83 FR 59433 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Approving a Proposed Rule Change To Amend Rules 1000, 1064, and 1069 To Allow for the Snapshot Functionality of the Floor-Based Management System To Be Used for All Orders
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 226 (November 23, 2018)
Federal Register Volume 83, Issue 226 (November 23, 2018)
| Page Range | 59433-59434 | |
| FR Document | 2018-25467 |
[Federal Register Volume 83, Number 226 (Friday, November 23, 2018)] [Notices] [Pages 59433-59434] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-25467] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-84610; File No. SR-Phlx-2018-59] Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Approving a Proposed Rule Change To Amend Rules 1000, 1064, and 1069 To Allow for the Snapshot Functionality of the Floor-Based Management System To Be Used for All Orders November 16, 2018. I. Introduction On September 18, 2018, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to allow the Snapshot functionality of the Floor-Based Management System (``FBMS'') to be used for all orders on the trading floor. The proposed rule change was published for comment in the Federal Register on October 2, 2018.\3\ The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 84290 (September 26, 2018), 83 FR 49596 (``Notice''). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change The ``Snapshot'' functionality of the FBMS allows a Floor Broker, Registered Options Trader (``ROT''), or Specialist to ``provisionally execute'' \4\ a trade in the trading crowd and capture and record the market conditions that exist at the time of the provisional execution.\5\ Once the member triggers the Snapshot, the member has up to 30 seconds to use the information recorded on the Snapshot for purposes of entering the terms of the provisionally-executed trade into FBMS and submitting the trade to the Trading System.\6\ Once submitted, the Trading System will only execute the trade if it is consistent with the applicable priority and trade-through rules based upon the prevailing market as reflected on the Snapshot at the time of the provisional execution. The Trading System will reject a trade that is subject to a Snapshot if it would violate trade-though or priority rules.\7\ --------------------------------------------------------------------------- \4\ A ``provisional execution'' occurs in the trading crowd when either (1) the participants to a trade reach a verbal agreement in the trading crowd as to the terms of the trade; or (ii) a member announces that he is crossing an order in accordance with Phlx Rule 1064(a). See Phlx Rule 1069(a)(i)(A). See also Notice, supra note 3, at 49596-97 n.5. \5\ See Securities Exchange Act Release No. 81980 (October 30, 2017), 82 FR 51313 (November 3, 2017) (SR-Phlx-2017-34) (approving the Snapshot functionality as an exception to Phlx Rule 1000(f)) (``Snapshot Approval''). See also Securities Exchange Act Release No. 83656 (July 17, 2018), 82 FR 34899 (July 23, 2018) (SR-Phlx- 2018-40) (expanding the availability of the Snapshot feature to ROTS and Specialists). \6\ See Notice, supra note 3, at 49596-97. \7\ See id. at 49597. --------------------------------------------------------------------------- Currently, the ``Snapshot'' feature of the FBMS may only be used to provisionally execute certain types of orders in the trading crowd. Specifically, Floor Brokers, Specialists, and ROTS may only use Snapshot to provisionally execute multi-leg orders and simple orders in options on Exchange Traded Funds (``ETFs'') that are included in the Options Penny Pilot.\8\ The Exchange proposes to expand the use of the Snapshot functionality to all orders on the trading floor, subject to the current procedures for and the limitations on the use of Snapshot.\9\ The Exchange believes that [[Page 59434]] its proposed expansion of the use of Snapshot will make the functionality simpler, more consistent, and more useful in a greater number of circumstances than it is currently.\10\ To effectuate these changes, the Exchange proposes several modifications to Phlx Rules 1000, 1064, and 1069.\11\ --------------------------------------------------------------------------- \8\ See Phlx Rule 1069(a)(i)(A). \9\ See Notice, supra note 3, at 49596-97. The procedures and limitations regarding the current use of Snapshot are currently set forth in Phlx Rule 1069 and will continue to apply. \10\ See Notice, supra note 3, at 49597. \11\ A more detailed description of the proposal appears in the Notice. --------------------------------------------------------------------------- The Exchange represents that it does not anticipate that the use of Snapshot to provisionally execute all orders, rather than just multi- leg or simple orders in options on ETFs that are included in the Options Penny Pilot, will materially increase the risk that Snapshot will be overused or abused relative to its current use.\12\ Therefore, the Exchange proposes to utilize the same methods it currently uses to surveil its members' use of the Snapshot functionality and represents that if Surveillance detects a significant uptick in improper usage, the Exchange will evaluate whether additional controls are necessary.\13\ --------------------------------------------------------------------------- \12\ See Notice, supra note 3, at 49597. \13\ See id. --------------------------------------------------------------------------- Finally, the Exchange notes that it expects to make Snapshot available for all orders before the end of the fourth quarter of 2018 and represents that it will notify its members via an Options Trader Alert, to be posted on the Exchange's website, at least seven calendar days prior to the date when Snapshot will be available for expanded use.\14\ --------------------------------------------------------------------------- \14\ See id. --------------------------------------------------------------------------- III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\15\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\16\ which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities and, in general, to protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \15\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \16\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Commission notes that use of the Snapshot functionality for certain orders is one of the current exceptions set forth in Phlx Rule 1000(f), and allows Floor Brokers, ROTS, and Specialists to provisionally execute, in the options trading crowd (as opposed to through FBMS), multi-leg orders and simple orders in options on ETFs that are included in the Options Penny Pilot.\17\ According to the Exchange, Snapshot promotes just and equitable principles of trade and serves the interests of investors and the public by increasing the likelihood that investors will be able to execute their orders and do so in line with their expectations.