83 FR 33966 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend The Nasdaq Options Market LLC (“NOM”) Rules and Adopt a Zero Bid Options Rule

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 138 (July 18, 2018)

[Federal Register Volume 83, Number 138 (Wednesday, July 18, 2018)]
[Notices]
[Pages 33966-33969]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-15289]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83623; File No. SR-NASDAQ-2018-051]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend The Nasdaq Options Market LLC (``NOM'') Rules and Adopt a Zero 
Bid Options Rule

July 12, 2018.
    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 29, 2018, 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 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 The Nasdaq Options Market LLC 
(``NOM'') Rules at Chapter V, Section 3, entitled ``Trading Halts'' and 
Chapter VI, Section

[[Page 33967]]

6, entitled ``Acceptance of Quotes and Orders.''
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Chapter V, Section 3, entitled 
``Trading Halts'' to remove unnecessary rule text. The Exchange 
proposes to amend NOM Rules to adopt a zero bid options rule at Chapter 
VI, Section 6, entitled ``Acceptance of Quotes and Orders.'' The 
Exchange proposes to adopt a zero bid options rule on NOM within 
Chapter VI, Section 6, entitled ``Acceptance of Quotes and Orders'' and 
remove rule text which the Exchange believes is unnecessary. Each 
proposal is described in more detail below.
Chapter V, Section 3
    The Exchange proposes to amend Chapter V, Section 3(b), which 
currently provides, ``In the event Nasdaq Regulation determines to halt 
trading, all trading in the effected class or classes of options shall 
be halted. NOM shall disseminate through its trading facilities and 
over OPRA a symbol with respect to such class or classes of options 
indicating that trading has been halted, and a record of the time and 
duration of the halt shall be made available to vendors.'' The Exchange 
proposes to remove the words ``such class or'' because the Exchange 
only disseminates over OPRA a symbol with respect to classes of options 
to indicate a trading halt. By amending this rule, the Exchange will 
add more transparency as to how it disseminates information regarding 
trading halts.
Chapter VI, Section 6
    Today, the Exchange does not have a rule for the handling of 
options with no bid or zero bid options. The Exchange's handling of 
zero bid options on NOM is identical to the manner in which zero bid is 
handled on Phlx.\3\ The Exchange proposes to add this new rule to 
Chapter VI, Section 6(a)(3). The new rule would provide, ``In the case 
where the bid price for any options contract is $0.00, a market order 
accepted into the System to sell that series shall be considered a 
limit order to sell at a price equal to the minimum trading increment 
as defined in Chapter VI, Section 5. Orders will be placed on the limit 
order book in the order in which they were received by the System. With 
respect to market orders to sell which are submitted prior to the 
Opening and persist after the Opening, those orders are posted at a 
price equal to the minimum trading increment as defined in Chapter VI, 
Section 5.''
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    \3\ See Phlx Rule 1035.
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    The Exchange intends to accept and convert market orders to sell 
allowing them an equal opportunity to trade if interest should arrive 
in the case of a no bid option. The Exchange notes that the orders 
would rest on the Order Book at the minimum price increment. The 
Exchange notes market orders ``accepted into the System'' would be 
converted to account for market orders that may not be accepted into 
the System due to Limit Up-Limit Down restrictions, which may prevent 
the market order from being accepted.\4\ Only after acceptance into the 
System will market orders be treated as a sell limit order at a price 
equal to the minimum trading increment.
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    \4\ The Limit Up-Limit Down requirements must be met first 
before the proposed rule would apply.
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    Further, the Exchange proposes to add rule text which provides 
``Orders will be placed on the limit order book in the order in which 
they were received by the System.'' \5\ The Exchange proposes to note 
that with respect to market orders to sell in zero bid options, which 
are submitted prior to the Opening Process \6\ and persist after the 
Opening Process, those orders are posted at a price equal to the 
minimum trading increment as defined in Chapter VI, Section 5.\7\ The 
Exchange's proposed rule will provide market participants with greater 
insight into the handling of orders where there is a zero bid. The 
Exchange believes that this proposed amendment will accurately describe 
the manner in which a zero-bid options series operates within the 
System both before and after the Opening Process.
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    \5\ The time of receipt for an order is the time such message is 
processed by the System.
    \6\ The Exchange's Opening Process is described in Rule 701.
    \7\ Chapter VI, Section 5, entitled ``Minimum Increments'' 
provides for the minimum increments of trading.
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    The Exchange also proposes to amend Chapter VI, Section 6(b) which 
currently states, ``All System orders entered by Participants directing 
or permitting routing to other market centers shall be routed for 
potential display and/or execution as set forth in Section 11 below. 
Routing shall be available in System securities as well as Non-System 
securities listed on other exchanges.'' The Exchange proposes to remove 
``Routing shall be available in System securities as well as Non-System 
securities listed on other exchanges.'' The Exchange defines ``System 
Securities'' at Chapter VI, Section 1(b) of the NOM Rules and defines 
``Non-System Securities'' as all other options. Nasdaq originally 
programmed the System to differentiate between System Securities and 
Non-System Securities.\8\ Nasdaq stated in that filing it would accept 
orders in Non-System Securities for routing but will not execute these 
orders in the System.\9\ In 2012, NOM's rule were amended to provide 
that routing is limited to System Securities. System Securities are all 
options that are currently trading on NOM pursuant to Chapter IV.\10\ 
Further, the Subsequent Filing provided that only System Securities are 
traded on NOM pursuant to Chapter IV. All other options are Non-System 
Securities.\11\ The Subsequent filing noted that at one time, NOM 
offered routing of Non-System Securities but has not offered such 
routing since November 30, 2011. Finally, the Subsequent Filing noted 
that this routing feature was rarely used and was discontinued. 
Currently, NOM only routes securities that are listed on NOM. The 
Exchange proposes to

