82_FR_34698 82 FR 34557 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Enhance Anti-Internalization Functionality

82 FR 34557 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Enhance Anti-Internalization Functionality

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 141 (July 25, 2017)

Page Range34557-34559
FR Document2017-15530

Federal Register, Volume 82 Issue 141 (Tuesday, July 25, 2017)
[Federal Register Volume 82, Number 141 (Tuesday, July 25, 2017)]
[Notices]
[Pages 34557-34559]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-15530]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81171; File No. SR-NASDAQ-2017-069]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Enhance Anti-Internalization Functionality

July 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 July 6, 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 VI, Section 10 of the rules 
of the NASDAQ Options Market (``NOM'') to enhance anti-internalization 
functionality.
    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.

[[Page 34558]]

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 enhance the anti-
internalization (``AIQ'') functionality provided to market makers on 
NOM by giving members the flexibility to choose to have this protection 
apply at the market participant identifier (``MPID'') level (i.e., 
existing functionality), at the Exchange account level, or at the 
member firm level. The Exchange believes that this enhancement will 
provide helpful flexibility for market making firms that wish to 
prevent trading against all quotes and orders entered by their firm, or 
Exchange account, instead of just quotes and orders that are entered 
under the same MPID.
    Currently, the Exchange provides mandatory AIQ functionality 
whereby quotes and orders entered by market makers using the same MPID 
are not executed against quotes and orders entered on the opposite side 
of the market by the same market maker using the same identifier.\3\ 
When a quote or order entered by a market maker would trade with other 
quotes or orders from the same market maker, the trading system cancels 
the oldest of the quotes or orders back to the entering party prior to 
execution.\4\ AIQ assists market makers in reducing trading costs from 
unwanted executions potentially resulting from the interaction of 
executable buy and sell trading interest from the same firm when 
performing the same market making function.
---------------------------------------------------------------------------

    \3\ See Chapter VI, Section 10.
    \4\ Id. A quote or order entered by a market maker only triggers 
AIQ when it would trade with other quotes or orders from the same 
market maker. Thus, an incoming quote or order entered by a market 
maker may interact with other interest with priority on the book 
prior to triggering AIQ.
---------------------------------------------------------------------------

    Today, this protection prevents market makers from trading against 
their own quotes and orders at the MPID level. The proposed enhancement 
to this functionality would allow members to choose to have this 
protection applied at the MPID level as implemented today, at the 
Exchange account level, or at the member firm level. If members choose 
to have this protection applied at the Exchange account level, AIQ 
would prohibit quotes and orders from different MPIDs associated with 
the same Exchange account from trading against one another. Similarly, 
if the members choose to have this protection applied at the member 
firm level, AIQ would prohibit quotes and orders from different MPIDs 
within the member firm from trading against one another. Members that 
do not select to have this protection applied at the Exchange account 
level or member firm level will have their AIQ protection defaulted to 
the MPID level protection applied today. The Exchange believes that the 
proposed AIQ enhancement will provide members with more tailored self-
trade functionality that allows them to manage their trading as 
appropriate based on the members' business needs. While the Exchange 
believes that some firms will want to restrict AIQ to trading against 
interest from the same MPID--i.e., as implemented today--the Exchange 
believes that other firms will find it helpful to be able to configure 
AIQ to apply at the Exchange account level or at the member firm level 
so that they are protected regardless of which MPID the order or quote 
originated from. Similar functionality also exists on the BATS BZX 
Exchange (``BZX''), which provides members the ability to apply Match 
Trade Prevention (``MTP'') modifiers--i.e., BZX's version of self-trade 
protection--based on MPID, Exchange Member, trading group, or Exchange 
Sponsored Participant identifiers.\5\
---------------------------------------------------------------------------

    \5\ See BZX Rule 21.1(g).
---------------------------------------------------------------------------

