81 FR 96087 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Permit The Nasdaq Options Market LLC To Accept Inbound Options Orders Routed by Nasdaq Execution Services LLC
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 250 (December 29, 2016)
Federal Register Volume 81, Issue 250 (December 29, 2016)
| Page Range | 96087-96089 | |
| FR Document | 2016-31477 |
[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)] [Notices] [Pages 96087-96089] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-31477] [[Page 96087]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79662; File No. SR-NASDAQ-2016-169] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Permit The Nasdaq Options Market LLC To Accept Inbound Options Orders Routed by Nasdaq Execution Services LLC December 22, 2016. 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 December 9, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change. On December 20, 2016, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and replaced the original filing in its entirety. The proposed rule change, as modified by Amendment No. 1, is 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, as modified by Amendment No. 1 thereto, from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to permit The Nasdaq Options Market LLC (``NOM'') to accept inbound options orders routed by Nasdaq Execution Services LLC (``NES'') from the International Securities Exchange, LLC (``ISE'') ISE Gemini, LLC (``ISE Gemini'') and ISE Mercury, LLC (``ISE Mercury'') (collectively ``ISE Exchanges''). 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 In conjunction with the ISE Exchanges seeking approval to provide outbound routing services to all options markets using an affiliated routing broker, NES,\3\ NOM proposes that NES be permitted to route orders from the ISE Exchanges to NOM, subject to certain limitations and conditions, as described below. --------------------------------------------------------------------------- \3\ See SR-ISE-2016-27, SR-ISEGemini-2016-16 and SR-ISE-Mercury- 2016-22 (not yet published). --------------------------------------------------------------------------- NES is a broker-dealer and member of Nasdaq Phlx LLC (``Phlx''), Nasdaq BX, Inc. and NOM (collectively ``Nasdaq Exchanges''). NES provides all routing functions for the Nasdaq Exchanges. The Nasdaq Exchanges and NES are permitted affiliates.\4\ Accordingly, the affiliate relationship between NOM and NES, its member, raises the issue of an exchange's affiliation with a member of such exchange. Specifically, in connection with prior filings, the Commission has expressed concern that the affiliation of an exchange with one of its members raises the potential for unfair competitive advantage and potential conflicts of interest between an exchange's self-regulatory obligations and its commercial interests.\5\ --------------------------------------------------------------------------- \4\ See Phlx Rule 985, Nasdaq Rule 2160 and BX Rule 2140. \5\ See Securities Exchange Act Release Nos. 59153 (December 23, 2008), 73 FR 80485 (December 31, 2008) (SR-NASDAQ-2008-098); and 62736 (August 17, 2010), 75 FR 51861 (August 23, 2010) (SR-NASDAQ- 2010-100). See also Securities Exchange Act Release No. 58135 (July 10, 2008), 73 FR 40898 (July 16, 2008) (SR-NASDAQ-2008-061) (Permitting NOS to be affiliated with Phlx). --------------------------------------------------------------------------- Specifically, in connection with prior filings, the Commission has expressed concern that the affiliation of an exchange with one of its members raises the potential for unfair competitive advantage and potential conflicts of interest between an exchange's self-regulatory obligations and its commercial interests.\6\ The Nasdaq Exchanges received approval from the Commission to permit NES to become a member of these three markets subject to certain limitations and conditions in order to perform certain routing and other functions, respectively.