83 FR 57774 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Various Rules To Reflect Changes to The Nasdaq Options Market LLC (“NOM”) Protocols

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 222 (November 16, 2018)

Page Range		57774-57778
FR Document		2018-24981
Federal Register, Volume 83 Issue 222 (Friday, November 16, 2018)
[Federal Register Volume 83, Number 222 (Friday, November 16, 2018)]
[Notices]
[Pages 57774-57778]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-24981]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84559; File No. SR-NASDAQ-2018-085]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Various Rules To Reflect Changes to The Nasdaq Options Market LLC 
(``NOM'') Protocols

November 9, 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 October 29, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend various rules to reflect changes to 
The Nasdaq Options Market LLC (``NOM'') protocols.
    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
    Nasdaq recently filed a rule change \3\ which adopted a new 
protocol ``Ouch to Trade Options'' or ``OTTO'' \4\ and renamed the 
current OTTO protocol as ``Quote Using Orders'' or ``QUO''.\5\ The 
Exchange proposes to reflect the changes made in the Prior Rule Change 
within various NOM Rules which refer to protocols.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 83888 (August 20, 
2018), 83 FR 42954 (August 24, 2018) (SR-NASDAQ-2018-069) (``Prior 
Rule Change''). This rule change is immediately effective but will 
not be operative until such time as the Exchange issues an Options 
Trader Alert announcing the implementation date. This notification 
will be issued in Q4 2018. The Exchange notes that this filing 
renamed the current OTTO protocol as ``QUO'' and also proposed the 
adoption of a new OTTO protocol.
    \4\ OTTO is an interface that allows Participants and their 
Sponsored Customers to connect, send, and receive messages related 
to orders to and from the Exchange. Features include the following: 
(1) Options symbol directory messages (e.g., underlying); (2) system 
event messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) order messages; and (6) risk protection 
triggers and cancel notifications. See NOM Rules at Chapter VI, 
Section 21(a)(i)(C).
    \5\ QUO is an interface that allows NOM Market Makers to 
connect, send, and receive messages related to single-sided orders 
to and from the Exchange. Order Features include the following: (1) 
Options symbol directory messages (e.g., underlying); (2) system 
event messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) order messages; and (6) risk protection 
triggers and cancel notifications. Orders submitted by NOM Market 
Makers over this interface are treated as quotes. See NOM Rules at 
Chapter VI, Section 21(a)(i)(D).
---------------------------------------------------------------------------

    The Prior Rule Change, which is effective but not yet operative, 
renamed the current OTTO to ``QUO.'' The proposed changes herein seek 
to rename that protocol accordingly within the

[[Page 57775]]

rules where OTTO is specified in the Rulebook. The Prior Rule Change 
also adopted a new OTTO protocol, which is the same OTTO protocol 
currently utilized by market participants on Nasdaq ISE, LLC (``ISE'') 
today.\6\ The proposal introduces the new OTTO protocol within NOM 
rules.
---------------------------------------------------------------------------

    \6\ See Supplementary Material .03(b) to Rule 715.
---------------------------------------------------------------------------

Detection of Loss of Communication
    Chapter VI, Section 6(e), ``Detection of Loss of Communication'' 
describes the impact to NOM protocols in the event of a loss of a 
communication. The Exchange identifies the various protocols available 
on NOM within this rule. The Exchange proposes several amendments.
    First, the Exchange proposes to replace references to the term 
``Participant'' with ``NOM Market Maker'' within the current rule text 
where the protocol is only available to NOM Market Makers.\7\ This new 
text will add greater specificity to the rule.
---------------------------------------------------------------------------

    \7\ The Exchange is proposing these changes within Chapter VI, 
Section 6(e)(i), Section 6(e)(i)(B), current Section 6(e)(iv), 
Section 6(e)(iv)(A) and Section 6(e)(iv)(B).
---------------------------------------------------------------------------

    Second, the Exchange proposes to add the term ``QUO'' to Chapter 
VI, Section 6(e)(i)(A) which defines a ``Heartbeat'' to account for the 
renamed current OTTO protocol within the list. The existing reference 
to current OTTO would remain and such reference would now refer to the 
new OTTO protocol. No changes are necessary to the text because the 
operation of the two protocols are the same for purposes of this 
specific rule text.
    Third, the Exchange notes that current OTTO is accounted for within 
NOM Rules at Chapter VI, Section 6(e). Specifically, Section 6(e)(iii) 
and current Section 6(e)(vi), which is proposed to be renumbered as 
Section 6(e)(viii), currently describe the current OTTO protocol. The 
Exchange is not amending this language because this language would be 
the same for the new OTTO protocol. To avoid confusion in marking the 
text, the Exchange proposes to allow this text to remain and simply 
replicate the text for the renamed QUO protocol. No changes are 
necessary to the existing OTTO text because the operation of the two 
protocols, as it relates to this specific text, is the same. The 
standards for disconnecting current OTTO, renamed ``QUO'' and new OTTO 
are identical. The Exchange therefore proposes a new Chapter VI, 
Section 6(e)(i)(D) to define QUO as the Exchange's System component 
through which NOM Market Makers communicate orders from the Client 
Application. Because the renamed QUO interface accepts orders submitted 
by NOM Market Makers, which are treated as quotes for purposes of 
quoting obligations, this interface is identified as an order entry 
interface. Chapter VI, Section 6(e)(i)(D), defining Client Application, 
is being re-lettered to Section 6(e)(i)(E). Also, the Exchange proposes 
a new Section 6(e)(iv) which provides,