    The examples below illustrate how AIQ would operate based on the 
MPID level protection, the Exchange account level, or for members that 
choose to apply AIQ at the member firm level:
Example 1
    1. Member ABC (MPID 123A & 555B) with AIQ configured at the MPID 
level.
    2. 123A Quote: $1.00 (5) x $1.10 (20).
    3. 555B Buy Order entered for 10 contracts at $1.10.
    4. 555B Buy Order executes 10 contracts against 123A Quote. 123A 
and 555B are permitted trade against one another because Member ABC has 
configured AIQ to apply at the MPID level. This is the same as existing 
functionality.
Example 2
    1. Member ABC (Account 999 with MPIDs 123A and 555B, and Account 
888 with MPID 789A) with AIQ configured at the Exchange account level.
    2. 123A Quote: $1.00 (5) x $1.10 (20).
    3. 789A Quote: $1.05(10) x $1.10 (20).
    4. 555B Buy Order entered for 30 contracts at $1.10.
    5. 555B Buy Order executes against 789A Quote but 555B Buy Order 
does not execute against 123A Quote. AIQ purges the 123A Quote and the 
remaining contracts of the 555B Buy Order rests on the book at $1.10. 
123A and 555B are not permitted trade against one another because 
Member ABC has configured AIQ to apply at the Exchange account level. 
This is new functionality as the member has opted to have AIQ operate 
at the Exchange account level.
Example 3
    1. Same as Example 2 above but Member ABC has AIQ configured at the 
member level.
    2. AIQ purges the 123A Quote and the 789A Quote and the 555B Buy 
Order rests on the book at $1.10. This is new functionality as the 
member has opted to have AIQ operate at the member level.
Implementation
    The Exchange proposes to launch the AIQ functionality described in 
this proposed rule change in either Q3 or Q4 2017. The Exchange will 
announce the implementation date of this functionality in an Options 
Trader Alert issued to members prior to the launch date.
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.\6\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\7\ because it 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with

[[Page 34559]]

the protection of investors and the public interest as it is designed 
to provide NOM market makers with additional flexibility with respect 
to how to implement self-trade protections provided by AIQ. Currently, 
all market makers are provided functionality that prevents quotes and 
orders from one MPID from trading with quotes and orders from the same 
MPID. This allows market makers to better manage their order flow and 
prevent undesirable executions where the market maker, using the same 
MIPID, would be on both sides of the trade. While this functionality is 
helpful to our members, some members would prefer not to trade with 
quotes and orders entered by different MPIDs within the same Exchange 
account or member. Thus, the Exchange is proposing to provide members 
with flexibility with respect to how AIQ is implemented. While members 
that like the current functionality can continue to use it, members who 
would prefer to prevent self-trades across different MPIDs within the 
same Exchange account or at the member level will now be provided with 
functionality that lets them do this. Similar functionality also exists 
on BZX,\8\ and the Exchange believes that flexibility to apply AIQ at 
the Exchange account or member firm level would be useful for NOM 
members too. The Exchange believes that the proposed rule change is 
designed to promote just and equitable principles of trade and will 
remove impediments to and perfect the mechanisms of a free and open 
market as it will further enhance self-trade protections provided to 
NOM market makers similar to those protections provided on other 
markets. This functionality does not relieve or otherwise modify the 
duty of best execution owed to orders received from public customers.
---------------------------------------------------------------------------

    \8\ See supra note 5.
---------------------------------------------------------------------------

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

    In accordance with Section 6(b)(8) of the Act,\9\ 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 enhance AIQ functionality provided to NOM 
market makers, and will benefit members that wish to protect their 
quotes and orders against trading with other quotes and orders within 
the same Exchange account or member, rather than the more limited MPID 
standard applied today. The new functionality, which is similar to 
functionality already provided on BZX, is also completely voluntary, 
and members that wish to use the current functionality can also 
continue to do so. The Exchange does not believe that providing more 
flexibility to members will have any significant impact on competition. 
In fact, the Exchange believes that the proposed rule change is 
evidence of the competitive environment in the options industry where 
exchanges must continually improve their offerings to maintain 
competitive standing.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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-2017-069 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-2017-069. 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-2017-069 and should 
be submitted on or before August 15, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-15530 Filed 7-24-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                                                  Federal Register / Vol. 82, No. 141 / Tuesday, July 25, 2017 / Notices                                                 34557

