80 FR 62591 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving Proposed Rule Change To Adopt a Kill Switch for NOM

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 200 (October 16, 2015)

Page Range		62591-62592
FR Document		2015-26327
Federal Register, Volume 80 Issue 200 (Friday, October 16, 2015)
[Federal Register Volume 80, Number 200 (Friday, October 16, 2015)]
[Notices]
[Pages 62591-62592]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-26327]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76123; File No. SR-NASDAQ-2015-096]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving Proposed Rule Change To Adopt a Kill Switch for NOM

October 9, 2015.

I. Introduction

    On August 7, 2015, The NASDAQ Stock Market LLC 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 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 NASDAQ Options Market 
(``Exchange'' or ``NOM''). The proposed rule change was published for 
comment in the Federal Register on August 26, 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. 75743 (August 26, 
2015), 80 FR 51850 (``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

[[Page 62592]]

help members control their quote and order activity on NOM.\4\ Referred 
to as a ``Kill Switch,'' the functionality will allow NOM 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 NOM System for the Participant.\5\
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    \4\ See id.
    \5\ Orders submitted by NOM Market Makers over Ouch to Trade 
Options (``OTTO'') interface will be treated as quotes for purposes 
of this rule. See Notice, supra note 3, at 51850.
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    To use the Kill Switch, a Participant will send a message \6\ to 
the NOM 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).\7\ The Exchange's proposal does not allow Participants to 
remove quotes or cancel orders by symbol. The NOM System will send an 
automated message to the Participant when it has processed a Kill 
Switch request.
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    \6\ NOM 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.
    \7\ 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, at 51850.
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    The NOM 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,\8\ 
and, in particular, the requirements of Section 6 of the Act.\9\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\10\ 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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    \8\ 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).
    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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    According to the Exchange, the proposed rule change is designed to 
protect 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.\11\ The Exchange further notes that the 
proposed Kill Switch is designed to increase systemic protections and, 
in so doing, should encourage liquidity generally while removing 
impediments to market participation.\12\ 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 NOM 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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    \11\ See Notice, supra note 3, at 51851.
    \12\ 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,\13\ and 
that the proposal does not diminish a market-maker's obligation to 
provide continuous two-sided quotes on a daily basis under NOM 
rules.\14\ Specifically, the Exchange represents that ``any interest 
that is executable against a NOM 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 NOM Participant's size.'' \15\ 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.'' \16\ 
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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    \13\ See id.
    \14\ See id.
    \15\ Id.
    \16\ 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,\17\ that the proposed rule change (SR-NASDAQ-2015-096) be, and 
hereby is, approved.
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Robert W. Errett,
Deputy Secretary.
 [FR Doc. 2015-26327 Filed 10-15-15; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 80, No. 200 / Friday, October 16, 2015 / Notices 62591

