82 FR 10844 - Self-Regulatory Organizations; NASDAQ BX, Inc.; The Nasdaq Stock Market LLC; NASDAQ PHLX LLC; Order Granting Approval of Proposed Rule Changes, as Modified by Amendment No. 1s, To Accept Orders Routed Inbound From the International Stock Exchange, LLC, ISE Gemini, LLC, and ISE Mercury, LLC, by Nasdaq Execution Services, LLC
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 30 (February 15, 2017)
Federal Register Volume 82, Issue 30 (February 15, 2017)
| Page Range | 10844-10846 | |
| FR Document | 2017-02993 |
[Federal Register Volume 82, Number 30 (Wednesday, February 15, 2017)] [Notices] [Pages 10844-10846] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-02993] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79996; File Nos. SR-BX-2016-068; SR-NASDAQ-2016-169; SR-Phlx-2016-120] Self-Regulatory Organizations; NASDAQ BX, Inc.; The Nasdaq Stock Market LLC; NASDAQ PHLX LLC; Order Granting Approval of Proposed Rule Changes, as Modified by Amendment No. 1s, To Accept Orders Routed Inbound From the International Stock Exchange, LLC, ISE Gemini, LLC, and ISE Mercury, LLC, by Nasdaq Execution Services, LLC February 9, 2017. I. Introduction On December 9, 2016, NASDAQ BX, Inc. (``BX''), The NASDAQ Stock Market LLC (``Nasdaq''), and NASDAQ PHLX LLC (``Phlx'' and, each of BX, Nasdaq, and Phlx a ``NASDAQ Exchange'' or ``Exchange'') 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\ proposed rule changes to permit BX, Phlx, and The NASDAQ Options Market LLC (``NOM'') \3\ to accept options orders routed inbound from the International Stock Exchange, LLC (``ISE''), ISE Gemini, LLC (``ISE Gemini''), and ISE Mercury, LLC (``ISE Mercury'' and, together with ISE and ISE Gemini, the ``ISE Exchanges'') by Nasdaq Execution Services, LLC (``NES''), an affiliate of both the NASDAQ Exchanges and the ISE Exchanges (the NASDAQ Exchanges, together with the ISE Exchanges, the ``Affiliated Exchanges'').\4\ On December 20, 2016, each of the NASDAQ Exchanges filed an Amendment No. 1 to its respective proposed rule change. The proposed rule changes, each as modified by Amendment No. 1 thereto, were published for comment in the Federal Register on December 29, 2016.\5\ The Commission received no comments on the proposals. This order approves the proposed rule changes, as modified by their respective Amendment No. 1s. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ NOM is a facility of Nasdaq. See Nasdaq Options Rules, Chapter I, Section 1(a)(28). \4\ The ISE Exchanges submitted related proposed rule changes that, among other things, would permit each ISE Exchange to use NES to route options orders outbound to away markets. See Securities Exchange Act Release Nos. 79665 (December 22, 2016), 81 FR 96092 (December 29, 2016) (SR-ISE-2016-27); 79664 (December 22, 2016), 81 FR 96136 (December 29, 2016) (SR-ISEGemini-2016-16); and 79663 (December 22, 2016), 81 FR 96089 (December 29, 2016) (SR-ISEMercury- 2016-22). The Commission is also today approving these proposed rules changes. See Securities Exchange Act Release Nos. 79994 (February 9, 2017); and 79995 (February 9, 2017) (``ISE Exchange Routing Orders''). \5\ See Securities Exchange Act Release Nos. 79661 (December 22, 2016), 81 FR 96100 (SR-BX-2016-068) (``BX Notice''); 79662 (December 22, 2016), 81 FR 96087 (SR-NASDAQ-2016-169) (``Nasdaq Notice''); and 79660 (December 22, 2016), 81 FR 96060 (SR-Phlx-2016-120) (``Phlx Notice''). --------------------------------------------------------------------------- II. Background Phlx Rule 985(b)(i)(A) prohibits Phlx or any entity with which it is affiliated from, directly or indirectly, acquiring or maintaining an ownership interest in, or engaging in a business venture with, an Exchange member or an affiliate of an Exchange member in the absence of an effective filing under Section 19(b) of the Act.\6\ Nasdaq's and BX's rules include similar prohibitions.\7\ NES is a registered broker- dealer that is a member of NOM,\8\ BX,\9\ and Phlx,\10\ and currently provides to members of each, optional routing services to other markets.\11\ NES is owned by Nasdaq, Inc.,\12\ which also owns all of the Affiliated Exchanges.\13\ Thus, NES is an affiliate of the NASDAQ Exchanges, as well as an affiliate of the ISE Exchanges. Absent an effective filing, the rules of Nasdaq, BX, and Phlx would prohibit NES from being a member of each of those Exchanges. Today, NES is a member of each of the NASDAQ Exchanges and performs certain limited activities for each, pursuant to effective filings pursuant to Section 19(b).\14\ Among other activities, each of the NASDAQ Exchanges accepts options orders routed inbound from each of the other NASDAQ Exchanges pursuant to certain limitations and conditions.\15\ With the current proposed rule changes, the NASDAQ Exchanges seek approval to permit NES to also route options orders inbound from the ISE Exchanges pursuant to those same limitations and conditions.