                                                  Document Room (PDR) reference staff at                     1. The title of the information                     numbers 3150–0003, 3150–0004, 3150–
                                                  1–800–397–4209, 301–415–4737, or by                      collection: 10 CFR part 75, ‘‘Information             0057, and 3150–0058. The NRC needs
                                                  email to pdr.resource@nrc.gov. The                       Collection: Safeguards on Nuclear                     this information to implement its
                                                  supporting statement is available in                     Material—Implementation of United                     responsibilities under the US/IAEA
                                                  ADAMS under Accession No.                                States/International Atomic Energy                    agreement. The NRC is not submitting
                                                  ML17173A062.                                             Agency Agreement’’.                                   the information collections associated
                                                    • NRC’s PDR: You may examine and                         2. OMB approval number: 3150–0055.                  with the modified Small Quantities
                                                  purchase copies of public documents at                     3. Type of submission: Extension.                   Protocol to OMB at this time. A separate
                                                  the NRC’s PDR, Room O1–F21, One                            4. The form number if applicable: Not               30-day notice will be published prior to
                                                  White Flint North, 11555 Rockville                       applicable.                                           submitting the information collections
                                                                                                             5. How often the collection is required             associated with the final rule.
                                                  Pike, Rockville, Maryland 20852.
                                                                                                           or requested: Selected licensees are
                                                    • NRC’s Clearance Officer: A copy of                                                                           Dated at Rockville, Maryland, this 19th day
                                                                                                           required to provide reports of nuclear
                                                  the collection of information and related                                                                      of July 2017.
                                                                                                           material inventory and flow for selected
                                                  instructions may be obtained without                                                                             For the U.S. Nuclear Regulatory
                                                                                                           facilities under the US/IAEA Safeguards
                                                  charge by contacting the NRC’s                                                                                 Commission.
                                                                                                           Agreement, permit inspections by
                                                  Clearance Officer, David Cullison,                                                                             David Cullison,
                                                                                                           International Atomic Energy Agency
                                                  Office of the Chief Information Officer,                                                                       Clearance Officer, U.S. Nuclear Regulatory
                                                                                                           Agreement (IAEA) inspectors,
                                                  U.S. Nuclear Regulatory Commission,                                                                            Commission, Office of the Chief Information
                                                                                                           complementary access of IAEA
                                                  Washington, DC 20555–0001; telephone:                                                                          Officer.
                                                                                                           inspectors under the Additional
                                                  301–415–2084; email:                                                                                           [FR Doc. 2017–15540 Filed 7–24–17; 8:45 am]
                                                                                                           Protocol, give immediate notice to the
                                                  INFOCOLLECTS.Resource@NRC.GOV.
                                                                                                           NRC in specified situations involving                 BILLING CODE 7590–01–P