\7\ Also recognizing that the Commission has expressed concern regarding the potential for conflicts of interest in instances where a member firm is affiliated with an exchange to which it is routing orders, the Nasdaq Exchanges previously proposed, and the Commission approved,\8\ NES's affiliation with the Nasdaq Exchanges to permit the Exchange to accept inbound orders that NES routes in its capacity as a facility from other Nasdaq Exchanges, subject to the certain limitations and conditions. Nasdaq now proposes to permit NOM to accept inbound options orders that NES routes in its capacity as a facility of the ISE Exchanges, subject to the following limitations and conditions: \9\ --------------------------------------------------------------------------- \6\ Securities Exchange Act Release Nos. 71416 (January 28, 2014), 79 FR 6244 (February 3, 2014) (SR-Phlx-2014-05); 71419 (January 28, 2014), 79 FR 6247 (February 3, 2014) (SR-NASDAQ-2014- 007); and 714121 (January 28, 2014), 79 FR 6264 (February 3, 2014) (SR-BX-2014-003). \7\ See Securities Exchange Act Release Nos. 59721 (April 7, 2009), 74 FR 17245 (April 14, 2009) (SR-Phlx-2009-32); 59779 (April 16, 2009) 74 FR 18600 (April 23, 2009) (SR-Phlx-2009-32, Amendment No. 1) notice of filing of proposed rule change relating to enhanced electronic trading platform for options); 61667 (March 5, 2010), 75 FR 11964 (March 12, 2016) (SR-Phlx-2010-36) (notice of filing and immediate effectiveness of proposed rule changes to establish procedures to prevent information advantages resulting from the affiliation between Phlx and NES); and 71416 (January 28, 2014), 79 FR 6244 (February 3, 2014) (SR-Phlx-2014-05) (notice of filing and immediate effectiveness of proposed rule change to inbound routing of options orders). Nasdaq Options Services was the affiliated broker-dealer prior to a rule change to utilize NES, another affiliated broker-dealer of Nasdaq. See also Securities Exchange Act Release Nos. 63769 (January 25, 2011), 76 FR 5423 (January 31, 2011) (SR-BX-2011-003); 63859 (February 7, 2011), 76 FR 8391 (February 14, 2011) (SR-BX-2011-007) (notice of filing of proposed rule change relating to permanent approval of the BX and NES inbound routing relationship); 71420 (January 28, 2014), 79 FR 6256 (February 3, 2014) (SR-BX-2014-004) (notice of filing and immediate effectiveness of proposed rule change to inbound routing). See also Securities Exchange Act Release Nos. 65554 (October 13, 2011), 76 FR 65311 (October 20, 2011) (SR-NASDAQ-2011-142); 71418 (January 28, 2014), 79 FR 6262 (February 3, 2014) (SR-NASDAQ-2014-008) (notice of filing and immediate effectiveness of proposed rule change to inbound routing). \8\ Id. \9\ The Exchange notes that similar filings are proposed for the Phlx and BX markets. See SR-Phlx-2016-120 and SR-BX-2016-068 (not published). ---------------------------------------------------------------------------First, the Exchange and FINRA maintain a Regulatory Services Agreement (``RSA''), as well as an agreement pursuant to Rule 17d-2 under the Act (``17d-2 Agreement'').\10\ Pursuant to the RSA and the 17d-2 Agreement, FINRA is allocated regulatory responsibilities to review NES's compliance with certain [[Page 96088]] Exchange rules.\11\ Pursuant to the RSA, however, NOM retains ultimate responsibility for enforcing its rules with respect to NES. --------------------------------------------------------------------------- \10\ 17 CFR 240.17d-2. FINRA reviews NES' compliance for certain common rules. The RSA with FINRA specifies the types of business activities that NES may undertake and it also indicates the obligations to which NES is subject under the RSA. Among other things, NES must maintain a certain amount of net capital pursuant to SEC Rule 15c3-1(a)(1)(ii) and operate pursuant to SEC Rule 15c3- 3(k)(2)(ii). NES is permitted to route orders in options to the appropriate market center for execution in accordance with member order and requirements. \11\ NES is also subject to independent oversight by FINRA, its designated examining authority, for compliance with financial responsibility requirements. --------------------------------------------------------------------------- Second, FINRA monitors NES for compliance with the Exchange's trading rules, and collects and maintains certain related information.