\16\ --------------------------------------------------------------------------- \6\ 15 U.S.C. 78s(b). Phlx Rule 985 also prohibits a Phlx member from being or becoming an affiliate of Phlx, or an affiliate of an entity affiliated with Phlx, in the absence of an effective filing under Section 19(b) of the Act. See Phlx Rule 958(b)(i)(B). \7\ Pursuant to Nasdaq Rule 2160(a): ``(1) Nasdaq or any entity with which it is affiliated shall not, directly or indirectly, acquire or maintain an ownership interest in, or engage in a business venture with, a Nasdaq member or an affiliate of a Nasdaq member in the absence of an effective filing under Section 19(b) of the Act; and (2) a Nasdaq member shall not be or become an affiliate of Nasdaq, or an affiliate of an entity affiliated with Nasdaq, in the absence of an effective filing under Section 19(b) of the Act.'' Pursuant to BX Rule 2140(a): ``(1) [BX] or any entity with which it is affiliated shall not, directly or indirectly, acquire or maintain an ownership interest in, or engage in a business venture with, [a BX] member or an affiliate of [a BX] member in the absence of an effective filing under Section 19(b) of the Act; and (2) [a BX] member shall not be or become an affiliate of [BX], or an affiliate of an entity affiliated with [BX], in the absence of an effective filing under Section 19(b) of the Act.'' \8\ See Nasdaq Notice, supra note 5, at 96087. \9\ See BX Notice, supra note 5, at 96100. \10\ See Phlx Notice, supra note 5, at 96061. \11\ See Phlx Rule 1080(m)(iii); Nasdaq Options Rules, Chapter VI, Section 11(e); and BX Options Rules, Chapter VI, Section 11(e). See also Phlx Notice, supra note 5, at 96061; Nasdaq Notice, supra note 5, at 96087; and BX Notice, supra note 5, at 96100. \12\ See Securities Exchange Act Release No. 69233 (March 25, 2013), 78 FR 19352 (March 29, 2013) (SR-NASDAQ-2013-028) (order approving a proposed rule change to make permanent a pilot program to permit NASDAQ to accept inbound orders routed by NES from the BX Equities market and PSX) at 19352 n.6 and accompanying text. \13\ See Securities Exchange Act Release No. 78119 (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11; SR-ISE Gemini- 2016-05; SR-ISE Mercury-2016-10) (order approving a proposed rule change relating to Nasdaq, Inc.'s acquisition of ISE, ISE Gemini, and ISE Mercury). \14\ See, e.g., supra note 11; and Securities Exchange Act Release Nos. 69233, supra note 12; 69232 (March 25, 2013), 78 FR 19342 (March 29, 2013) (SR-BX-2013-013) (order approving a proposed rule change to make permanent a pilot program to permit BX to accept inbound orders routed by NES from PSX); 69229 (March 25, 2013), 78 FR 19337 (March 29, 2013) (SR-Phlx-2013-15) (order approving a proposed rule change to make permanent a pilot program to permit PSX to accept inbound orders routed by NES from BX); 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 permit Phlx to receive inbound orders in options routed through NES from NOM and BX); 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 permit BX to receive inbound orders in options routed through NES from NOM and Phlx); and 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 permit NOM to receive inbound orders in options routed through NES from BX and Phlx). \15\ See Securities Exchange Act Release Nos. 71416, supra note 14; 71420, supra note 14; and 71418, supra note 14. With respect to Nasdaq, routing of options orders is permitted into NOM from BX and Phlx, into Phlx from NOM and BX, and into BX from NOM and Phlx. See id. \16\ See Phlx Notice, supra note 5, at 96062; Nasdaq Notice, supra note 5, at 96088; and BX Notice, supra note 5, at 96101. In the case of Nasdaq, Nasdaq proposes to permit NES to route options orders into NOM. See Nasdaq Notice, supra note 5, at 96087. --------------------------------------------------------------------------- III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule changes, each as modified by Amendment No. 1, [[Page 10845]] are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\17\ Specifically, the Commission finds that the proposed rule changes are consistent with Section 6(b)(1) of the Act,\18\ which requires, among other things, that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act, and to comply and enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulation thereunder, and the rules of the exchange. Further, the Commission finds that the proposed rule changes are consistent with Section 6(b)(5) of the Act,\19\ 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 regulating, clearing, settling, and 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. Section 6(b)(5) also requires that the rules of an exchange not be designed to permit unfair discrimination among customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \17\ In approving these proposed rule changes, the Commission has considered the proposed rules' impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). \18\ 15 U.S.C. 78f(b)(1). \19\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- For each of the ISE Exchanges, NES will operate as a facility that provides outbound options routing from the respective ISE Exchange to other market centers, subject to certain conditions.