                                                  B. Submitting Comments.                                  the possibility of loss of nuclear
                                                                                                           material, and give notice for imports
                                                    The NRC cautions you not to include
                                                                                                           and exports of specified amounts of                   SECURITIES AND EXCHANGE
                                                  identifying or contact information in
                                                                                                           nuclear material. Reporting is done                   COMMISSION
                                                  comment submissions that you do not
                                                                                                           when specified events occur.
                                                  want to be publicly disclosed in your
                                                                                                           Recordkeeping for nuclear material                    [Release No. 34–81171; File No. SR–
                                                  comment submission. All comment
                                                                                                           accounting and control information is                 NASDAQ–2017–069]
                                                  submissions are posted at http://
                                                                                                           done in accordance with specific
                                                  www.regulations.gov and entered into
                                                                                                           instructions.                                         Self-Regulatory Organizations; The
                                                  ADAMS. Comment submissions are not                         6. Who will be required or asked to                 NASDAQ Stock Market LLC; Notice of
                                                  routinely edited to remove identifying                   respond: Licensees of facilities on the               Filing and Immediate Effectiveness of
                                                  or contact information.                                  U.S. eligible list who have been selected             Proposed Rule Change To Enhance
                                                    If you are requesting or aggregating                   by the IAEA for reporting or                          Anti-Internalization Functionality
                                                  comments from other persons for                          recordkeeping activities.
                                                  submission to the OMB, then you                            7. The estimated number of annual                   July 19, 2017.
                                                  should inform those persons not to                       responses: 7 (2 reporting responses + 5                  Pursuant to Section 19(b)(1) of the
                                                  include identifying or contact                           recordkeepers).                                       Securities Exchange Act of 1934
                                                  information that they do not want to be                    8. The estimated number of annual                   (‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                  publicly disclosed in their comment                      respondents: 5.                                       notice is hereby given that on July 6,
                                                  submission. Your request should state                      9. An estimate of the total number of               2017, The NASDAQ Stock Market LLC
                                                  that comment submissions are not                         hours needed annually to comply with                  (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
                                                  routinely edited to remove such                          the information collection requirement                Securities and Exchange Commission
                                                  information before making the comment                    or request: 3,960.                                    (‘‘SEC’’ or ‘‘Commission’’) the proposed
                                                  submissions available to the public or                     10. Abstract: Part 75 of Title 10 of the            rule change as described in Items I, II,
                                                  entering the comment into ADAMS.                         Code of Federal Regulations, requires                 and III, below, which Items have been
                                                                                                           selected licensees to provide reports of              prepared by the Exchange. The
                                                  II. Background
                                                                                                           nuclear material inventory and flow for               Commission is publishing this notice to
                                                    Under the provisions of the                            selected facilities under the US/IAEA                 solicit comments on the proposed rule
                                                  Paperwork Reduction Act of 1995 (44                      Safeguards Agreement, permit                          change from interested persons.
                                                  U.S.C. Chapter 35), the NRC recently                     inspections by IAEA inspectors,
                                                  submitted a request for renewal of an                    complementary access of IAEA                          I. Self-Regulatory Organization’s
                                                  existing collection of information to                    inspectors under the Additional                       Statement of the Terms of Substance of
                                                  OMB for review entitled, ‘‘Information                   Protocol, give immediate notice to the                the Proposed Rule Change
                                                  Collection: Safeguards on Nuclear                        NRC in specified situations involving                    The Exchange proposes to amend
                                                  Material—Implementation of United                        the possibility of loss of nuclear                    Chapter VI, Section 10 of the rules of the
                                                  States/International Atomic Energy                       material, and give notice for imports                 NASDAQ Options Market (‘‘NOM’’) to
                                                  Agency Agreement.’’ The NRC hereby                       and exports of specified amounts of                   enhance anti-internalization
                                                  informs potential respondents that an                    nuclear material. Licensees will also                 functionality.
                                                  agency may not conduct or sponsor, and                   follow written material accounting and                   The text of the proposed rule change
                                                  that a person is not required to respond                 control procedures, although actual                   is available on the Exchange’s Web site
mstockstill on DSK30JT082PROD with NOTICES




                                                  to, a collection of information unless it                reporting of transfer and material                    at http://nasdaq.cchwallstreet.com, at
                                                  displays a currently valid OMB control                   balance records to the IAEA will be                   the principal office of the Exchange, and
                                                  number.                                                  done through the U.S. State system of                 at the Commission’s Public Reference
                                                    The NRC published a Federal                            accounting for and control of nuclear                 Room.
                                                  Register notice with a 60-day comment                    material (Nuclear Materials
                                                  period on this information collection on                 Management and Safeguards System,                       1 15   U.S.C. 78s(b)(1).
                                                  April 6, 2017 (82 FR 16862).                             collected under OMB clearance                           2 17   CFR 240.19b-4.



