed rule change provides 
further detail as to obligations of Market Makers, LMMs and Directed 
Market Makers on BX. The Exchange is not amending its current quoting 
obligations, rather the Exchange is proposing to amend its current rule 
text to bring greater transparency to the current quoting obligations 
by adding clear language which explains the manner in which BX will 
calculate the various quoting obligations for each type of Market 
Maker. The Exchange believes the proposed rule text is consistent with 
the Act because the proposed rule text protect investors and the public 
interest by providing clear language that will be utilized on all 
Nasdaq affiliate markets for easy comparison.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\17\ 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. The proposal does not impose a burden on competition because 
the Exchange will continue to uniformly calculate and apply the quoting 
obligations to all BX Market Makers as provided for in the proposed 
rule text. The Exchange's proposal does not modify the current quoting 
obligations on BX.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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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 \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 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) \20\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. In its filing with the 
Commission, the Exchange has asked the Commission to waive the 30-day 
operative delay so that the proposal to amend its Market Maker quoting 
obligations to add more detail to the current quoting requirements may 
become operative immediately upon filing. The Exchange believes that 
the proposal will bring greater transparency to the Exchange's rules. 
The Commission notes that the changes are substantially similar to Phlx 
Rule 1081(c). As such, the Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission designates the proposed rule 
change operative upon filing.\22\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) of the Act \23\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(2)(B).
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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-2018-029 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-2018-029. 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-2018-029 and should be submitted on 
or before August 10, 2018.

[[Page 34645]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15502 Filed 7-19-18; 8:45 am]
 BILLING CODE 8011-01-P