82 FR 12376 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Chapter VII, Section 6 of the Options Rules Relating to Market Maker Quotations

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 40 (March 2, 2017)

[Federal Register Volume 82, Number 40 (Thursday, March 2, 2017)]
[Notices]
[Pages 12376-12377]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-04035]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80107; File No. SR-NASDAQ-2017-020]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Chapter VII, Section 6 of the Options Rules Relating to Market 
Maker Quotations

February 24, 2017.
    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 February 14, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as 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 from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter VII, Section 6 of the 
Options Rules relating to Market Maker Quotations.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq is proposing to amend Chapter VII, Section 6 of the Options 
Rules relating to Market Maker Quotations to amend the quote spread 
parameters for in-the-money series where the market for the underlying 
security is wider than $5. Currently, Chapter VII, Section 6 states 
that options on equities (including Exchange-Traded Fund Shares), and 
index options must be quoted with a difference not to exceed $5 between 
the bid and offer regardless of the price of the bid, including before 
and during the opening. However, respecting in-the-money series where 
the market for the underlying security is wider than $5, the bid/ask 
differential may be as wide as the quotation for the underlying 
security on the primary market. Nasdaq proposes to change this 
provision so that, for in-the-money series where the market for the 
underlying security is wider than $5, the bid/ask differential may be 
as wide as the spread between the national best bid and offer 
(``NBBO'') in the underlying security.
    Nasdaq is proposing this change so that Chapter VII, Section 6 will 
be consistent with Rule 803(b)(4)(i) of the International Securities 
Exchange, LLC (``ISE'') in this regard.\3\ Pursuant to the acquisition 
of the indirect parent company of ISE by Nasdaq, Inc.,\4\ Nasdaq is 
migrating ISE platforms to Nasdaq platforms, and proposing consistent 
rules where appropriate. In addition to making the Nasdaq and ISE rules 
consistent with one another in this regard, Nasdaq believes that 
measuring the permissible width of a market maker's quote against the 
NBBO more accurately reflects the current trading environment where 
multiple trading venues contribute to the prevailing

[[Page 12377]]

market price of a security underlying an options series traded on 
Nasdaq.\5\
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    \3\ ISE Rule 803(b)(4)(i) rule provides that (i) the bid/offer 
differentials stated in subparagraph (b)(4) of this Rule shall not 
apply to in-the-money options series where the underlying securities 
market is wider than the differentials set forth above. For these 
series, the bid/ask differential may be as wide as the spread 
between the national best bid and offer in the underlying security.
    \4\ See Securities Exchange Act Release No. 78119 (June 21, 
2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11).
    \5\ For example, if the primary market for ABC has a quote of 
$65 (bid)-$73 (offer), Nasdaq market makers currently may quote in-
the-money option series on that security with a bid/offer 
differential of $8, even if other exchanges that trade ABC may 
collectively have a higher bid of $66 and a lower offer of $72. 
Under the proposed rule, Nasdaq market makers would be required to 
quote in-the-money option series on ABC with a bid/offer 
differential of no more than $6.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest. 
The proposed change adopts a bid/ask differential for market makers for 
in-the-money series where the market for the underlying security is 
wider than $5 that is consistent with ISE Rule 803(b)(4)(i). Nasdaq 
also believes that the proposal is consistent with the Act because 
measuring the permissible width of a market maker's quote against the 
NBBO more accurately reflects the current trading environment where 
multiple trading venues contribute to the prevailing market price of a 
security underlying an options series traded on Nasdaq.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed change will adopt 
the same requirement as ISE Rule 803(b)(4)(i), and will apply the same 
standard to all Market Makers for in-the-money series where the market 
for the underlying security is wider than $5.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \8\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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 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-2017-020 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2017-020. 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 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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-2017-020, and should 
be submitted on or before March 23, 2017.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-04035 Filed 3-1-17; 8:45 am]
BILLING CODE 8011-01-P