                                             VerDate Sep<11>2014   19:30 Jul 24, 2017   Jkt 241001   PO 00000   Frm 00086   Fmt 4703   Sfmt 4703   E:\FR\FM\25JYN1.SGM    25JYN1


                                                  34558                           Federal Register / Vol. 82, No. 141 / Tuesday, July 25, 2017 / Notices

                                                  II. Self-Regulatory Organization’s                          Today, this protection prevents                         configured AIQ to apply at the MPID
                                                  Statement of the Purpose of, and                         market makers from trading against their                   level. This is the same as existing
                                                  Statutory Basis for, the Proposed Rule                   own quotes and orders at the MPID                          functionality.
                                                  Change                                                   level. The proposed enhancement to
                                                                                                                                                                      Example 2
                                                                                                           this functionality would allow members
                                                    In its filing with the Commission, the                 to choose to have this protection                            1. Member ABC (Account 999 with
                                                  Exchange included statements                             applied at the MPID level as                               MPIDs 123A and 555B, and Account
                                                  concerning the purpose of and basis for                  implemented today, at the Exchange                         888 with MPID 789A) with AIQ
                                                  the proposed rule change and discussed                   account level, or at the member firm                       configured at the Exchange account
                                                  any comments it received on the                          level. If members choose to have this                      level.
                                                  proposed rule change. The text of these                  protection applied at the Exchange                           2. 123A Quote: $1.00 (5) × $1.10 (20).
                                                  statements may be examined at the                        account level, AIQ would prohibit                            3. 789A Quote: $1.05(10) × $1.10 (20).
                                                  places specified in Item IV below. The                   quotes and orders from different MPIDs                       4. 555B Buy Order entered for 30
                                                  Exchange has prepared summaries, set                     associated with the same Exchange                          contracts at $1.10.
                                                  forth in sections A, B, and C below, of                                                                               5. 555B Buy Order executes against
                                                                                                           account from trading against one
                                                  the most significant aspects of such                                                                                789A Quote but 555B Buy Order does
                                                                                                           another. Similarly, if the members
                                                  statements.                                                                                                         not execute against 123A Quote. AIQ
                                                                                                           choose to have this protection applied at
                                                                                                                                                                      purges the 123A Quote and the
                                                  A. Self-Regulatory Organization’s                        the member firm level, AIQ would
                                                                                                                                                                      remaining contracts of the 555B Buy
                                                  Statement of the Purpose of, and                         prohibit quotes and orders from
                                                                                                                                                                      Order rests on the book at $1.10. 123A
                                                  Statutory Basis for, the Proposed Rule                   different MPIDs within the member firm
                                                                                                                                                                      and 555B are not permitted trade against
                                                  Change                                                   from trading against one another.
                                                                                                                                                                      one another because Member ABC has
                                                                                                           Members that do not select to have this
                                                  1. Purpose                                                                                                          configured AIQ to apply at the Exchange
                                                                                                           protection applied at the Exchange
                                                                                                                                                                      account level. This is new functionality
                                                     The purpose of the proposed rule                      account level or member firm level will
                                                                                                                                                                      as the member has opted to have AIQ
                                                  change is to enhance the anti-                           have their AIQ protection defaulted to
                                                                                                                                                                      operate at the Exchange account level.
                                                  internalization (‘‘AIQ’’) functionality                  the MPID level protection applied
                                                  provided to market makers on NOM by                      today. The Exchange believes that the                      Example 3
                                                  giving members the flexibility to choose                 proposed AIQ enhancement will                                1. Same as Example 2 above but
                                                  to have this protection apply at the                     provide members with more tailored                         Member ABC has AIQ configured at the
                                                  market participant identifier (‘‘MPID’’)                 self-trade functionality that allows them                  member level.
                                                  level (i.e., existing functionality), at the             to manage their trading as appropriate                       2. AIQ purges the 123A Quote and the
                                                  Exchange account level, or at the                        based on the members’ business needs.                      789A Quote and the 555B Buy Order
                                                  member firm level. The Exchange                          While the Exchange believes that some                      rests on the book at $1.10. This is new
                                                  believes that this enhancement will                      firms will want to restrict AIQ to trading                 functionality as the member has opted