    When the QUO Port detects the loss of communication with a NOM 
Market Maker's Client Application because the Exchange's server does 
not receive a Heartbeat message for a certain time period (``nn'' 
seconds), the Exchange will automatically logoff the NOM Market 
Maker's affected Client Application and if the NOM Market Maker has 
elected to have its orders cancelled pursuant to Chapter VI, Section 
6(e)(viii) automatically cancel all open orders posted.

    The Exchange also proposes to renumber subsequent sections and add 
a corresponding new section for QUO within Section 6(e)(viii) which 
provides,

    The default time period (``nn'' seconds) for QUO Ports shall be 
fifteen (15) seconds for the disconnect and, if elected, the removal 
of orders. If the NOM Market Maker elects to have its orders 
removed, in addition to the disconnect, the NOM Market Maker may 
determine another time period of ``nn'' seconds of no technical 
connectivity, as required in paragraph (iii) above, to trigger the 
disconnect and removal of orders and communicate that time to the 
Exchange. The period of ``nn'' seconds may be modified to a number 
between one hundred (100) milliseconds and 99,999 milliseconds for 
QUO Ports prior to each session of connectivity to the Exchange. 
This feature may be disabled for the removal of orders, however the 
NOM Market Maker will be disconnected.
    (A) If the NOM Market Maker systemically changes the default 
number of ``nn'' seconds, that new setting shall be in effect 
throughout the current session of connectivity and will then default 
back to fifteen seconds. The NOM Market Maker may change the default 
setting systemically prior to each session of connectivity.
    (B) If a time period is communicated to the Exchange by calling 
Exchange operations, the number of ``nn'' seconds selected by the 
NOM Market Maker shall persist for each subsequent session of 
connectivity until the NOM Market Maker either contacts Exchange 
operations and changes the setting or the NOM Market Maker 
systemically selects another time period prior to the next session 
of connectivity.

    These sections will refer to the renamed QUO protocol separately 
from the new OTTO protocol. As noted above, the existing OTTO rule text 
would refer to the new OTTO and would have the same 15 second default 
time period as current OTTO, renamed ``QUO.'' The new section for QUO 
will represent that protocol going forward so that all NOM protocols 
are represented within the rule.
    Fifth, the Exchange proposes to renumber Section 6(e)(vii) to 
Section 6(e)(ix) and add references to the renamed QUO protocol in this 
paragraph. The trigger for all protocols is described in this section. 
The current OTTO reference shall now refer to the new OTTO and renamed 
QUO is being added so all protocols are accounted for within the text.
Opening and Halt Cross
    The Exchange proposes to amend Chapter VI, Section 8, ``Nasdaq 
Opening and Halt Cross,'' at Section 8(a)(4), ``Eligible Interest,'' to 
reflect the addition of an order entry protocol. As explained above, 
the current OTTO was renamed ``QUO'' and a new ``OTTO'' protocol will 
be added to NOM. The Exchange proposes to add ``OTTO'' to the list of 
protocols that may submit orders, prior to the Nasdaq Opening Cross 
designated with a time-in-force of IOC will be rejected and shall not 
be considered eligible interest. The Exchange proposes to add ``QUO'' 
to the list of protocols that may submit orders that may be submitted 
as quotes prior to the Nasdaq Opening Cross, designated with a time-in-
force of IOC that will remain in-force through the opening and would be 
cancelled immediately after the opening. The Exchange also proposes to 
add the words ``quotes received via'' before SQF to make clear that 
quotes are submitted into the SQF protocol.
    Further, the Exchange proposes to amend Chapter VI, Section 
8(a)(6), ``Valid Width National Best Bid or Offer'' or ``Valid Width 
NBBO'' to add QUO and remove OTTO to the list of protocols that may 
submit orders or quotes to account for the renaming of the current 
protocol. Today, the SQF protocol is a quoting protocol used by NOM 
Market Makers. QUO will permit orders to be entered, which would be 
treated as quotes for purposes of quoting obligations, which orders 
would be eligible for the Opening Process provided they are within a 
specified bid/ask differential as established and published by the 
Exchange. The new OTTO would be an order entry protocol only and 
therefore not eligible to be utilized to submit a Valid Width National 
Best Bid or Offer during the Opening Process.
Data Feeds
    The Exchange proposes to amend Chapter VI, Section 19, ``Data Feeds 
and Trade Information'' to amend ``OTTO DROP'' to ``QUO DROP.'' The 
same description would apply as this data

