80 FR 62146 - Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order Approving Proposed Rule Change To Adopt a Kill Switch

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 199 (October 15, 2015)

[Federal Register Volume 80, Number 199 (Thursday, October 15, 2015)]
[Notices]
[Pages 62146-62147]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-26147]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76116; File No. SR-BX-2015-050]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving Proposed Rule Change To Adopt a Kill Switch

October 8, 2015.

I. Introduction

    On August 7, 2015, NASDAQ OMX BX, Inc. (the ``Exchange'' or ``BX'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule

[[Page 62147]]

19b-4 thereunder,\2\ a proposed rule change to adopt a risk protection 
functionality referred to as a kill switch that will be available to 
all Participants of the Exchange. The proposed rule change was 
published for comment in the Federal Register on August 27, 2015.\3\ 
The Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4
    \3\ See Securities Exchange Act Release No. 75744 (August 27, 
2015), 80 FR 52068 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to offer to all its members a new optional 
risk protection functionality for options to help members control their 
quote and order activity on the Exchange.\4\ Referred to as a ``Kill 
Switch,'' the functionality will allow BX Participants to remove quotes 
and cancel open orders, and will prevent the submission of new quotes 
and orders until the Exchange re-enables access to the BX System for 
the Participant.
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    \4\ See id.
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    To use the Kill Switch, a Participant will send a message \5\ to 
the BX System to: (i) Promptly remove quotes; and/or (ii) promptly 
cancel orders for certain specified Identifiers (e.g., a particular 
Exchange account, port, or badge or mnemonic, or for a group of 
Identifiers).\6\ The Exchange's proposal does not allow Participants to 
remove quotes or cancel orders by symbol. The BX System will send an 
automated message to the Participant when it has processed a Kill 
Switch request.
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    \5\ BX Participants will be able to utilize an interface to send 
a message to the Exchange to initiate the Kill Switch, or they may 
contact the Exchange directly. See Notice, supra note 3, at note 3.
    \6\ Permissible groups could be formed only within a single 
broker-dealer. For example, a group could include, but would not be 
limited to, all market maker accounts or all order entry ports. See 
Notice, supra note 3.
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    The BX Participant will be unable to enter any new quotes or orders 
using the affected Identifier(s) until the Participant makes a verbal 
request to the Exchange and Exchange staff enables re-entry. Once 
enabled for re-entry, the Exchange will send a message to the 
Participant and, if it requests to receive such notifications, to the 
Participant's clearing firm as well.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange,\7\ 
and, in particular, the requirements of section 6 of the Act.\8\ In 
particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\9\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in 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 that the rules are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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    According to the Exchange, the proposed rule change is designed to 
protect BX Participants in the event that the Participant encounters a 
situation, like a systems issue, for which they would like to withdraw 
temporarily from the market.\10\ The Exchange further notes that the 
proposed Kill Switch is designed to increase systemic protections and, 
in so doing, so should encourage liquidity generally while removing 
impediments to market participation.\11\ To the extent that the 
Exchange's proposal provides member firms with greater control over 
their quotes and orders, and allows firms to remove quotes and cancel 
orders in an appropriate manner, then the proposal may encourage firms 
to provide liquidity on BX and thus contribute to fair and orderly 
markets in a manner that protects the public interest, protects 
investors, and is not designed to permit unfair discrimination.
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    \10\ See Notice at 52069.
    \11\ See id.
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    Further, the Commission agrees that it would be appropriate to 
notify a Participant's clearing member, at the clearing member's 
request, once a Participant's selected Identifiers are re-enabled 
following the Participant's use of the Kill Switch. Because the 
clearing member accepts financial responsibility for clearing the 
Participant's trades, notifying the applicable clearing member of a 
Participant's re-enabled Identifiers following use of the Kill Switch 
may be appropriate and help the clearing member manage the risk 
associated with the Participant's trading activity.
    The Commission notes that the Exchange represented in its proposal 
that the Kill Switch will operate consistently with a broker-dealer's 
firm quote obligations pursuant to Rule 602 of Regulation NMS,\12\ and 
that the proposal does not diminish a market-maker's obligation to 
provide continuous two-sided quotes on a daily basis under BX 
rules.\13\ Specifically, the Exchange represents that ``any interest 
that is executable against a BX Participant's quotes and orders that 
are received by the Exchange prior to the time the Kill Switch is 
processed by the System will automatically execute at the price up to 
the BX Participant's size.'' \14\ In that respect, the Exchange further 
represented that ``[t]he Kill Switch message will be accepted by the 
System in the order of receipt in the queue and will be processed in 
that order so that interest that is already accepted into the System 
will be processed prior to the Kill Switch message.'' \15\ Based on 
these representations, the Commission believes that the proposal is 
designed to promote just and equitable principles of trade and perfect 
the mechanism of a free and open market.
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    \12\ Id.
    \13\ Id.
    \14\ Id.
    \15\ Id.
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    Accordingly, the Commission finds that the Exchange's proposal is 
consistent with the Act, including section 6(b)(5) thereof, in that it 
is designed to promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, protect investors and the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-BX-2015-050) be, and hereby 
is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-26147 Filed 10-14-15; 8:45 am]
 BILLING CODE 8011-01-P