                                                  provide helpful flexibility for market                   against interest from the same MPID—                       to have AIQ operate at the member
                                                  making firms that wish to prevent                        i.e., as implemented today—the                             level.
                                                  trading against all quotes and orders                    Exchange believes that other firms will
                                                                                                           find it helpful to be able to configure                    Implementation
                                                  entered by their firm, or Exchange
                                                  account, instead of just quotes and                      AIQ to apply at the Exchange account                          The Exchange proposes to launch the
                                                  orders that are entered under the same                   level or at the member firm level so that                  AIQ functionality described in this
                                                  MPID.                                                    they are protected regardless of which                     proposed rule change in either Q3 or Q4
                                                                                                           MPID the order or quote originated                         2017. The Exchange will announce the
                                                     Currently, the Exchange provides
                                                                                                           from. Similar functionality also exists                    implementation date of this
                                                  mandatory AIQ functionality whereby
                                                                                                           on the BATS BZX Exchange (‘‘BZX’’),                        functionality in an Options Trader Alert
                                                  quotes and orders entered by market
                                                                                                           which provides members the ability to                      issued to members prior to the launch
                                                  makers using the same MPID are not
                                                                                                           apply Match Trade Prevention (‘‘MTP’’)                     date.
                                                  executed against quotes and orders
                                                  entered on the opposite side of the                      modifiers—i.e., BZX’s version of self-                     2. Statutory Basis
                                                  market by the same market maker using                    trade protection—based on MPID,
                                                                                                           Exchange Member, trading group, or                            The Exchange believes that the
                                                  the same identifier.3 When a quote or                                                                               proposed rule change is consistent with
                                                  order entered by a market maker would                    Exchange Sponsored Participant
                                                                                                           identifiers.5                                              the requirements of the Act and the
                                                  trade with other quotes or orders from                                                                              rules and regulations thereunder that
                                                                                                              The examples below illustrate how
                                                  the same market maker, the trading                                                                                  are applicable to a national securities
                                                                                                           AIQ would operate based on the MPID
                                                  system cancels the oldest of the quotes                                                                             exchange, and, in particular, with the
                                                                                                           level protection, the Exchange account
                                                  or orders back to the entering party prior                                                                          requirements of Section 6(b) of the Act.6
                                                                                                           level, or for members that choose to
                                                  to execution.4 AIQ assists market                                                                                   In particular, the proposal is consistent
                                                                                                           apply AIQ at the member firm level:
                                                  makers in reducing trading costs from                                                                               with Section 6(b)(5) of the Act,7 because
                                                  unwanted executions potentially                          Example 1                                                  it is designed to promote just and
                                                  resulting from the interaction of                          1. Member ABC (MPID 123A & 555B)                         equitable principles of trade, remove
                                                  executable buy and sell trading interest                 with AIQ configured at the MPID level.                     impediments to and perfect the
                                                  from the same firm when performing the                     2. 123A Quote: $1.00 (5) × $1.10 (20).                   mechanisms of a free and open market
                                                  same market making function.                               3. 555B Buy Order entered for 10
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                                                                                                                                                                      and a national market system and, in
                                                                                                           contracts at $1.10.                                        general, to protect investors and the
                                                    3 See Chapter VI, Section 10.                            4. 555B Buy Order executes 10                            public interest.
                                                    4 Id.A quote or order entered by a market maker        contracts against 123A Quote. 123A and                        The Exchange believes that the
                                                  only triggers AIQ when it would trade with other         555B are permitted trade against one
                                                  quotes or orders from the same market maker. Thus,
                                                                                                                                                                      proposed rule change is consistent with
                                                  an incoming quote or order entered by a market           another because Member ABC has
                                                                                                                                                                        6 15   U.S.C. 78f(b).
                                                  maker may interact with other interest with priority
                                                  on the book prior to triggering AIQ.                          5 See   BZX Rule 21.1(g).                               7 15   U.S.C. 78f(b)(5).