\20\ The operation of NES as a facility of each of the ISE Exchanges providing outbound routing services will be subject to oversight by each of the ISE Exchanges, respectively, as well as Commission oversight. Each of the ISE Exchanges will be responsible for ensuring that NES's outbound options routing services are operated consistent with Section 6 of the Act and ISE, ISE Gemini, and ISE Mercury's rules, respectively. In addition, the ISE Exchanges must each file with the Commission rule changes and fees relating to their outbound options routing services provided by NES. --------------------------------------------------------------------------- \20\ See ISE Exchange Routing Orders, supra note 4. --------------------------------------------------------------------------- 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, each NASDAQ Exchange previously implemented limitations and conditions on its affiliation with NES to permit the Exchange to accept inbound options orders that NES routes in its capacity as a facility of the other NASDAQ Exchanges.\21\ Again recognizing the concern previously expressed by the Commission, each NASDAQ Exchange now proposes that it be permitted \22\ to accept inbound options orders that NES routes in its capacity as a facility of ISE, ISE Gemini, and ISE Mercury, subject to those same limitations and conditions, as follows: \23\ --------------------------------------------------------------------------- \21\ See supra note 15 and accompanying text. \22\ In the case of Nasdaq, the Exchange requests that NOM be permitted to accept inbound options orders that NES routes in its capacity as a facility of the ISE Exchanges. See Nasdaq Notice, supra note 5, at 96087. \23\ See Phlx Notice, supra note 5, at 96061; Nasdaq Notice, supra note 5, at 96087-88; BX Notice, supra note 5, at 96101. ---------------------------------------------------------------------------First, each NASDAQ Exchange and the Financial Industry Regulatory Authority (``FINRA'') will maintain a Regulatory Services Agreement (``RSA''), as well as an agreement pursuant to Rule 17d-2 under the Act (``17d-2 Agreement'').\24\ Pursuant to the RSA and the 17d-2 Agreement, FINRA will be allocated regulatory responsibilities to review NES's compliance with certain Nasdaq, BX, and Phlx rules, respectively.\25\ Pursuant to the RSA, however, each Exchange retains ultimate responsibility for enforcing its rules with respect to NES. --------------------------------------------------------------------------- \24\ 17 CFR 240.17d-2. \25\ NES is also subject to independent oversight by FINRA, its designated examining authority, for compliance with financial responsibility requirements. --------------------------------------------------------------------------- Second, FINRA will monitor NES for compliance with each of the Exchange's trading rules, and will collect and maintain certain related information.\26\ --------------------------------------------------------------------------- \26\ Pursuant to the RSA, both FINRA and the respective Exchange will collect and maintain all alerts, complaints, investigations and enforcement actions in which NES (in its capacity as a facility of each of the ISE Exchanges routing orders to the Exchange) is identified as a participant that has potentially violated applicable Commission or Exchange rules. The respective Exchange and FINRA will 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. See Nasdaq Notice, supra note 5, at 96088 n.12; BX Notice, supra note 5, at 96101 n.12; and Phlx Notice, supra note 5, at 96061 n.12. Each of the NASDAQ Exchanges state that the RSA functions in this manner in connection with NES routing in its capacity as a facility of the other NASDAQ Exchanges, and each now seeks to permit an inbound routing relationship with the ISE Exchanges pursuant to the same conditions. See Phlx Notice, supra note 5, at 96061-62 & n.12; Nasdaq Notice, supra note 5, at 96088 & n.12; and BX Notice, supra note 5, at 96101 & n.12. --------------------------------------------------------------------------- Third, FINRA will provide a report to each 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 the respective Exchange's, rules, and (ii) lists all investigations that identify NES as a participant that has potentially violated Commission, or the respective Exchange's, rules. Fourth, Nasdaq, BX, and Phlx each have in place a rule that 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 routing to the Exchange.\27\ --------------------------------------------------------------------------- \27\ See Nasdaq Rule 2160(c); Phlx Rule 985(c)(2); BX Rule 2140(c). The NASDAQ Exchange rules each state that ``NASDAQ OMX Group, Inc.'' shall establish and maintain these procedures and controls. Nasdaq, Inc. was formerly known as NASDAQ OMX Group, Inc. See Securities Exchange Act Release No. 75421 (July 10, 2015), 80 FR 42136 (July 16, 2015) (SR-BSECC-2015-001; SR-BX-2015-030; SR-NASDAQ- 2015-058; SR-Phlx-2015-46; SR-SCCP-2015-01). --------------------------------------------------------------------------- Each of the NASDAQ Exchanges has stated that it has met all of the above-listed conditions in connection with NES routing in its capacity as a facility of the other NASDAQ Exchanges, and will comply with these conditions in connection with NES routing in its capacity as a facility of the ISE Exchanges. By meeting such conditions, each NASDAQ Exchange believes that it has set up mechanisms that protect the independence of the Exchange's regulatory responsibility with respect to NES, and has demonstrated that NES cannot use any information advantage it may have because of its affiliation with each NASDAQ Exchange.