[[Page 57776]]

feed is simply being renamed. The Exchange notes that the Exchange is 
not offering a similar data feed for the new OTTO.
Definitions
    The Exchange proposes to add three new definitions to Chapter I, 
Section 1. These definitions are utilized in technical documents issued 
by the Exchange and will provide an ease of reference for understanding 
these terms. The Exchange proposes to define account number at Chapter 
I, Section 1(a)(69) as a number assigned to a Participant. Participants 
may have more than one account number. The Exchange proposes to define 
``badge'' at Chapter I, Section 1(a)(70) as an account number, which 
may contain letters and/or numbers, assigned to NOM Market Makers. A 
NOM Market Maker account may be associated with multiple badges. 
Finally, the Exchange proposes to defined ``mnemonic'' at Chapter I, 
Section 1(a)(71) as an acronym comprised of letters and/or numbers 
assigned to Participants. A Participant account may be associated with 
multiple mnemonics.
Risk Protections
    Finally, the Exchange proposes to amend Chapter VI, Section 18 to 
make various amendments as detailed below.
Order Price Protection
    The Exchange proposes to amend the current rule text at Chapter VI, 
Section 18(a)(1) related to the Order Price Protection rule or ``OPP.'' 
First the Exchange proposes to add punctuation and OPP at the beginning 
of that sentence to conform the text to the remainder of the rule.
    Second, the Exchange proposes to remove the example within Chapter 
VI, Section 18(a)(1)(B)(i) which states, ``For example, if the 
Reference BBO on the offer side is $1.10, an order to buy options for 
more than $1.65 would be rejected. Similarly, if the Reference BBO on 
the bid side is $1.10, an order to sell options for less than $0.55 
will be rejected.'' The Exchange also proposes to remove the example 
within Chapter VI, Section 18(a)(1)(B)(ii) which states, ``For example, 
if the Reference BBO on the offer side is $1.00, an order to buy 
options for more than $2.00 would be rejected. However, if the 
Reference BBO of the bid side of an incoming order to sell is less than 
or equal to $1.00, the OPP limits set forth above will result in all 
incoming sell orders being accepted regardless of their limit.'' The 
Exchange notes that while the examples remain accurate, the Exchange 
proposes to remove the text to conform the rule text to other risk 
protections. The Exchange does not believe it is necessary to have 
these examples within the rule text.
    Third, the Exchange proposes to state, with the introduction of 
``QUO'' that OPP shall not apply to orders entered through QUO. Today, 
the Exchange does not offer OPP via current OTTO, which is being 
renamed ``QUO.'' \8\ The Exchange proposes to memorialize its current 
practice within the rule. The Exchange does not offer OPP on current 
OTTO, renamed ``QUO'' because unlike other market participants, Market 
Makers have sophisticated infrastructures as compared to other market 
participants and are able to manage their risk, particularly with 
respect to quoting, using tools that are not available to other market 
participants.\9\ This would not be a change from the current practice.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 64312 (April 20, 
2011), 76 FR 23351 (April 26, 2011) (SR-NASDAQ-2011-053). The 
Exchange noted in the filing that, ``Like the PHLX's OPP, NOM's will 
be available for Participants' orders, but not for market making.''
    \9\ QUO, similar to SQF, is subject to the quote protections 
listed in Chapter VI, Section 18(c).
---------------------------------------------------------------------------

Market Order Spread Protection
    The Exchange proposes two changes to the Market Order Spread 
Protection rule at Chapter VI, Section 18(a)(2). First, NOM proposes to 
add the word ``trading'' before the word ``halt'' Section 18(a)(2) for 
consistency. In the OPP rule text halts are referred to as ``trading 
halts.'' This will avoid confusion as to the use of this term.
    Second, the Exchange proposes to amend the Market Order Spread 
Protection Rule in Chapter VI, Section 18(a)(2) to permit NOM to 
establish different thresholds for one or more series or classes of 
options, which is the same as Phlx.\10\ The Exchange desires, the same 
as Phlx, to be permitted the flexibility to allow it to determine a 
threshold suitable for each series or class of option. The Exchange's 
current rule provides no discretion to permit different thresholds for 
one or more series or classes of options. By adding this rule text, the 
Exchange proposes to permit one or more series or classes of options to 
set a different threshold, which the Exchange would announce via an 
Options Trader Alert, similar to Phlx. The Exchange desires to conform 
this protection to Phlx so that it could set the same threshold across 
affiliated markets. The Phlx Rule Change provided that the $5 threshold 
is appropriate because it seeks to ensure that the displayed bid and 
offer are within reasonable ranges and do not represent erroneous 
prices. Further the Exchange noted that this protection will bolster 
the normal resilience and market behavior that persistently produces 
robust reference prices. This feature should create a level of 
protection that prevents Market Orders from entering the Order Book 
outside of an acceptable range for the Market Order to execute. The 
Exchange notes that those goals remain consistent with the Exchange's 
goals today for this risk feature. The Exchange would establish 
different thresholds for one or more series or classes of options if it 
believed that the threshold should differ to retain these goals.
---------------------------------------------------------------------------