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                                                                                     Federal Register / Vol. 82, No. 141 / Tuesday, July 25, 2017 / Notices                                                     34559

                                                  the protection of investors and the                         applied today. The new functionality,                     Electronic Comments
                                                  public interest as it is designed to                        which is similar to functionality already
                                                  provide NOM market makers with                              provided on BZX, is also completely                         • Use the Commission’s Internet
                                                  additional flexibility with respect to                      voluntary, and members that wish to                       comment form (http://www.sec.gov/
                                                  how to implement self-trade protections                     use the current functionality can also                    rules/sro.shtml); or
                                                  provided by AIQ. Currently, all market                      continue to do so. The Exchange does                        • Send an email to rule-comments@
                                                  makers are provided functionality that                      not believe that providing more                           sec.gov. Please include File Number SR–
                                                  prevents quotes and orders from one                         flexibility to members will have any                      NASDAQ–2017–069 on the subject line.
                                                  MPID from trading with quotes and                           significant impact on competition. In
                                                  orders from the same MPID. This allows                      fact, the Exchange believes that the                      Paper Comments
                                                  market makers to better manage their                        proposed rule change is evidence of the
                                                  order flow and prevent undesirable                                                                                      • Send paper comments in triplicate
                                                                                                              competitive environment in the options
                                                  executions where the market maker,                                                                                    to Secretary, Securities and Exchange
                                                                                                              industry where exchanges must
                                                  using the same MIPID, would be on both                      continually improve their offerings to                    Commission, 100 F Street NE.,
                                                  sides of the trade. While this                              maintain competitive standing.                            Washington, DC 20549–1090.
                                                  functionality is helpful to our members,                                                                              All submissions should refer to File
                                                  some members would prefer not to trade                      C. Self-Regulatory Organization’s
                                                                                                              Statement on Comments on the                              Number SR–NASDAQ–2017–069. This
                                                  with quotes and orders entered by                                                                                     file number should be included on the
                                                  different MPIDs within the same                             Proposed Rule Change Received From
                                                                                                              Members, Participants, or Others                          subject line if email is used. To help the
                                                  Exchange account or member. Thus, the
                                                                                                                                                                        Commission process and review your
                                                  Exchange is proposing to provide                              No written comments were either
                                                  members with flexibility with respect to                                                                              comments more efficiently, please use
                                                                                                              solicited or received.
                                                  how AIQ is implemented. While                                                                                         only one method. The Commission will
                                                  members that like the current                               III. Date of Effectiveness of the                         post all comments on the Commission’s
                                                  functionality can continue to use it,                       Proposed Rule Change and Timing for                       Internet Web site (http://www.sec.gov/
                                                  members who would prefer to prevent                         Commission Action                                         rules/sro.shtml). Copies of the
                                                  self-trades across different MPIDs                             Because the foregoing proposed rule                    submission, all subsequent
                                                  within the same Exchange account or at                      change does not: (i) Significantly affect                 amendments, all written statements
                                                  the member level will now be provided                       the protection of investors or the public                 with respect to the proposed rule
                                                  with functionality that lets them do this.                  interest; (ii) impose any significant                     change that are filed with the
                                                  Similar functionality also exists on                        burden on competition; and (iii) become                   Commission, and all written
                                                  BZX,8 and the Exchange believes that                        operative for 30 days from the date on                    communications relating to the
                                                  flexibility to apply AIQ at the Exchange                    which it was filed, or such shorter time                  proposed rule change between the
                                                  account or member firm level would be                       as the Commission may designate, it has                   Commission and any person, other than
                                                  useful for NOM members too. The                             become effective pursuant to Section                      those that may be withheld from the
                                                  Exchange believes that the proposed                         19(b)(3)(A)(iii) of the Act 10 and                        public in accordance with the