\12\ --------------------------------------------------------------------------- \12\ Pursuant to the RSA, both FINRA and NOM collect and maintain all alerts, complaints, investigations and enforcement actions in which NES (in its capacity as a facility of Phlx and BX routing orders to NOM) is identified as a participant that has potentially violated applicable Commission or Exchange rules. The Exchange and FINRA retain these records in an easily accessible manner in order to facilitate any potential review conducted by the Commission's Office of Compliance Inspections and Examinations. Pursuant to the RSA, the Exchange and FINRA would be required to perform these activities with respect to NES acting in its capacity as a facility of each of the affiliated entities routing orders to NOM. --------------------------------------------------------------------------- Third, FINRA provides a report to the Exchange's chief regulatory officer (``CRO''), on a quarterly basis, that: (i) Quantifies all alerts (of which the Exchange or FINRA is aware) that identify NES as a participant that has potentially violated Commission or Exchange rules, and (ii) lists all investigations that identify NES as a participant that has potentially violated Commission or Exchange rules. Fourth, NOM has in place NOM Rule 2160(c), which requires Nasdaq, Inc., as the holding company owning both the Exchange and NES, to establish and maintain procedures and internal controls reasonably designed to ensure that NES does not develop or implement changes to its system, based on non-public information obtained regarding planned changes to the Exchange's systems as a result of its affiliation with the Exchange, until such information is available generally to similarly situated Exchange members, in connection with the provision of inbound order routing to the Exchange.\13\ --------------------------------------------------------------------------- \13\ See Securities Exchange Act Release Nos. 65554 (October 13, 2011), 76 FR 65311 (October 20, 2011) (SR-NASDAQ-2011-142); 71418 (January 28, 2014), 79 FR 6262 (February 3, 2014) (SR-NASDAQ-2014- 008) (notice of filing and immediate effectiveness of proposed rule change to inbound routing). --------------------------------------------------------------------------- The Exchange has met all the above-listed conditions in connection with NES routing in its capacity as a facility of BX and Phlx. By meeting the above conditions, the Exchange has set up mechanisms that protect the independence of the Exchange's regulatory responsibility with respect to NES, as well as demonstrate that NES cannot use any information advantage it may have because of its affiliation with the Exchange. Because the Exchange has met all the above-listed conditions, it now seeks to permit an inbound routing relationship with the ISE Exchanges pursuant to the same conditions. The Exchange will continue to comply with the four conditions stated above. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,\14\ in general, and with Sections 6(b)(5) of the Act,\15\ in particular, in that the proposal is 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 regulating, clearing, settling, processing information with respect to, and 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, because the proposed rule change will allow the Exchange to continue to receive inbound orders from NES, acting in its capacity as a facility of Phlx and BX, in a manner consistent with prior approvals and established protections and will further be permitted to receive inbound orders from the ISE Exchanges, for which NES will also act in its capacity as a facility of those markets. The Exchange believes that the proposed conditions establish mechanisms that protect the independence of the Exchange's regulatory responsibility with respect to NES, as well as ensure that NES cannot use any information it may have because of its affiliation with the Exchange, or affiliation with other Nasdaq Exchanges or ISE Exchanges, to its advantage. --------------------------------------------------------------------------- \14\ 15 U.S.C. 78f. \15\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Permitting NOM to receive inbound orders from the ISE Exchanges does not create any issues of intra-market competition because it involves inbound routing from affiliated markets. Nor does it result in a burden on competition among exchanges, because there are many competing options exchanges that provide routing services, including through an affiliate. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be 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, as modified by Amendment No. 1, 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-NASDAQ-2016-169 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-NASDAQ-2016-169. 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 [[Page 96089]] 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASDAQ-2016-169, and should be submitted on or before January 19, 2017. --------------------------------------------------------------------------- \16\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-31477 Filed 12-28-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices 96087
SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s recognizing that the Commission has
COMMISSION Statement of the Purpose of, and the expressed concern regarding the
Statutory Basis for, the Proposed Rule potential for conflicts of interest in
[Release No. 34–79662; File No. SR–
NASDAQ–2016–169]
Change instances where a member firm is
1. Purpose affiliated with an exchange to which it
Self-Regulatory Organizations; The is routing orders, the Nasdaq Exchanges
Nasdaq Stock Market LLC; Notice of In conjunction with the ISE previously proposed, and the
Filing of Proposed Rule Change, as Exchanges seeking approval to provide
Commission approved,8 NES’s
Modified by Amendment No. 1 Thereto, outbound routing services to all options
affiliation with the Nasdaq Exchanges to
To Permit The Nasdaq Options Market markets using an affiliated routing
permit the Exchange to accept inbound
LLC To Accept Inbound Options broker, NES,3 NOM proposes that NES
be permitted to route orders from the orders that NES routes in its capacity as
Orders Routed by Nasdaq Execution a facility from other Nasdaq Exchanges,
Services LLC ISE Exchanges to NOM, subject to
certain limitations and conditions, as subject to the certain limitations and
December 22, 2016. described below. conditions. Nasdaq now proposes to
Pursuant to Section 19(b)(1) of the NES is a broker-dealer and member of permit NOM to accept inbound options
Securities Exchange Act of 1934 Nasdaq Phlx LLC (‘‘Phlx’’), Nasdaq BX, orders that NES routes in its capacity as
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 Inc. and NOM (collectively ‘‘Nasdaq a facility of the ISE Exchanges, subject
notice is hereby given that on December Exchanges’’). NES provides all routing to the following limitations and
9, 2016, The NASDAQ Stock Market functions for the Nasdaq Exchanges. conditions: 9
LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed The Nasdaq Exchanges and NES are • First, the Exchange and FINRA
with the Securities and Exchange permitted affiliates.4 Accordingly, the maintain a Regulatory Services
Commission (‘‘Commission’’) the affiliate relationship between NOM and Agreement (‘‘RSA’’), as well as an
proposed rule change. On December 20, NES, its member, raises the issue of an agreement pursuant to Rule 17d–2
2016, the Exchange filed Amendment exchange’s affiliation with a member of under the Act (‘‘17d–2 Agreement’’).10
No. 1 to the proposed rule change, such exchange. Specifically, in Pursuant to the RSA and the 17d–2
which amended and replaced the connection with prior filings, the
Agreement, FINRA is allocated
original filing in its entirety. The Commission has expressed concern that
regulatory responsibilities to review
proposed rule change, as modified by the affiliation of an exchange with one
NES’s compliance with certain
Amendment No. 1, is described in Items of its members raises the potential for
I, II, and III below, which Items have unfair competitive advantage and
relating to enhanced electronic trading platform for
been prepared by the Exchange. The potential conflicts of interest between options); 61667 (March 5, 2010), 75 FR 11964
Commission is publishing this notice to an exchange’s self-regulatory obligations (March 12, 2016) (SR–Phlx–2010–36) (notice of
solicit comments on the proposed rule and its commercial interests.5 filing and immediate effectiveness of proposed rule
change, as modified by Amendment No. Specifically, in connection with prior changes to establish procedures to prevent
filings, the Commission has expressed information advantages resulting from the
1 thereto, from interested persons. affiliation between Phlx and NES); and 71416