    \10\ Securities Exchange Act Release No. 83141 (May 1, 2018), 83 
FR 20123 (May 7, 2018) (SR-Phlx-2018-32) (``Phlx Rule Change''). 
Footnote 11 of this filing provides that Exchange may establish 
differences other than the referenced threshold for one or more 
series or classes of options.
---------------------------------------------------------------------------

Anti-Internalization
    The Exchange proposes to amend Chapter VI, Section 18(c)(1) to make 
minor changes to capitalize the term ``market maker'' and remove the 
word ``participant,'' make plural the word ``identifier,'' and change 
the word ``member'' to ``Participant.'' These changes are intended to 
conform the language to the remainder of the risk protection rules. 
Further, the Exchange proposes to replace the phrase ``Exchange account 
identifier or member firm identifier'' with ``account number or 
Participant identifier.'' The Exchange defined ``account number'' 
herein and proposes that definition in place of ``Exchange account 
identifier.'' Also, for consistency, ``member'' is being replaced with 
``Participant'' in this sentence as well.
Automated Removal of Quotes
    Finally, the Exchange proposes to amend the title of Chapter VI, 
Section 18(c)(2) from ``Automated Removal of Quotes'' to ``Quotation 
Adjustments'' to conform the title across Nasdaq markets.
Implementation
    The Exchange proposes to implement the rule changes for QUO and 
OTTO at the same time that the Exchange announces SR-NASDAQ-2018-069 
will be operative.\11\ The Exchange proposes to implement the changes 
for OPP in Q4 of 2018. The Exchange will announce the date of 
implementation via an Options Traders Alert.
---------------------------------------------------------------------------

    \11\ See note 3 above.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the

[[Page 57777]]

