82 FR 28722 - Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Quote Mitigation

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 28722-28724]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-13105]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80974; File No. SR-MRX-2017-09]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Quote 
Mitigation

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 15, 2017, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``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 MRX Rule 804(h), regarding quote 
mitigation.
    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 Exchange proposes to amend MRX Rule 804, entitled ``Market 
Maker Quotations,'' to specifically amend Rule 804(h) which addresses 
the Exchange's quote traffic mitigation plan to adopt a similar quote 
mitigation plan to that of NASDAQ PHLX LLC (``Phlx'').
    ISE Mercury, LLC (now known as MRX) implemented its quote 
mitigation plan in 2013, at the time it filed its Form 1 
application.\3\ At that time, MRX adopted the same quote mitigation 
plan that was in effect on ISE.\4\
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    \3\ See Securities Exchange Release Act. No.76998 (January 29, 
2016), 81 FR 6066 (February 4, 2016) (File No. 10-221) (In the 
Matter of the Application of ISE Mercury, LLC for Registration as a 
National Securities Exchange; Findings, Opinion, and Order of the 
Commission). This pilot has since been extended several times.
    \4\ See Securities Exchange Release Act. No. 55161 (February 1, 
2007), 72 FR 4754 (January 24, 2007) (SR-ISE-2006-62) (Order 
Granting Approval to Proposed Rule Change as Modified by Amendment 
Nos. 1 and 2 Thereto, To Implement a Penny Pilot Program To Quote 
Certain Options in Pennies).
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    MRX Rule 804(h) provides that MRX shall utilize a mechanism so that 
newly-received quotations and other changes to the Exchange's best bid 
and offer are not disseminated for a period of up to,

[[Page 28723]]

but not more than one second. With the upcoming planned migration to 
INET,\5\ the Exchange proposes to utilize a plan similar to that of 
Phlx for quote mitigation. The Exchange proposes to amend Rule 804(h) 
to adopt language similar to Phlx. Since 2007, Phlx has operated on 
INET, the same system that MRX will be migrating to utilize.
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    \5\ See SR-MRX-2017-02 (not yet published). The Commission notes 
that MRX-2017-02 was published for comment in the Federal Register 
on June 5, 2017. See Securities Exchange Act Release No. 80815 (May 
30, 2017), 82 FR 25827.
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    Phlx Rule 1082(a)(ii)(C) sets forth the conditions under which Phlx 
disseminates updated quotations based on changes in the Exchange's 
disseminated price and/or size. Phlx disseminates an updated bid and 
offer price, together with the size associated with such bid and offer, 
when: (1) Phlx's disseminated bid or offer price increases or 
decreases; (2) the size associated with Phlx's disseminated bid or 
offer decreases; or (3) the size associated with Phlx's bid (offer) 
increases by an amount greater than or equal to a percentage (never to 
exceed 20%) \6\ of the size associated with the previously disseminated 
bid (offer). Such percentage, which would never exceed 20%, would be 
determined on an issue-by-issue basis by the Exchange and announced to 
membership via an Exchange circular. The percentage size increase 
necessary to give rise to a refreshed quote may vary from issue to 
issue, depending, without limitation, on the liquidity, average volume, 
and average number of quotations submitted in the issue. The mitigation 
would apply to all options traded on MRX.
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    \6\ Phlx has set its percentage to 10%. See http://www.nasdaqtrader.com/content/phlxmemos/2007/jan/0197-07.pdf.
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    The Exchange will not be adopting Phlx Rule 1082(a)(ii)(C)(4). This 
functionality is not necessary on INET. Phlx adopted 1082(a)(ii)(C)(4) 
when it was not operating on INET, with its subsequent replatform to 
INET functionality, 1082(a)(ii)(C)(4) was no longer necessary because 
of the real-time features which exist on INET. The INET functionality 
rendered the rule text in 1082(a)(ii)(C)(4) as unnecessary.
    The Exchange will begin a system migration to Nasdaq INET in Q3 of 
2017.\7\ The migration will be on a symbol by symbol basis as specified 
by the Exchange in a notice to Members. The Exchange is proposing to 
implement this rule change once all symbols have migrated to INET.
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    \7\ See SR-MRX-2017-02 (not yet published). The Commission notes 
that MRX-2017-02 was published for comment in the Federal Register 
on June 5, 2017. See Securities Exchange Act Release No. 80815 (May 
30, 2017), 82 FR 25827.
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    Upon completion of the migration to INET, MRX will set an initial 
percentage of 3% to be applied to all issues, which will be announced 
in an Options Trader Alert. MRX will continue to monitor the quote 
activity on the market and would not notify participants of any 
incremental increase in the size of the Exchange's quote to be 
disseminated to OPRA.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ 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, 
by reducing the number of options quotations required to be submitted 
to OPRA and, therefore, mitigating the Exchange's quote message traffic 
and capacity. By adopting a quote mitigation plan similar to Phlx, the 
Exchange will continue to mitigate quotes and monitor its quote 
capacity, as is the case today. While the Phlx method differs from that 
of MRX's rule, the Exchange believes that Phlx's method today 
successfully mitigates quotes on that market. In addition, MRX desires 
to adopt a similar mitigation as currently utilized by its affiliated 
market, as it will operate on the same architecture.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Phlx quote mitigation process has been in place since 2007. 
Phlx is operating on the INET system today, the same system that MRX 
will migrate to for its operating system. The Exchange believes that 
Phlx's quote mitigation process has successfully controlled Phlx's 
quote capacity. The Exchange believes that it is reasonable to utilize 
a similar process as Phlx to mitigate quotes for MRX given the system 
architecture which will be utilized on MRX with the upcoming migration. 
Additionally, Nasdaq, Inc., a common parent to Phlx and MRX, has 
experience with this quote mitigation strategy on INET. The Exchange 
has selected to mitigate MRX at 3% to start and determine if the 
percentage will need to be adjusted thereafter. The Exchange has 
selected to mitigate MRX at 3% initially because, unlike Phlx, which is 
a mature market with various auction offerings and higher volumes, MRX 
is a not as large in volume and has fewer functional offerings, e.g., 
complex orders and floor trading. The Exchange notes that it will 
continue to monitor quotes on MRX and make adjustments as necessary.

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 Exchange proposes to 
mitigate all options trading on MRX. All options exchanges have a quote 
mitigation process in place in connection with their participation in 
the Penny Pilot Program.

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 \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 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

[[Page 28724]]

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-2017-09 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-2017-09. 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-MRX-2017-09 and should be 
submitted on or before July 14, 2017.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-13105 Filed 6-22-17; 8:45 am]
BILLING CODE 8011-01-P