\28\ --------------------------------------------------------------------------- \28\ See Nasdaq Notice, supra note 5, at 96088; Phlx Notice, supra note 5, at 96061-62; BX Notice, supra note 5, at 96101. --------------------------------------------------------------------------- In the past, the Commission has expressed concern that the affiliation of an exchange with one of its members raises potential conflicts of interest and the potential for unfair competitive advantage.\29\ Although the Commission [[Page 10846]] continues to be concerned about potential unfair competition and conflicts of interest between an exchange's self-regulatory obligations and its commercial interest when the exchange is affiliated with one of its members, for the reasons discussed below, the Commission believes that it is consistent with the Act to permit NES, in its capacity as a facility of each of the ISE Exchanges, to route options orders inbound to each of the NASDAQ Exchanges, subject to the limitations and conditions described above.\30\ --------------------------------------------------------------------------- \29\ See, e.g., Securities Exchange Act Release Nos. 54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) (SR-NASDAQ-2006-006) (order approving Nasdaq's proposal to adopt Nasdaq Rule 2140, restricting affiliations between Nasdaq and its members); 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (order approving the combination of the New York Stock Exchange, Inc. and Archipelago Holdings, Inc.); 58673 (September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-62 and SR-NYSE-2008-60) (order approving the combination of NYSE Euronext and the American Stock Exchange LLC); 59135 (December 22, 2008), 73 FR 79954 (December 30, 2008) (SR-ISE-2008-85) (order approving the purchase by ISE Holdings of an ownership interest in Direct Edge Holdings LLC); 59281 (January 22, 2009), 74 FR 5014 (January 28, 2009) (SR-NYSE-2008-120) (order approving a joint venture between NYSE and BIDS Holdings L.P.); 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10-182) (order granting the exchange registration of BATS Exchange, Inc.); 61698 (March 12, 2010), 75 FR 13151 (March 18, 2010) (File Nos. 10-194 and 10-196) (order granting the exchange registration of EDGX Exchange, Inc. and EDGA Exchange, Inc.); and 62716 (August 13, 2010), 75 FR 51295 (August 19, 2010) (File No. 10- 198) (order granting the exchange registration of BATS-Y Exchange, Inc.). \30\ The Commission notes that these limitations and conditions are consistent with those previously approved by the Commission for other exchanges. See, e.g., Securities Exchange Act Release Nos. 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030) (order approving rules relating to the establishment of the BX options market) at 39281-39282; 69233, supra note 12; 69232, supra note 14; 69229, supra note 14; and the ISE Exchange Routing Orders, supra note 4. --------------------------------------------------------------------------- The Commission believes that these limitations and conditions will mitigate its concerns about potential conflicts of interest and unfair competitive advantage. In particular, the Commission believes that a non-affiliated SRO's oversight of NES,\31\ combined with a non- affiliated SRO's monitoring of NES's compliance with each of the NASDAQ Exchange's rules and quarterly reporting to each NASDAQ Exchange, will help to protect the independence of Nasdaq's, BX's, and Phlx's regulatory responsibilities with respect to NES. The Commission also believes that the Exchanges' rules are designed to ensure that NES cannot use any information advantage it may have because of its affiliation with Nasdaq, BX, or Phlx, respectively.\32\ --------------------------------------------------------------------------- \31\ This oversight will be accomplished through the 17d-2 Agreement and the RSA. \32\ See supra note 27 and accompanying text. --------------------------------------------------------------------------- V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\33\ that the proposed rule changes (SR-BX-2016-068; SR-NASDAQ- 2016-169; SR-Phlx-2016-120), each as modified by their respective Amendment No. 1, be, and hereby is, approved. --------------------------------------------------------------------------- \33\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\34\ --------------------------------------------------------------------------- \34\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-02993 Filed 2-14-17; 8:45 am] BILLING CODE 8011-01-P
![10844 Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
or send an email to: PRA_Mailbox@ 20, 2016, each of the NASDAQ Affiliated Exchanges.13 Thus, NES is an
sec.gov. Comments must be submitted to Exchanges filed an Amendment No. 1 to affiliate of the NASDAQ Exchanges, as
OMB within 30 days of this notice. its respective proposed rule change. The well as an affiliate of the ISE Exchanges.