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 of a free and open 
market and a national market system, and, in general to protect 
investors and the public interest by adopting new definitions and 
amending the rule text for Anti-Internalization to conform the rule 
text to other risk protection rules and utilize a proposed new 
definition. The Exchange believes that these proposed amendments will 
add greater transparency to the Exchange's rules.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Detection of Loss of Communication
    With respect to the new OTTO protocol which was introduced with the 
Prior Rule Change, all NOM Participants will be able to utilize this 
protocol. The Exchange believes that applying the removal functionality 
specified within NOM Rules at Chapter VI, Section 6(e) for the new OTTO 
protocol is consistent with the Act because it prevents disruption in 
the marketplace by protecting market participants. Market participants 
utilizing new OTTO will have the option to either enable or disable the 
cancellation feature, thereby offering the same risk protections 
throughout the market to participants utilizing other protocols. 
Further, it is appropriate to offer this removal feature as optional to 
all market participants utilizing new OTTO, because unlike NOM Market 
Makers who are required to provide quotes in all products in which they 
are registered, market participants utilizing new OTTO do not bear the 
same magnitude of risk of potential erroneous or unintended executions. 
In addition, market participants utilizing new OTTO may desire their 
orders to remain on the order book despite a technical disconnect, so 
as not to miss any opportunities for execution of such orders while the 
OTTO port is disconnected. The Exchange believes that it is consistent 
with the Act to require other market participants to be disconnected 
because the Participant is otherwise not connected to the Exchange's 
System and the Participant simply needs to reconnect to commence 
submitting and cancelling orders.
Opening and Halt Cross
    The Exchange's proposal to reflect QUO, the renamed current OTTO 
protocol, within Chapter VI at Sections 6(e), 8 and 19 and permit the 
references to the current OTTO protocol to reflect the new OTTO 
protocol will account for all the protocols available on NOM within 
these Rules. Specifically, the Exchange's proposal will make clear that 
QUO will be available to NOM Market Makers and would be considered 
eligible interest during the Opening Process and which types of orders 
are eligible as Valid Width Quotes. Finally, the features available for 
disconnects and the availability of QUO DROP are being specified in 
this proposal. The Exchange believes that the proposed rule change is 
consistent with the protection of investors and the public interest 
because current OTTO is simply being renamed ``QUO.'' Renaming this 
protocol with its rules will make clear how QUO orders may be entered 
and cancelled by the System and avoid confusion for investors. With 
respect to the Opening Process described in NOM Rules at Chapter VI, 
Section 8, the Exchange's proposal to replace ``OTTO'' with ``QUO'' 
reflects the name change. Only quotes and in this case orders, which 
are treated as quotes for quoting obligations, may qualify for a Valid 
Width National Best Bid or Offer during the Opening Process. Also, 
adding QUO to the list of Eligible Interest brings greater clarity to 
market participants regarding the changes to the NOM protocols. The 
current OTTO references will reflect the new OTTO protocol with these 
changes. Finally, the change to Chapter VI, Section 19(b) simply 
accounts for the name change. The Exchange is not amending the proposed 
``QUO DROP'' functionality.
Risk Protections
    With respect to not offering OPP for QUO, the Exchange believes it 
is consistent with the Act because unlike other market participants, 
Market Makers have sophisticated infrastructures as compared to other 
market participants and are able to manage their risk, particularly 
with respect to quoting, using tools that are not available to other 
market participants. Also, QUO is subject to the quote protections 
listed in Chapter VI, Section 18(c). Market Makers handle a large 
amount of risk when quoting and in addition to the risk protections 
required by the Exchange and utilize their own risk management 
parameters when entering orders, minimizing the likelihood of error. 
The Exchange believes that Market Makers, unlike other market 
participants, have the ability to manage their risk and are being 
offered two protocols to quote.
    The Exchange's proposal to expand the Market Order Spread 
Protection permits the Exchange to establish different thresholds for 
one or more series or classes of options which is the same as Phlx. The 
Exchange desires this flexibility to allow it, the same as Phlx,\14\ to 
determine a threshold suitable for each series or class of option. The 
Exchange believes that expanding this capability is consistent with the 
Act because it would allow the Exchange to consider thresholds for 
Market Order Spread Protection at a more granular level, per series or 
class, to ensure that the displayed bid and offer are within reasonable 
ranges and do not represent erroneous prices. The Exchange intends that 
this risk protection would bolster the normal resilience and market 
behavior that persistently produces robust reference prices, while 
creating a level of protection that prevents Market Orders from 
entering the Order Book outside of an acceptable range for the Market 
Order to execute.
---------------------------------------------------------------------------

    \14\ See note 10 above.
---------------------------------------------------------------------------

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's proposal to 
adopt new definitions and amend the rule text for Anti-Internalization 
to conform the rule text to other risk protection rules and utilize a 
proposed new definition does not impose an undue burden on competition 
because the proposal brings transparency to the Exchange's rules.
    The Exchange's proposal to add references to renamed QUO to Chapter 
VI, Sections 6(e), 8 and 19 will clarify the name change of the current 
OTTO protocol to renamed ``QUO'' and will also make clear that QUO is 
available only to NOM Market Makers. The Exchange's proposal to 
introduce the new OTTO protocol for purposes of the detection of loss 
of communication functionality does not impose an undue burden on 
competition because all market participants will be permitted to 
utilize OTTO to submit orders during the opening and will also be able 
to avail themselves of the protections offered by a loss of 
communication, similar to other protocols.
    Finally, no Market Maker would receive OPP protection, however all 
Market Makers would receive the quote protections listed in Chapter VI, 
Section 18(c). The Exchange believes that unlike other market 
participants, Market Makers have sophisticated infrastructures as 
compared to other market participants and are able to manage their 
risk, particularly with respect to quoting, using tools that are

[[Page 57778]]

not available to other market participants.
    The Exchange's proposal to expand the Market Order Spread 
Protection to permit the Exchange to establish different thresholds for 
one or more series or classes of options, the same as Phlx, would apply 
uniformly to all market participants.

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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \17\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ 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 believes that waiver of the operative delay would allow the 
Exchange to update its rules without delay to reflect the proposed 
amendments with respect to QUO and OTTO at the same time as it proposes 
to implement the new OTTO functionality, and bring greater transparency 
to the Exchange's risk protections. Additionally, the Commission notes 
that the changes relating to the OTTO protocol and risk protections are 
based on the operation of similar functionality on Nasdaq ISE and Phlx, 
respectively. 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.\19\
---------------------------------------------------------------------------

    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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).
---------------------------------------------------------------------------

    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.

