82 FR 28716 - Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Chapter 19

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 120 (June 23, 2017)

[Federal Register Volume 82, Number 120 (Friday, June 23, 2017)]
[Notices]
[Pages 28716-28718]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-13096]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80965; File No. SR-MRX-2017-07]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Chapter 19

June 19, 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 June 6, 2017, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II 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 19 to notify members of a 
systems issue related to allocations made pursuant to Supplementary 
Material .02(a)-(b) to Rule 1901.
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Chapter 19 to 
notify members of a systems issue related to allocations made pursuant 
to Supplementary Material .02(a)-(b) to Rule 1901 (``Flash auction''). 
Pursuant to Supplementary Material .02 to Rule 1901, when the automatic 
execution of an incoming order would result in an impermissible Trade 
Through,\3\ such order is exposed at the current national best bid or 
offer (``NBBO'') to all members, and members are given an opportunity 
to enter responses up to the size of the order being exposed. 
Supplementary Material .02(a)-(b) to Rule 1901 provides that interest 
executed in the Flash auction is allocated in price priority, and, at 
the same price, Priority Customer orders will be executed first in time 
priority and then all other interest (orders, quotes, and responses) 
will be allocated pro-rata based on size. Currently, however, the 
system is erroneously providing the Primary Market Maker (``PMM'') an 
enhanced allocation after Priority Customer Orders on the book, and 
ahead of Responses, Professional Orders, and other market maker quotes. 
Specifically, the PMM is being erroneously given participation rights 
in a Flash auction pursuant to Supplementary Material .01(b)-(c) to 
Rule 713, which results in the PMM receiving a potentially larger share 
of the order to be executed. That is, if the PMM is quoting at the best 
price and the conditions in Supplementary Material .01(b)-(c) to Rule 
713 are satisfied, the PMM is given participation rights equal to the 
greater of (i) the proportion of the total size at the best price 
represented by the size of its quote, or (ii) sixty percent (60%) of 
the contracts to be allocated if there is only one (1) other 
Professional Order or market maker quotation at the best price, forty 
percent (40%) if there are two (2) other Professional Orders and/or 
market maker quotes at the best price, and thirty percent (30%) if 
there are more than two (2) other Professional Orders and/or market 
maker quotes at the best price. Alternatively, orders for five (5) 
contracts or fewer will be executed first by the PMM, if he is present 
at that price.
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    \3\ ``Trade-Through'' means a transaction in an option series at 
a price that is lower than a Protected Bid or higher than a 
Protected Offer. See Rule 1900(q).
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    This enhanced allocation was intended for the PMM when orders are 
allocated in the regular market, and not for the allocation of an order 
exposed pursuant to Supplementary Material .02 to Rule 1901 (i.e., the 
Flash auction). The Exchange has notified members and the Commission of 
this systems issue pursuant to Regulation SCI. The purpose of the 
proposed rule change is to provide additional notification to members 
by noting in Chapter 19 of the Exchange's rulebook the discrepancy 
between the allocation described in the rule and the allocation 
currently being given by the Exchange's trading system. The Exchange is 
currently migrating its trading system to the Nasdaq INET architecture, 
and the allocation issue will be resolved as symbols start trading on 
INET in Q3 2017. In the interim, the Exchange proposes to add language 
to Chapter 19 to notify members that until such time as symbols are 
migrated to INET, Flash auction allocations pursuant to Supplementary 
Material .02(a)-(b) to Rule 1901 will not be provided as described in 
that rule. Instead, PMM quotes will be given a Flash auction allocation 
pursuant to Supplementary Material .01(b)-(c) to Rule 713 after 
Priority Customer Orders on the book, and ahead of Responses, 
Professional Orders, and other market maker quotes, until such time as 
symbols are migrated to the INET trading system. The Exchange believes 
that this language will reduce member confusion regarding how 
allocations will be processed prior to the resolution of this systems 
issue.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\4\

[[Page 28717]]

In particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\5\ because is designed to promote just and equitable principles of 
trade, remove impediments to and perfect the mechanisms of a free and 
open market and a national market system and, in general, to protect 
investors and the public interest.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is consistent 
with the protection of investors and the public interest because the 
proposed rule language more accurately reflects the way contracts will 
be allocated in the Flash auction until the systems issue is resolved. 
Due to a systems issue, allocations in the Flash auction do not take 
place in the manner described in Supplementary Material .02(a)-(b) to 
Rule 1901. The proposed rule change makes this clear in the Exchange's 
rules, and supplements notifications given to members and the 
Commission pursuant to Regulation SCI. While the Exchange intends to 
allocate contracts in the Flash auction as described in Supplementary 
Material .02(a)-(b) to Rule 1901, the Exchange is taking this temporary 
measure to ensure that members are properly notified of the current 
system behavior. The proposed rule change does not make any permanent 
changes to the Exchange's treatment of Flash auction allocations, which 
will be processed correctly when the Exchange migrates its trading 
system to INET in Q3 2017. The Exchange believes that the proposed rule 
change will promote just and equitable principles of trade since it is 
a temporary change, and is designed solely to provide additional 
notification and clarity to members of the Flash auction allocation 
issue. The Exchange intends to amend the manner in which the system 
operates to conform to the current rule text as symbols migrate to INET 
in Q3 2017.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\6\ the Exchange does 
not believe that the proposed rule change will impose any burden on 
intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
rule change is designed to more accurately reflect the way the trading 
system allocates contracts in the Flash auction today, and is not 
intended to be a permanent rule of the Exchange. The Flash auction 
allocation will be corrected with the migration of the Exchange to INET 
technology, and the proposed rule change is being filed solely to 
provide additional notice to members in the interim. The proposed rule 
change is therefore not designed to impose any significant burden on 
competition.
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    \6\ 15 U.S.C. 78f(b)(8).
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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 \7\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 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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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) \9\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. In its filing with the Commission, the Exchange 
requests that the Commission waive the 30-day operative delay. The 
Exchange represents that it filed the proposed rule change to provide 
additional notice to members concerning the current handling of orders 
and quotes executed in a Flash auction, and that waiver of the 
operative delay is consistent with the protection of investors and the 
public interest as it will allow the Exchange to immediately reflect in 
its rules the allocation methodology currently in place for Flash 
auctions. The Exchange further represents that the allocation 
methodology will be fixed once the Exchange migrates to the INET 
platform. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Therefore, the Commission designates the proposed rule change 
operative upon filing.\10\
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    \9\ 17 CFR 240.19b-4(f)(6)(iii).
    \10\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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-MRX-2017-07 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-MRX-2017-07. 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

[[Page 28718]]

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-MRX-2017-07 and should be 
submitted on or before July 14, 2017.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-13096 Filed 6-22-17; 8:45 am]
 BILLING CODE 8011-01-P