Dated: February 8, 2017. proposed rule changes, each as modified Absent an effective filing, the rules of
Eduardo A. Aleman,
by Amendment No. 1 thereto, were Nasdaq, BX, and Phlx would prohibit
published for comment in the Federal NES from being a member of each of
Assistant Secretary.
Register on December 29, 2016.5 The those Exchanges. Today, NES is a
[FR Doc. 2017–02974 Filed 2–14–17; 8:45 am]
Commission received no comments on member of each of the NASDAQ
BILLING CODE 8011–01–P the proposals. This order approves the Exchanges and performs certain limited
proposed rule changes, as modified by activities for each, pursuant to effective
their respective Amendment No. 1s. filings pursuant to Section 19(b).14
SECURITIES AND EXCHANGE
Among other activities, each of the
COMMISSION II. Background
NASDAQ Exchanges accepts options
[Release No. 34–79996; File Nos. SR–BX– Phlx Rule 985(b)(i)(A) prohibits Phlx orders routed inbound from each of the
2016–068; SR–NASDAQ–2016–169; SR– or any entity with which it is affiliated other NASDAQ Exchanges pursuant to
Phlx–2016–120] from, directly or indirectly, acquiring or certain limitations and conditions.15
maintaining an ownership interest in, or With the current proposed rule changes,
Self-Regulatory Organizations; engaging in a business venture with, an the NASDAQ Exchanges seek approval
NASDAQ BX, Inc.; The Nasdaq Stock Exchange member or an affiliate of an to permit NES to also route options
Market LLC; NASDAQ PHLX LLC; Exchange member in the absence of an orders inbound from the ISE Exchanges
Order Granting Approval of Proposed effective filing under Section 19(b) of pursuant to those same limitations and
Rule Changes, as Modified by the Act.6 Nasdaq’s and BX’s rules conditions.16
Amendment No. 1s, To Accept Orders include similar prohibitions.7 NES is a
Routed Inbound From the International registered broker-dealer that is a III. Discussion and Commission
Stock Exchange, LLC, ISE Gemini, member of NOM,8 BX,9 and Phlx,10 and Findings
LLC, and ISE Mercury, LLC, by Nasdaq currently provides to members of each, After careful review, the Commission
Execution Services, LLC optional routing services to other finds that the proposed rule changes,
February 9, 2017. markets.11 NES is owned by Nasdaq, each as modified by Amendment No. 1,
Inc.,12 which also owns all of the
I. Introduction (SR–NASDAQ–2013–028) (order approving a
today approving these proposed rules changes. See proposed rule change to make permanent a pilot
On December 9, 2016, NASDAQ BX, program to permit NASDAQ to accept inbound
Securities Exchange Act Release Nos. 79994
Inc. (‘‘BX’’), The NASDAQ Stock Market (February 9, 2017); and 79995 (February 9, 2017) orders routed by NES from the BX Equities market
LLC (‘‘Nasdaq’’), and NASDAQ PHLX (‘‘ISE Exchange Routing Orders’’). and PSX) at 19352 n.6 and accompanying text.