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-2018-085 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-2018-085. 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-2018-085, and should be submitted 
on or before December 7, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24981 Filed 11-15-18; 8:45 am]
 BILLING CODE 8011-01-P
57774 Federal Register / Vol. 83, No. 222 / Friday, November 16, 2018 / Notices

designates the proposed rule change business days between the hours of the Commission’s Public Reference
operative upon filing.11 10:00 a.m. and 3:00 p.m. Copies of the Room.
At any time within 60 days of the filing also will be available for
filing of the proposed rule change, the II. Self-Regulatory Organization’s
inspection and copying at the principal
Commission summarily may Statement of the Purpose of, and
office of the Exchange. All comments
temporarily suspend such rule change if Statutory Basis for, the Proposed Rule
received will be posted without change.
it appears to the Commission that such Change
Persons submitting comments are
action is necessary or appropriate in the cautioned that we do not redact or edit In its filing with the Commission, the
public interest, for the protection of personal identifying information from Exchange included statements
investors, or otherwise in furtherance of comment submissions. You should concerning the purpose of and basis for
the purposes of the Act. If the submit only information that you wish the proposed rule change and discussed
Commission takes such action, the to make available publicly. All any comments it received on the
Commission shall institute proceedings submissions should refer to File proposed rule change. The text of these
to determine whether the proposed rule Number SR–GEMX–2018–36, and statements may be examined at the
change should be approved or should be submitted on or before places specified in Item IV below. The
disapproved. December 7, 2018. Exchange has prepared summaries, set
forth in sections A, B, and C below, of
IV. Solicitation of Comments For the Commission, by the Division of
Trading and Markets, pursuant to delegated the most significant aspects of such
Interested persons are invited to authority.12 statements.
submit written data, views, and Brent J. Fields,
arguments concerning the foregoing, A. Self-Regulatory Organization’s
Secretary. Statement of the Purpose of, and
including whether the proposed rule
change is consistent with the Act. [FR Doc. 2018–25030 Filed 11–15–18; 8:45 am] Statutory Basis for, the Proposed Rule
Comments may be submitted by any of BILLING CODE 8011–01–P Change
the following methods: 1. Purpose
Electronic Comments SECURITIES AND EXCHANGE Nasdaq recently filed a rule change 3
• Use the Commission’s internet COMMISSION which adopted a new protocol ‘‘Ouch to
comment form (http://www.sec.gov/ Trade Options’’ or ‘‘OTTO’’ 4 and
[Release No. 34–84559; File No. SR–
rules/sro.shtml); or NASDAQ–2018–085]
renamed the current OTTO protocol as
• Send an email to rule-comments@ ‘‘Quote Using Orders’’ or ‘‘QUO’’.5 The
sec.gov. Please include File Number SR– Self-Regulatory Organizations; The Exchange proposes to reflect the
GEMX–2018–36 on the subject line. Nasdaq Stock Market LLC; Notice of changes made in the Prior Rule Change
Filing and Immediate Effectiveness of within various NOM Rules which refer
Paper Comments Proposed Rule Change To Amend to protocols.
• Send paper comments in triplicate Various Rules To Reflect Changes to The Prior Rule Change, which is
to Secretary, Securities and Exchange The Nasdaq Options Market LLC effective but not yet operative, renamed
Commission, 100 F Street NE, (‘‘NOM’’) Protocols the current OTTO to ‘‘QUO.’’ The
Washington, DC 20549–1090. proposed changes herein seek to rename
All submissions should refer to File November 9, 2018. that protocol accordingly within the
Number SR–GEMX–2018–36. This file Pursuant to Section 19(b)(1) of the
number should be included on the Securities Exchange Act of 1934 3 See Securities Exchange Act Release No. 83888

subject line if email is used. To help the (‘‘Act’’),1 and Rule 19b–4 thereunder,2 (August 20, 2018), 83 FR 42954 (August 24, 2018)
notice is hereby given that on October (SR–NASDAQ–2018–069) (‘‘Prior Rule Change’’).
Commission process and review your This rule change is immediately effective but will
comments more efficiently, please use 29, 2018, The Nasdaq Stock Market LLC not be operative until such time as the Exchange
only one method. The Commission will (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the issues an Options Trader Alert announcing the
post all comments on the Commission’s Securities and Exchange Commission implementation date. This notification will be
(‘‘Commission’’) the proposed rule issued in Q4 2018. The Exchange notes that this
internet website (http://www.sec.gov/ filing renamed the current OTTO protocol as
rules/sro.shtml). Copies of the change as described in Items I and II ‘‘QUO’’ and also proposed the adoption of a new
submission, all subsequent below, which Items have been prepared OTTO protocol.
amendments, all written statements by the Exchange. The Commission is 4 OTTO is an interface that allows Participants