whether a consulting fee would be subparagraph (f)(2) of Rule 19b–4 11 Reference Room, 100 F Street NE.,
charged. thereunder, because it establishes a due, Washington, DC 20549, on official
Listing Fees and Annual Fees fee, or other charge imposed by the business days between the hours of
applicable to Derivatives Securities Exchange. 10:00 a.m. and 3:00 p.m. Copies of such
Products would remain unchanged. At any time within 60 days of the filing will also be available for
filing of such proposed rule change, the inspection and copying at the principal
2. Statutory Basis
Commission summarily may office of the Exchange. All comments
NYSE Arca believes that the proposal temporarily suspend such rule change if received will be posted without change;
is consistent with Section 6(b) 7 of the it appears to the Commission that such the Commission does not edit personal
Act, in general, and Section 6(b)(4) 8 of action is necessary or appropriate in the identifying information from
the Act in particular, in that it provides public interest, for the protection of submissions. You should submit only
for the equitable allocation of reasonable investors, or otherwise in furtherance of information that you wish to make
dues, fees and other charges among its the purposes of the Act. If the available publicly. All submissions
issuers and other persons using its Commission takes such action, the should refer to File Number SR–
facilities. In addition, the Exchange Commission shall institute proceedings NYSEArca–2015–91 and should be
believes the proposal is consistent with under Section 19(b)(2)(B) 12 of the Act to submitted on or before November 6,
the requirement under Section 6(b)(5) 9 determine whether the proposed rule 2015.
that an exchange have rules that are change should be approved or
designed to prevent fraudulent and For the Commission, by the Division of
disapproved. Trading and Markets, pursuant to delegated
manipulative acts and practices, to
IV. Solicitation of Comments authority.13
promote just and equitable principles of
trade, to remove impediments to, and Robert W. Errett,
Interested persons are invited to
perfect the mechanism of a free and Deputy Secretary.
submit written data, views, and
open market and, in general, to protect arguments concerning the foregoing, [FR Doc. 2015–26324 Filed 10–15–15; 8:45 am]
investors and the public interest. The including whether the proposed rule BILLING CODE 8011–01–P
proposed elimination of the Sponsor change, as modified by Amendment No.
Fee is equitable and does not unfairly 1, is consistent with the Act. Comments
discriminate between issuers because it may be submitted by any of the SECURITIES AND EXCHANGE
would apply uniformly to all Sponsors. following methods: COMMISSION
The Exchange believes elimination of [Release No. 34-76123; File No. SR-
the Sponsor Fee is reasonable in that it Electronic comments
NASDAQ-2015-096]
constitutes a reduction in fees for • Use the Commission’s Internet
Sponsors. Notwithstanding the comment form (http://www.sec.gov/ Self-Regulatory Organizations; The
elimination of the Sponsor Fee, the rules/sro.shtml); or NASDAQ Stock Market LLC; Order
Exchange will continue to be able to • Send an email to rule-comments@ Approving Proposed Rule Change To
fund its regulatory obligations. sec.gov. Please include File Number SR– Adopt a Kill Switch for NOM
NYSEArca–2015–91 on the subject line.
B. Self-Regulatory Organization’s October 9, 2015.
Statement on Burden on Competition Paper comments
I. Introduction
The Exchange does not believe that • Send paper comments in triplicate
the proposed rule change will impose to Secretary, Securities and Exchange On August 7, 2015, The NASDAQ
any burden on competition that is not Commission, 100 F Street, NE., Stock Market LLC filed with the
necessary or appropriate in furtherance Washington, DC 20549–1090. Securities and Exchange Commission
of the purpose of the Act. The Exchange All submissions should refer to File (‘‘Commission’’), pursuant to Section
believes the proposed rule change Number SR–NYSEArca–2015–91. This 19(b)(1) of the Securities Exchange Act
would promote competition because it file number should be included on the of 1934 (‘‘Act’’) 1 and Rule 19b–4
will permit the Exchange to better subject line if email is used. To help the thereunder,2 a proposed rule change to
compete with other exchanges that do Commission process and review your adopt a risk protection functionality
not charge a fee similar to the Sponsor comments more efficiently, please use referred to as a kill switch that will be
Fee. only one method. The Commission will available to all Participants of the
post all comments on the Commission’s NASDAQ Options Market (‘‘Exchange’’
C. Self-Regulatory Organization’s or ‘‘NOM’’). The proposed rule change
Statement on Comments on the Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the was published for comment in the
Proposed Rule Change Received From FEDERAL REGISTER on August 26, 2015.3
Members, Participants, or Others submission, all subsequent
amendments, all written statements The Commission received no comment
No written comments were solicited letters on the proposed rule change.
with respect to the proposed rule
or received with respect to the proposed This order approves the proposed rule
change that are filed with the
rule change. change.
Commission, and all written
III. Date of Effectiveness of the communications relating to the II. Description of the Proposed Rule
Proposed Rule Change and Timing for proposed rule change between the Change
Commission Action Commission and any person, other than The Exchange proposes to offer to all
srobinson on DSK5SPTVN1PROD with NOTICES

The foregoing rule change is effective those that may be withheld from the its members a new optional risk
upon filing pursuant to Section public in accordance with the protection functionality for options to
19(b)(3)(A) 10 of the Act and provisions of 5 U.S.C. 552, will be
available for Web site viewing and 13 17 CFR 200.30–3(a)(12).
7 15 U.S.C. 78f(b). printing in the Commission’s Public 1 15 U.S.C. 78s(b)(1).
8 15 U.S.C. 78f(b)(4). 2 17 CFR 240.19b–4.
9 15 U.S.C. 78f(b)(5). 11 17 CFR 240.19b–4(f)(2). 3 See Securities Exchange Act Release No. 75743
10 15 U.S.C. 78s(b)(3)(A). 12 15 U.S.C. 78s(b)(2)(B). (August 26, 2015), 80 FR 51850 (‘‘Notice’’).

VerDate Sep<11>2014 18:54 Oct 15, 2015 Jkt 238001 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 E:\FR\FM\16OCN1.SGM 16OCN1
Document Created: 2015-12-14 15:23:54
Document Modified: 2015-12-14 15:23:54
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 62591