13 See Securities Exchange Act Release No. 78119
LLC (‘‘Phlx’’ and, each of BX, Nasdaq, 5 See Securities Exchange Act Release Nos. 79661
(December 22, 2016), 81 FR 96100 (SR–BX–2016– (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR–
and Phlx a ‘‘NASDAQ Exchange’’ or ISE–2016–11; SR–ISE Gemini–2016–05; SR–ISE
068) (‘‘BX Notice’’); 79662 (December 22, 2016), 81
‘‘Exchange’’) filed with the Securities FR 96087 (SR–NASDAQ–2016–169) (‘‘Nasdaq Mercury–2016–10) (order approving a proposed
and Exchange Commission Notice’’); and 79660 (December 22, 2016), 81 FR rule change relating to Nasdaq, Inc.’s acquisition of
(‘‘Commission’’), pursuant to Section 96060 (SR–Phlx–2016–120) (‘‘Phlx Notice’’). ISE, ISE Gemini, and ISE Mercury).
14 See, e.g., supra note 11; and Securities
19(b)(1) of the Securities Exchange Act 6 15 U.S.C. 78s(b). Phlx Rule 985 also prohibits a
Exchange Act Release Nos. 69233, supra note 12;
of 1934 (‘‘Act’’),1 and Rule 19b–4 Phlx member from being or becoming an affiliate of
Phlx, or an affiliate of an entity affiliated with Phlx, 69232 (March 25, 2013), 78 FR 19342 (March 29,
thereunder,2 proposed rule changes to in the absence of an effective filing under Section 2013) (SR–BX–2013–013) (order approving a
permit BX, Phlx, and The NASDAQ 19(b) of the Act. See Phlx Rule 958(b)(i)(B). proposed rule change to make permanent a pilot
program to permit BX to accept inbound orders
Options Market LLC (‘‘NOM’’) 3 to 7 Pursuant to Nasdaq Rule 2160(a): ‘‘(1) Nasdaq or
routed by NES from PSX); 69229 (March 25, 2013),
accept options orders routed inbound any entity with which it is affiliated shall not,
78 FR 19337 (March 29, 2013) (SR–Phlx–2013–15)
directly or indirectly, acquire or maintain an
from the International Stock Exchange, ownership interest in, or engage in a business
(order approving a proposed rule change to make
LLC (‘‘ISE’’), ISE Gemini, LLC (‘‘ISE permanent a pilot program to permit PSX to accept
venture with, a Nasdaq member or an affiliate of a
inbound orders routed by NES from BX); 71416
Gemini’’), and ISE Mercury, LLC (‘‘ISE Nasdaq member in the absence of an effective filing
(January 28, 2014), 79 FR 6244 (February 3, 2014)
Mercury’’ and, together with ISE and under Section 19(b) of the Act; and (2) a Nasdaq
(SR–Phlx–2014–05) (notice of filing and immediate
member shall not be or become an affiliate of
ISE Gemini, the ‘‘ISE Exchanges’’) by Nasdaq, or an affiliate of an entity affiliated with
effectiveness of proposed rule change to permit
Nasdaq Execution Services, LLC Phlx to receive inbound orders in options routed
Nasdaq, in the absence of an effective filing under
through NES from NOM and BX); 71420 (January
(‘‘NES’’), an affiliate of both the Section 19(b) of the Act.’’
28, 2014), 79 FR 6256 (February 3, 2014)(SR–BX–
NASDAQ Exchanges and the ISE Pursuant to BX Rule 2140(a): ‘‘(1) [BX] or any 2014–004) (notice of filing and immediate
Exchanges (the NASDAQ Exchanges, entity with which it is affiliated shall not, directly effectiveness of proposed rule change to permit BX
or indirectly, acquire or maintain an ownership to receive inbound orders in options routed through
together with the ISE Exchanges, the interest in, or engage in a business venture with, [a NES from NOM and Phlx); and 71418 (January 28,
‘‘Affiliated Exchanges’’).4 On December BX] member or an affiliate of [a BX] member in the 2014), 79 FR 6262 (February 3, 2014) (SR–
absence of an effective filing under Section 19(b) of NASDAQ–2014–008) (notice of filing and
1 15 U.S.C. 78s(b)(1). the Act; and (2) [a BX] member shall not be or immediate effectiveness of proposed rule change to
2 17 CFR 240.19b–4. become an affiliate of [BX], or an affiliate of an permit NOM to receive inbound orders in options
3 NOM is a facility of Nasdaq. See Nasdaq entity affiliated with [BX], in the absence of an routed through NES from BX and Phlx).
effective filing under Section 19(b) of the Act.’’
Options Rules, Chapter I, Section 1(a)(28). 8 See Nasdaq Notice, supra note 5, at 96087.