publishing this notice to solicit and their Sponsored Customers to connect, send,
with respect to the proposed rule and receive messages related to orders to and from
change that are filed with the comments on the proposed rule change the Exchange. Features include the following: (1)
Commission, and all written from interested persons. Options symbol directory messages (e.g.,
underlying); (2) system event messages (e.g., start of
communications relating to the I. Self-Regulatory Organization’s trading hours messages and start of opening); (3)
proposed rule change between the Statement of the Terms of Substance of trading action messages (e.g., halts and resumes); (4)
Commission and any person, other than the Proposed Rule Change execution messages; (5) order messages; and (6) risk
those that may be withheld from the protection triggers and cancel notifications. See
The Exchange proposes to amend NOM Rules at Chapter VI, Section 21(a)(i)(C).
public in accordance with the
various rules to reflect changes to The 5 QUO is an interface that allows NOM Market
provisions of 5 U.S.C. 552, will be
Nasdaq Options Market LLC (‘‘NOM’’) Makers to connect, send, and receive messages
available for website viewing and related to single-sided orders to and from the
protocols.
printing in the Commission’s Public The text of the proposed rule change
Exchange. Order Features include the following: (1)
amozie on DSK3GDR082PROD with NOTICES

Reference Room, 100 F Street NE, Options symbol directory messages (e.g.,
is available on the Exchange’s website at underlying); (2) system event messages (e.g., start of
Washington, DC 20549 on official http://nasdaq.cchwallstreet.com, at the trading hours messages and start of opening); (3)
principal office of the Exchange, and at trading action messages (e.g., halts and resumes); (4)
11 For purposes only of waiving the 30-day execution messages; (5) order messages; and (6) risk
operative delay, the Commission also has protection triggers and cancel notifications. Orders
12 17 CFR 200.30–3(a)(12).
considered the proposed rule’s impact on submitted by NOM Market Makers over this
1 15 U.S.C. 78s(b)(1).
efficiency, competition, and capital formation. See interface are treated as quotes. See NOM Rules at
15 U.S.C. 78c(f). 2 17 CFR 240.19b–4. Chapter VI, Section 21(a)(i)(D).

VerDate Sep<11>2014 17:19 Nov 15, 2018 Jkt 247001 PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 E:\FR\FM\16NON1.SGM 16NON1
Federal Register / Vol. 83, No. 222 / Friday, November 16, 2018 / Notices 57775