concern that the affiliation of an (January 28, 2014), 79 FR 6244 (February 3, 2014)
I. Self-Regulatory Organization’s exchange with one of its members raises (SR–Phlx–2014–05) (notice of filing and immediate
Statement of the Terms of Substance of the potential for unfair competitive effectiveness of proposed rule change to inbound
the Proposed Rule Change advantage and potential conflicts of routing of options orders). Nasdaq Options Services
was the affiliated broker-dealer prior to a rule
The Exchange proposes to permit The interest between an exchange’s self- change to utilize NES, another affiliated broker-
Nasdaq Options Market LLC (‘‘NOM’’) regulatory obligations and its dealer of Nasdaq. See also Securities Exchange Act
to accept inbound options orders routed commercial interests.6 The Nasdaq Release Nos. 63769 (January 25, 2011), 76 FR 5423
Exchanges received approval from the (January 31, 2011) (SR–BX–2011–003); 63859
by Nasdaq Execution Services LLC (February 7, 2011), 76 FR 8391 (February 14, 2011)
(‘‘NES’’) from the International Commission to permit NES to become a (SR–BX–2011–007) (notice of filing of proposed
Securities Exchange, LLC (‘‘ISE’’) ISE member of these three markets subject rule change relating to permanent approval of the
Gemini, LLC (‘‘ISE Gemini’’) and ISE to certain limitations and conditions in BX and NES inbound routing relationship); 71420
order to perform certain routing and (January 28, 2014), 79 FR 6256 (February 3, 2014)
Mercury, LLC (‘‘ISE Mercury’’) (SR–BX–2014–004) (notice of filing and immediate
(collectively ‘‘ISE Exchanges’’). other functions, respectively.7 Also effectiveness of proposed rule change to inbound
routing). See also Securities Exchange Act Release
II. Self-Regulatory Organization’s 3 See SR–ISE–2016–27, SR–ISEGemini–2016–16
Nos. 65554 (October 13, 2011), 76 FR 65311
Statement of the Purpose of, and and SR–ISE–Mercury–2016–22 (not yet published). (October 20, 2011) (SR–NASDAQ–2011–142); 71418
Statutory Basis for, the Proposed Rule 4 See Phlx Rule 985, Nasdaq Rule 2160 and BX (January 28, 2014), 79 FR 6262 (February 3, 2014)
Change Rule 2140. (SR–NASDAQ–2014–008) (notice of filing and
5 See Securities Exchange Act Release Nos. 59153 immediate effectiveness of proposed rule change to
In its filing with the Commission, the (December 23, 2008), 73 FR 80485 (December 31, inbound routing).
Exchange included statements 2008) (SR–NASDAQ–2008–098); and 62736 (August 8 Id.
17, 2010), 75 FR 51861 (August 23, 2010) (SR– 9 The Exchange notes that similar filings are
concerning the purpose of and basis for NASDAQ–2010–100). See also Securities Exchange proposed for the Phlx and BX markets. See SR–
the proposed rule change and discussed Act Release No. 58135 (July 10, 2008), 73 FR 40898 Phlx–2016–120 and SR–BX–2016–068 (not
any comments it received on the (July 16, 2008) (SR–NASDAQ–2008–061) published).
proposed rule change. The text of these (Permitting NOS to be affiliated with Phlx). 10 17 CFR 240.17d–2. FINRA reviews NES’
6 Securities Exchange Act Release Nos. 71416
asabaliauskas on DSK3SPTVN1PROD with NOTICES
statements may be examined at the compliance for certain common rules. The RSA
(January 28, 2014), 79 FR 6244 (February 3, 2014) with FINRA specifies the types of business
places specified in Item IV below. The (SR–Phlx–2014–05); 71419 (January 28, 2014), 79 activities that NES may undertake and it also
Exchange has prepared summaries, set FR 6247 (February 3, 2014) (SR–NASDAQ–2014– indicates the obligations to which NES is subject
forth in sections A, B, and C below, of 007); and 714121 (January 28, 2014), 79 FR 6264 under the RSA. Among other things, NES must
the most significant aspects of such (February 3, 2014) (SR–BX–2014–003). maintain a certain amount of net capital pursuant
7 See Securities Exchange Act Release Nos. 59721 to SEC Rule 15c3–1(a)(1)(ii) and operate pursuant
statements. (April 7, 2009), 74 FR 17245 (April 14, 2009) (SR– to SEC Rule 15c3–3(k)(2)(ii). NES is permitted to
Phlx–2009–32); 59779 (April 16, 2009) 74 FR 18600 route orders in options to the appropriate market
1 15 U.S.C. 78s(b)(1). (April 23, 2009) (SR–Phlx–2009–32, Amendment center for execution in accordance with member
2 17 CFR 240.19b–4. No. 1) notice of filing of proposed rule change order and requirements.