15 See Securities Exchange Act Release Nos.
4 The ISE Exchanges submitted related proposed 71416, supra note 14; 71420, supra note 14; and
9 See BX Notice, supra note 5, at 96100.
rule changes that, among other things, would 71418, supra note 14. With respect to Nasdaq,
mstockstill on DSK3G9T082PROD with NOTICES
10 See Phlx Notice, supra note 5, at 96061.
permit each ISE Exchange to use NES to route routing of options orders is permitted into NOM
11 See Phlx Rule 1080(m)(iii); Nasdaq Options from BX and Phlx, into Phlx from NOM and BX,
options orders outbound to away markets. See
Securities Exchange Act Release Nos. 79665 Rules, Chapter VI, Section 11(e); and BX Options and into BX from NOM and Phlx. See id.
(December 22, 2016), 81 FR 96092 (December 29, Rules, Chapter VI, Section 11(e). See also Phlx 16 See Phlx Notice, supra note 5, at 96062; Nasdaq
2016) (SR–ISE–2016–27); 79664 (December 22, Notice, supra note 5, at 96061; Nasdaq Notice, Notice, supra note 5, at 96088; and BX Notice,
2016), 81 FR 96136 (December 29, 2016) (SR– supra note 5, at 96087; and BX Notice, supra note supra note 5, at 96101. In the case of Nasdaq,
ISEGemini–2016–16); and 79663 (December 22, 5, at 96100. Nasdaq proposes to permit NES to route options
2016), 81 FR 96089 (December 29, 2016) (SR– 12 See Securities Exchange Act Release No. 69233 orders into NOM. See Nasdaq Notice, supra note 5,
ISEMercury–2016–22). The Commission is also (March 25, 2013), 78 FR 19352 (March 29, 2013) at 96087.
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![10846 Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
continues to be concerned about V. Conclusion II. Self-Regulatory Organization’s
potential unfair competition and Statement of the Purpose of, and
conflicts of interest between an It is therefore ordered, pursuant to Statutory Basis for, the Proposed Rule
exchange’s self-regulatory obligations Section 19(b)(2) of the Act,33 that the Change
and its commercial interest when the proposed rule changes (SR–BX–2016–
In its filing with the Commission, the
exchange is affiliated with one of its 068; SR–NASDAQ–2016–169; SR–Phlx–
Exchange included statements
members, for the reasons discussed 2016–120), each as modified by their concerning the purpose of and basis for
below, the Commission believes that it respective Amendment No. 1, be, and the proposed rule change and discussed
is consistent with the Act to permit hereby is, approved. any comments it received on the
NES, in its capacity as a facility of each For the Commission, by the Division of proposed rule change. The text of these
of the ISE Exchanges, to route options Trading and Markets, pursuant to delegated statements may be examined at the
orders inbound to each of the NASDAQ authority.34 places specified in Item IV below. The
Exchanges, subject to the limitations Eduardo A. Aleman, Exchange has prepared summaries, set
and conditions described above.30 forth in sections A, B, and C below, of
Assistant Secretary.
the most significant aspects of such
The Commission believes that these [FR Doc. 2017–02993 Filed 2–14–17; 8:45 am]
statements.
limitations and conditions will mitigate BILLING CODE 8011–01–P
its concerns about potential conflicts of A. Self-Regulatory Organization’s
interest and unfair competitive Statement of the Purpose of, and
advantage. In particular, the SECURITIES AND EXCHANGE Statutory Basis for, the Proposed Rule
Commission believes that a non- COMMISSION Change
affiliated SRO’s oversight of NES,31 1. Purpose
combined with a non-affiliated SRO’s [Release No. 34–80003; File No. SR–CBOE– The Exchange proposes to amend its
monitoring of NES’s compliance with 2017–011] Marketing Fee program, effective
each of the NASDAQ Exchange’s rules February 1, 2017. By way of background
and quarterly reporting to each Self-Regulatory Organizations; the Marketing Fee is assessed on certain
NASDAQ Exchange, will help to protect Chicago Board Options Exchange, transactions of Market-Makers resulting
the independence of Nasdaq’s, BX’s, Incorporated; Notice of Filing and from (i) customer orders from payment
and Phlx’s regulatory responsibilities Immediate Effectiveness of a Proposed accepting firms, or (ii) customer orders
with respect to NES. The Commission Rule Change To Amend the Fees that have designated a ‘‘Preferred
also believes that the Exchanges’ rules Schedule Market-Maker’’ (‘‘PMM’’) under CBOE
are designed to ensure that NES cannot Rule 8.13. The funds collected via this
February 9, 2017.