rules where OTTO is specified in the interface accepts orders submitted by that all NOM protocols are represented
Rulebook. The Prior Rule Change also NOM Market Makers, which are treated within the rule.
adopted a new OTTO protocol, which is as quotes for purposes of quoting Fifth, the Exchange proposes to
the same OTTO protocol currently obligations, this interface is identified as renumber Section 6(e)(vii) to Section
utilized by market participants on an order entry interface. Chapter VI, 6(e)(ix) and add references to the
Nasdaq ISE, LLC (‘‘ISE’’) today.6 The Section 6(e)(i)(D), defining Client renamed QUO protocol in this
proposal introduces the new OTTO Application, is being re-lettered to paragraph. The trigger for all protocols
protocol within NOM rules. Section 6(e)(i)(E). Also, the Exchange is described in this section. The current
proposes a new Section 6(e)(iv) which OTTO reference shall now refer to the
Detection of Loss of Communication new OTTO and renamed QUO is being
provides,
Chapter VI, Section 6(e), ‘‘Detection of added so all protocols are accounted for
When the QUO Port detects the loss of
Loss of Communication’’ describes the within the text.
communication with a NOM Market Maker’s
impact to NOM protocols in the event Client Application because the Exchange’s
of a loss of a communication. The Opening and Halt Cross
server does not receive a Heartbeat message
Exchange identifies the various for a certain time period (‘‘nn’’ seconds), the The Exchange proposes to amend
protocols available on NOM within this Exchange will automatically logoff the NOM Chapter VI, Section 8, ‘‘Nasdaq Opening
rule. The Exchange proposes several Market Maker’s affected Client Application and Halt Cross,’’ at Section 8(a)(4),
amendments. and if the NOM Market Maker has elected to ‘‘Eligible Interest,’’ to reflect the
First, the Exchange proposes to have its orders cancelled pursuant to Chapter addition of an order entry protocol. As
replace references to the term VI, Section 6(e)(viii) automatically cancel all explained above, the current OTTO was
‘‘Participant’’ with ‘‘NOM Market open orders posted. renamed ‘‘QUO’’ and a new ‘‘OTTO’’
Maker’’ within the current rule text The Exchange also proposes to protocol will be added to NOM. The
where the protocol is only available to renumber subsequent sections and add Exchange proposes to add ‘‘OTTO’’ to
NOM Market Makers.7 This new text a corresponding new section for QUO the list of protocols that may submit
will add greater specificity to the rule. within Section 6(e)(viii) which orders, prior to the Nasdaq Opening
Second, the Exchange proposes to add provides, Cross designated with a time-in-force of
the term ‘‘QUO’’ to Chapter VI, Section The default time period (‘‘nn’’ seconds) for IOC will be rejected and shall not be
6(e)(i)(A) which defines a ‘‘Heartbeat’’ to QUO Ports shall be fifteen (15) seconds for considered eligible interest. The
account for the renamed current OTTO the disconnect and, if elected, the removal of Exchange proposes to add ‘‘QUO’’ to the
protocol within the list. The existing orders. If the NOM Market Maker elects to list of protocols that may submit orders
reference to current OTTO would have its orders removed, in addition to the that may be submitted as quotes prior to
remain and such reference would now disconnect, the NOM Market Maker may the Nasdaq Opening Cross, designated
refer to the new OTTO protocol. No determine another time period of ‘‘nn’’ with a time-in-force of IOC that will
changes are necessary to the text seconds of no technical connectivity, as
required in paragraph (iii) above, to trigger
remain in-force through the opening and
because the operation of the two would be cancelled immediately after
the disconnect and removal of orders and
protocols are the same for purposes of communicate that time to the Exchange. The the opening. The Exchange also
this specific rule text. period of ‘‘nn’’ seconds may be modified to proposes to add the words ‘‘quotes
Third, the Exchange notes that current a number between one hundred (100) received via’’ before SQF to make clear
OTTO is accounted for within NOM milliseconds and 99,999 milliseconds for that quotes are submitted into the SQF
Rules at Chapter VI, Section 6(e). QUO Ports prior to each session of protocol.
Specifically, Section 6(e)(iii) and connectivity to the Exchange. This feature Further, the Exchange proposes to
current Section 6(e)(vi), which is may be disabled for the removal of orders, amend Chapter VI, Section 8(a)(6),
proposed to be renumbered as Section however the NOM Market Maker will be
disconnected.
‘‘Valid Width National Best Bid or
6(e)(viii), currently describe the current Offer’’ or ‘‘Valid Width NBBO’’ to add
(A) If the NOM Market Maker systemically
OTTO protocol. The Exchange is not changes the default number of ‘‘nn’’ seconds, QUO and remove OTTO to the list of
amending this language because this that new setting shall be in effect throughout protocols that may submit orders or
language would be the same for the new the current session of connectivity and will quotes to account for the renaming of
OTTO protocol. To avoid confusion in then default back to fifteen seconds. The the current protocol. Today, the SQF
marking the text, the Exchange proposes NOM Market Maker may change the default protocol is a quoting protocol used by
to allow this text to remain and simply setting systemically prior to each session of NOM Market Makers. QUO will permit
replicate the text for the renamed QUO connectivity.
(B) If a time period is communicated to the
orders to be entered, which would be
protocol. No changes are necessary to treated as quotes for purposes of quoting
the existing OTTO text because the Exchange by calling Exchange operations, the
number of ‘‘nn’’ seconds selected by the obligations, which orders would be
operation of the two protocols, as it NOM Market Maker shall persist for each eligible for the Opening Process
relates to this specific text, is the same. subsequent session of connectivity until the provided they are within a specified
The standards for disconnecting current NOM Market Maker either contacts Exchange bid/ask differential as established and
OTTO, renamed ‘‘QUO’’ and new OTTO operations and changes the setting or the published by the Exchange. The new
are identical. The Exchange therefore NOM Market Maker systemically selects OTTO would be an order entry protocol
proposes a new Chapter VI, Section another time period prior to the next session
only and therefore not eligible to be
6(e)(i)(D) to define QUO as the of connectivity.
utilized to submit a Valid Width
Exchange’s System component through These sections will refer to the National Best Bid or Offer during the
which NOM Market Makers renamed QUO protocol separately from Opening Process.
amozie on DSK3GDR082PROD with NOTICES

communicate orders from the Client the new OTTO protocol. As noted
Application. Because the renamed QUO above, the existing OTTO rule text Data Feeds
would refer to the new OTTO and The Exchange proposes to amend
6 See Supplementary Material .03(b) to Rule 715.
7 The
would have the same 15 second default Chapter VI, Section 19, ‘‘Data Feeds and
Exchange is proposing these changes within
Chapter VI, Section 6(e)(i), Section 6(e)(i)(B),
time period as current OTTO, renamed Trade Information’’ to amend ‘‘OTTO
current Section 6(e)(iv), Section 6(e)(iv)(A) and ‘‘QUO.’’ The new section for QUO will DROP’’ to ‘‘QUO DROP.’’ The same
Section 6(e)(iv)(B). represent that protocol going forward so description would apply as this data

VerDate Sep<11>2014 17:19 Nov 15, 2018 Jkt 247001 PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 E:\FR\FM\16NON1.SGM 16NON1
Document Created: 2018-11-16 07:23:25
Document Modified: 2018-11-16 07:23:25
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		83 FR 57774