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![Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices 96089
available for Web site viewing and modified by Amendment Nos. 1 and 2, outbound orders through NES either
printing in the Commission’s Public is described in Items I, II, and III below, directly or indirectly through a third
Reference Room, 100 F Street NE., which Items have been prepared by the party routing broker-dealer 4 to other
Washington, DC 20549 on official Exchange. The Commission is market centers and perform other
business days between the hours of publishing this notice to solicit functions regarding the cancellation of
10:00 a.m. and 3:00 p.m. Copies of such comments on the proposed rule change, orders and the maintenance of a NES
filing also will be available for as modified by Amendment Nos. 1 and error account.5
inspection and copying at the principal 2, from interested persons.
Restriction on Affiliation
office of the Exchange. All comments I. Self-Regulatory Organization’s
received will be posted without change; NES is a broker-dealer owned and
Statement of the Terms of Substance of operated by Nasdaq, Inc. NES is
the Commission does not edit personal the Proposed Rule Change
identifying information from affiliated with International Securities
submissions. You should submit only The Exchange proposes to (1) permit Exchange, LLC (‘‘ISE’’), ISE Gemini, ISE
information that you wish to make the Exchange to receive inbound orders Mercury LLC,6 NASDAQ PHLX LLC
available publicly. All submissions in options routed through Nasdaq (‘‘Phlx’’), The NASDAQ Options Market
should refer to File Number SR– Execution Services, LLC (‘‘NES’’) from LLC (‘‘NOM’’) and NASDAQ BX, Inc.
NASDAQ–2016–169, and should be certain affiliated exchanges, as (‘‘BX’’). For purposes of this filing the
submitted on or before January 19, 2017. described in detail below, by term ‘‘Affiliated Entities’’ shall refer to
establishing procedures designed to ISE, ISE Gemini, Phlx, NOM and BX
For the Commission, by the Division of prevent potential informational (collectively ‘‘Affiliated Entities’’).
Trading and Markets, pursuant to delegated
authority.16
advantages resulting from the affiliation Currently, NES is a member of Phlx,
with NES; and (2) grant the Exchange an NOM and BX (collectively ‘‘Nasdaq
Eduardo A. Aleman,
exemption to permit NES, an affiliate of Exchanges’’) and provides all options
Assistant Secretary. the Exchange, to become a Member of routing functions for Phlx, NOM and
[FR Doc. 2016–31477 Filed 12–28–16; 8:45 am] the Exchange in order to perform certain BX.7
BILLING CODE 8011–01–P routing an [sic] other functions on Today, Phlx Rule 985 (Affiliation and
behalf of the Exchange. Ownership Restrictions), The NASDAQ
Stock Market LLC (‘‘Nasdaq’’) Rule 2160
SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s (Restrictions on Affiliation) 8 and BX
COMMISSION Statement of the Purpose of, and Rule 2140 (Restrictions on Affiliation)
Statutory Basis for, the Proposed Rule currently prohibit the Nasdaq
[Release No. 34–79663; File No. SR– Change
ISEMercury–2016–22] Exchanges or any entity with which it
In its filing with the Commission, the is affiliated from, directly or indirectly,
Self-Regulatory Organizations; ISE Exchange included statements acquiring or maintaining an ownership
Mercury, LLC; Notice of Filing of concerning the purpose of and basis for interest in, or engaging in a business
Proposed Rule Change, as Modified by the proposed rule change and discussed venture with, a Nasdaq Exchange
Amendment Nos. 1 and 2, To Permit any comments it received on the member or an affiliate of a Nasdaq
Nasdaq Execution Services, LLC To proposed rule change. The text of these Exchange member in the absence of an
Become an Affiliated Member of the statements may be examined at the effective filing under 19(b) of the Act.