[[Page 33968]]

remove this sentence related to routing which the Exchange believes 
should have been removed in connection with the Subsequent Filing.
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    \8\ Securities Exchange Act Release No. 57478 (March 12, 2008), 
73 FR 14521 (March 18, 208) (SR-NASDAQ-2007-004 and SR-NASDAQ-2007-
080) (Notice of Filing of Amendment No. 2 to a Proposed Rule Change 
and Order Granting Accelerated Approval to a Proposed Rule Change, 
as Amended, To Establish Rules Governing the Trading of Options on 
the NASDAQ Options Market; Order Approving a Proposed Rule Change 
Relating to the LLC Agreement Establishing the NASDAQ Options Market 
LLC and Delegation Agreement Delegating to NOM LLC the Authority To 
Operate the NASDAQ Options Market; Order Granting an Application of 
The NASDAQ Stock Market LLC for an Exemption Pursuant to Section 
36(a) of the Exchange Act from the Requirements of Section 19(b) of 
the Exchange Act; and Order Granting an Exemption for the NASDAQ 
Options Market LLC from Section 11A(b) of the Exchange Act.)
    \9\ Id.
    \10\ Securities Exchange Act Release No. 67301 (June 28, 2012), 
77 FR 39774 (July 5, 2012) (SR-Nasdaq-2012-077) (``Subsequent 
Filing'').
    \11\ Id.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934,\12\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\13\ 
in particular, in that it is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
for a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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Chapter V, Section 3
    The Exchange is providing greater transparency as to the manner in 
which the Exchange disseminates information over OPRA during a trading 
halt. The Exchange believes that this rule text is consistent with the 
Act and the protection of investors and the public interest because it 
brings greater clarity as to what type of information is provided 
during a halt.
Chapter VI, Section 6
    The Exchange's proposal to adopt a zero bid rule is consistent with 
the Act and designed to promote just and equitable principles of trade 
and to protect investors and the public interest by adopting text which 
describes the handling of zero-bid options. The Exchange is treating 
all market orders to sell in zero bid options in the same fashion by 
converting all those orders, provided that the Exchange's disseminated 
bid price in such option is zero for an option listed only on the 
Exchange or, for an option listed on multiple exchanges and the 
disseminated NBBO includes a bid price of zero in the series. Market 
orders to sell in zero bid options will be placed on the limit order 
book in the order in which they were received by the System. The 
Exchange desires to prevent members from submitting market orders to 
sell in no bid series, which would execute at a price of $0.00. The 
Exchange believes that the proposed rule will achieve this objective 
and continue to permit the Exchange to execute orders within its System 
at prices that reflect some value. Adding rule text regarding market 
orders to sell in zero bid options submitted prior to the Opening 
Process and persisting after the Opening Process is consistent with the 
Act because it provides more transparency as to the operation of this 
rule and as to how those market orders to sell in zero bid options will 
be handled by the System. Further, the Exchange believes that 
memorializing its current practice within the rule text will bring more 
clarity to the manner in which the zero bid rule operates to the 
benefits of all market participants.
    Finally, the Exchange believes removing language concerning Non-
System Securities in Chapter VI, Section 6(b) is consistent with the 
Act because it avoids confusion by removing language which should have 
been removed with the 2006 filing which distinguished System and Non-
System Securities. The language discusses a distinction which was 
removed from the rules in 2012.\14\
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    \14\ See note 10 above.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\15\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intra-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \15\ 15 U.S.C. 78f(b)(8).
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Chapter V, Section 3
    The Exchange's proposal to amend Chapter V, Section 3(b) to more 
specifically describe the information disseminated during a trading 
halt do not impose an undue burden on competition because the 
amendments add more transparency to the trading halt rule.
Chapter VI, Section 6
    The Exchange's proposal to adopt a zero bid options rule does not 
impose an undue burden on competition because the proposed rule change 
will continue to apply uniformly for all market participants who enter 
market orders to sell into the System when there is a zero-bid options.
    Finally, the removal of language concerning Non-System Securities 
in Chapter VI, Section 6(b) does not impose an undue burden on 
competition because this language references an obsolete functionality 
in the rulebook that was removed from the rules in 2012.\16\
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    \16\ See note 10 above.
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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) of the Act \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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 pursuant to Rule 19b-4(f)(6) under the 
Act \19\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \20\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange states that waiver of the operative delay would allow the 
Exchange to update its rules to immediately reflect the operation of 
zero bid series on NOM. Therefore, the Commission believes that waiver 
of the 30-day operative delay is consistent with the protection of 
investors and the public interest. Accordingly, the Commission hereby 
waives the operative delay and designates the proposed rule change 
operative upon filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission also 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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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 change should be approved or 
disapproved.

[[Page 33969]]

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-2018-051 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-2018-051. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2018-051, and should be submitted 
on or before August 8, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15289 Filed 7-17-18; 8:45 am]
 BILLING CODE 8011-01-P