                                                  rule change is designed to promote just                     subparagraph (f)(6) of Rule 19b–4                         provisions of 5 U.S.C. 552, will be
                                                  and equitable principles of trade and                       thereunder.11                                             available for Web site viewing and
                                                  will remove impediments to and perfect                         At any time within 60 days of the                      printing in the Commission’s Public
                                                  the mechanisms of a free and open                           filing of the proposed rule change, the                   Reference Room, 100 F Street NE.,
                                                  market as it will further enhance self-                     Commission summarily may                                  Washington, DC 20549, on official
                                                  trade protections provided to NOM                           temporarily suspend such rule change if
                                                  market makers similar to those                                                                                        business days between the hours of
                                                                                                              it appears to the Commission that such                    10:00 a.m. and 3:00 p.m. Copies of the
                                                  protections provided on other markets.                      action is: (i) Necessary or appropriate in
                                                  This functionality does not relieve or                                                                                filing also will be available for
                                                                                                              the public interest; (ii) for the protection
                                                  otherwise modify the duty of best                                                                                     inspection and copying at the principal
                                                                                                              of investors; or (iii) otherwise in
                                                  execution owed to orders received from                                                                                office of the Exchange. All comments
                                                                                                              furtherance of the purposes of the Act.
                                                  public customers.                                           If the Commission takes such action, the                  received will be posted without change;
                                                                                                              Commission shall institute proceedings                    the Commission does not edit personal
                                                  B. Self-Regulatory Organization’s                                                                                     identifying information from
                                                  Statement on Burden on Competition                          to determine whether the proposed rule
                                                                                                              should be approved or disapproved.                        submissions. You should submit only
                                                    In accordance with Section 6(b)(8) of                                                                               information that you wish to make
                                                  the Act,9 the Exchange does not believe                     IV. Solicitation of Comments                              available publicly. All submissions
                                                  that the proposed rule change will                            Interested persons are invited to                       should refer to File Number SR–
                                                  impose any burden on intermarket or                         submit written data, views, and                           NASDAQ–2017–069 and should be
                                                  intramarket competition that is not                         arguments concerning the foregoing,                       submitted on or before August 15, 2017.
                                                  necessary or appropriate in furtherance                     including whether the proposed rule
                                                  of the purposes of the Act. The                                                                                         For the Commission, by the Division of
                                                                                                              change is consistent with the Act.                        Trading and Markets, pursuant to delegated
                                                  proposed rule change is designed to                         Comments may be submitted by any of
                                                  enhance AIQ functionality provided to                                                                                 authority.12
                                                                                                              the following methods:
                                                  NOM market makers, and will benefit                                                                                   Eduardo A. Aleman,
                                                  members that wish to protect their
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                                                                                                                   10 15
                                                                                                                       U.S.C. 78s(b)(3)(A)(iii).                        Assistant Secretary.
                                                  quotes and orders against trading with                           11 17
                                                                                                                       CFR 240.19b–4(f)(6). In addition, Rule 19b–      [FR Doc. 2017–15530 Filed 7–24–17; 8:45 am]
                                                  other quotes and orders within the same                     4(f)(6) requires a self-regulatory organization to give   BILLING CODE 8011–01–P
                                                  Exchange account or member, rather                          the Commission written notice of its intent to file
                                                                                                              the proposed rule change at least five business days
                                                  than the more limited MPID standard                         prior to the date of filing of the proposed rule
                                                                                                              change, or such shorter time as designated by the
                                                    8 See   supra note 5.                                     Commission. The Exchange has satisfied this
                                                    9 15   U.S.C. 78f(b)(8).                                  requirement.                                                12 17   CFR 200.30–3(a)(12).



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Document Created: 2018-10-24 11:22:44
Document Modified: 2018-10-24 11:22:44
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 34557 

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