Exchange To Perform Certain Routing places specified in Item IV below. The Specifically, in connection with prior
and Other Functions Exchange has prepared summaries, set filings, the Commission has expressed
forth in sections A, B, and C below, of concern that the affiliation of an
December 22, 2016. the most significant aspects of such exchange with one of its members raises
Pursuant to Section 19(b)(1) of the statements. the potential for unfair competitive
Securities Exchange Act of 1934 advantage and potential conflicts of
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 A. Self-Regulatory Organization’s
Statement of the Purpose of, and the interest between an exchange’s self-
notice is hereby given that on December regulatory obligations and its
9, 2016, ISE Mercury, LLC (‘‘ISE Statutory Basis for, the Proposed Rule
Change commercial interests.9 NES performs
Mercury’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission 1. Purpose 4 The ability to route orders to other exchanges
(‘‘Commission’’) the proposed rule using either the Exchange’s affiliated broker-dealer
The purpose of the filing is to permit
change. On December 20, 2016, the (NES) or a third party unaffiliated broker-dealer,
ISE Mercury to receive inbound orders which the Exchange may choose to use, is for
Exchange filed Amendment No. 1 to the
in options routed through Nasdaq efficiency and potential cost savings.
proposed rule change, which amended
Execution Services, LLC (‘‘NES’’) from 5 The ability to route orders to other exchanges
and replaced the Form 19b–4, and using either the Exchange’s affiliated broker-dealer
certain affiliated exchanges, as
Exhibit 1 thereto, in their entirety. On (NES) or a third party unaffiliated broker-dealer,
described herein and establish which the Exchange may choose to use, is for
December 20, 2016, the Exchange filed
procedures designed to prevent efficiency and potential cost savings. See ISE–2016–
Amendment No. 2 to the proposed rule
potential informational advantages 27 (not published) which amends ISE Chapter 19,
change.3 The proposed rule change, as Rules 1901, 1903, 1904 and 1905. The ISE rule
resulting from the affiliation between
changes impact ISE Mercury because Chapter 19 is
16 17 CFR 200.30–3(a)(12).
ISE Mercury and NES. The Exchange incorporated by reference into the ISE Mercury
asabaliauskas on DSK3SPTVN1PROD with NOTICES
1 15 U.S.C. 78s(b)(1). requests approval to permit NES, an Rulebook.
2 17 CFR 240.19b–4. affiliate of the Exchange, to become a 6 ISE, ISE Gemini and ISE Mercury are
3 Amendment No. 2 amended the description of Member of the Exchange in order to collectively referred to as ‘‘ISE Exchanges.’’
7 See Phlx Rule 1080(m) and Nasdaq and BX
one of the inbound routing conditions that would perform inbound routing on behalf of
apply. Specifically, the Exchange modified the third Rules at Chapter VI, Section 11.
the Exchange. The Exchange is also 8 NOM is a facility of Nasdaq.
condition to specify that the report that FINRA will
provided to the Exchange’s chief regulatory officer filing to permit ISE Gemini [sic] to route 9 Securities Exchange Act Release Nos. 71416
on a quarterly basis will quantify all alerts, of which (January 28, 2014), 79 FR 6244 (February 3, 2014)
the Exchange or FINRA (rather than solely FINRA) LLC as a participant that has potentially violated (SR–Phlx–2014–05); 71419 (January 28, 2014), 79
are aware, that identify Nasdaq Execution Services, Commission or Exchange rules. Continued
VerDate Sep<11>2014 18:41 Dec 28, 2016 Jkt 241001 PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 E:\FR\FM\29DEN1.SGM 29DEN1](https://thefederalregister.org/doc/81_FR_96337/page/3.svg)
Document Created: 2016-12-29 01:58:27
Document Modified: 2016-12-29 01:58:27
| 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 | 81 FR 96087 |
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