use any information advantage it may Marketing Fee are then put into pools
have because of its affiliation with Pursuant to Section 19(b)(1) of the controlled by DPMs and PMMs. The
Nasdaq, BX, or Phlx, respectively.32 Securities Exchange Act of 1934 (the DPM or PMM controlling a certain pool
‘‘Act’’),1 and Rule 19b–4 thereunder,2 of funds can then determine the order
Nasdaq’s proposal to adopt Nasdaq Rule 2140, notice is hereby given that on January flow provider(s) to which the funds
restricting affiliations between Nasdaq and its 27, 2017, Chicago Board Options should be directed in order to encourage
members); 53382 (February 27, 2006), 71 FR 11251 such order flow provider(s) to send
(March 6, 2006) (SR–NYSE–2005–77) (order
Exchange, Incorporated (the ‘‘Exchange’’
approving the combination of the New York Stock or ‘‘CBOE’’) filed with the Securities orders to the Exchange. On each order,
Exchange, Inc. and Archipelago Holdings, Inc.); and Exchange Commission (the an order flow provider can designate the
58673 (September 29, 2008), 73 FR 57707 (October ‘‘Commission’’) the proposed rule Preferred Market-Maker to which the
3, 2008) (SR–Amex–2008–62 and SR–NYSE–2008– funds generated from the order sent by
60) (order approving the combination of NYSE change as described in Items I, II, and
Euronext and the American Stock Exchange LLC); III below, which Items have been the order flow provider should be
59135 (December 22, 2008), 73 FR 79954 (December prepared by the Exchange. The allocated (a ‘‘Preferred order’’).
30, 2008) (SR–ISE–2008–85) (order approving the The Exchange proposes to expand the
purchase by ISE Holdings of an ownership interest Commission is publishing this notice to Marketing Fee program to Lead Market-
in Direct Edge Holdings LLC); 59281 (January 22, solicit comments on the proposed rule Makers (‘‘LMMs’’). Under the proposed
2009), 74 FR 5014 (January 28, 2009) (SR–NYSE– change from interested persons.
2008–120) (order approving a joint venture between rule change, LMMs would be given
NYSE and BIDS Holdings L.P.); 58375 (August 18, I. Self-Regulatory Organization’s access to the Marketing Fee funds
2008), 73 FR 49498 (August 21, 2008) (File No. 10–
Statement of the Terms of Substance of generated from those orders on which
182) (order granting the exchange registration of the LMM was preferred (i.e., designated)
BATS Exchange, Inc.); 61698 (March 12, 2010), 75 the Proposed Rule Change
FR 13151 (March 18, 2010) (File Nos. 10–194 and and those funds would be collected by
10–196) (order granting the exchange registration of The Exchange proposes to amend its CBOE and disbursed by CBOE according
EDGX Exchange, Inc. and EDGA Exchange, Inc.); Fees Schedule. The text of the proposed to the instructions of the LMM. The
and 62716 (August 13, 2010), 75 FR 51295 (August Exchange notes that expanding the
19, 2010) (File No. 10–198) (order granting the
rule change is also available on the
exchange registration of BATS–Y Exchange, Inc.). Exchange’s Web site (http:// Marketing Fee program to LMMs allows
30 The Commission notes that these limitations www.cboe.com/AboutCBOE/ LMMs to amass a pool of funds with
and conditions are consistent with those previously CBOELegalRegulatoryHome.aspx), at which to use to incent order flow
approved by the Commission for other exchanges. providers to send order flow to the
See, e.g., Securities Exchange Act Release Nos. the Exchange’s Office of the Secretary,
Exchange. This increased order flow
mstockstill on DSK3G9T082PROD with NOTICES
67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) and at the Commission’s Public
(SR–BX–2012–030) (order approving rules relating Reference Room. would benefit all market participants on
to the establishment of the BX options market) at the Exchange. The Exchange also notes
39281–39282; 69233, supra note 12; 69232, supra that as with DPMs and PMMs, an LMM
note 14; 69229, supra note 14; and the ISE
Exchange Routing Orders, supra note 4.
33 15 U.S.C. 78s(b)(2). may have access to the Marketing Fee
31 This oversight will be accomplished through
34 17 CFR 200.30–3(a)(12). funds generated from a Preferred order
the 17d–2 Agreement and the RSA. 1 15 U.S.C. 78s(b)(1). regardless of whether that LMM has an
32 See supra note 27 and accompanying text. 2 17 CFR 240.19b–4. appointment in the class in which the
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Document Created: 2017-02-15 00:54:47
Document Modified: 2017-02-15 00:54:47
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 82 FR 10844 |
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