\18\ The Exchange further represents that Snapshot is designed to mitigate the risk that the Trading System will reject a trade due to a change in market conditions that occurs between the time when the parties to a trade negotiate a valid trade on the trading floor and the time when the Trading System receives the trade. The Exchange believes that expanding the availability of Snapshot to all orders will broaden the scope of these protections to the benefit of investors and will make the exchange's trading floor more competitive with other trading venues because it will make the trading floor operate more efficiently.\19\ --------------------------------------------------------------------------- \17\ See Phlx Rule 1000(f)(iii)(E). \18\ See Notice, supra note 3, at 49597. \19\ See id. at 49597-98. --------------------------------------------------------------------------- Further, the Exchange represents that the proposal is consistent with Rule 611 of Regulation NMS, which requires the Exchange to establish policies and procedures that are reasonably designed to prevent trade-throughs of protected quotations. The Exchange notes that although the proposal will change the time of execution of a trade for purposes of verifying compliance with trade-though and priority rules, the current automated compliance verification process will continue to apply and will systematically prevent any violation of the trade-though and priority rules.\20\ Finally, as noted above, the Exchange does not believe that the proposal will increase the risk that Snapshot will be used improperly and believes that its existing design controls are sufficient to continue to closely monitor Snapshot usage by its members.\21\ --------------------------------------------------------------------------- \20\ See id. at 49598. \21\ See id. at 49597. --------------------------------------------------------------------------- The Commission notes that, at the time Snapshot was adopted, the Exchange adopted several measures to help ensure that Snapshot operates, and is used by members, in a manner that is consistent with the Act and Phlx's rules.\22\ The Commission notes that these measures will continue to apply to the expanded application of Snapshot to all orders and should continue to ensure that the Snapshot functionality will be used in a manner that is consistent with the Act and Phlx's Rules. For example, Phlx Rule 1069(a)(i)(B) will continue to prohibit all members from triggering the Snapshot feature for the purpose of obtaining favorable, or avoiding unfavorable, priority or trade-through conditions. In addition, the Exchange represents that its surveillance staff will monitor the expanded use of Snapshot and will evaluate whether additional controls are needed if the Exchange detects a significant uptick in improper usage.\23\ --------------------------------------------------------------------------- \22\ See Snapshot Approval, supra note 5, at 51316. \23\ See Notice, supra note 3, at 49597. --------------------------------------------------------------------------- For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act \24\ and the rules and regulations thereunder applicable to national securities exchanges. --------------------------------------------------------------------------- \24\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\25\ that the proposed rule change (SR-Phlx-2018-59) be, and hereby is, approved. --------------------------------------------------------------------------- \25\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\26\ --------------------------------------------------------------------------- \26\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-25467 Filed 11-21-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 226 / Friday, November 23, 2018 / Notices 59433
Company Act and to enable the Commission rules and forms. Register on October 2, 2018.3 The
Commission to administer the Compliance with the collection of Commission received no comment
provisions of the Investment Company information requirements of Form N–8A letters on the proposed rule change.
Act with respect to those companies. is mandatory. Responses to the This order approves the proposed rule
After an investment company has filed collection of information will not be change.
its notification of registration under kept confidential. An agency may not
section 8(a), the company is then subject conduct or sponsor, and a person is not II. Description of the Proposed Rule
to the provisions of the Investment required to respond to, a collection of Change
Company Act which govern certain information unless it displays a The ‘‘Snapshot’’ functionality of the
aspects of its organization and activities, currently valid OMB control number. FBMS allows a Floor Broker, Registered
such as the composition of its board of The public may view the background Options Trader (‘‘ROT’’), or Specialist to
directors and the issuance of senior documentation for this information ‘‘provisionally execute’’ 4 a trade in the
securities. Form N–8A requires an collection at the following website, trading crowd and capture and record
investment company to provide its www.reginfo.gov. Comments should be the market conditions that exist at the
name, state of organization, form of directed to: (i) Desk Officer for the time of the provisional execution.5 Once
organization, classification, the name Securities and Exchange Commission, the member triggers the Snapshot, the
and address of each investment adviser Office of Information and Regulatory member has up to 30 seconds to use the
of the investment company, the current Affairs, Office of Management and information recorded on the Snapshot
value of its total assets, and certain Budget, Room 10102, New Executive for purposes of entering the terms of the
other information readily available to Office Building, Washington, DC 20503, provisionally-executed trade into FBMS
the investment company. If the or by sending an email to: and submitting the trade to the Trading
investment company is filing a Lindsay.M.Abate@omb.eop.gov ; and (ii) System.6 Once submitted, the Trading
registration statement as required by Charles Riddle, Acting Director/Chief System will only execute the trade if it
Section 8(b) of the Investment Company Information Officer, Securities and is consistent with the applicable priority
Act concurrently with its notification of Exchange Commission, c/o Candace and trade-through rules based upon the
registration, Form N–8A requires only Kenner, 100 F Street NE, Washington, prevailing market as reflected on the
that the registrant file the cover page DC 20549 or send an email to: PRA_ Snapshot at the time of the provisional
(giving its name, address, and agent for Mailbox@sec.gov. Comments must be execution. The Trading System will
service of process) and sign the form in submitted to OMB within 30 days of
reject a trade that is subject to a
order to effect registration. this notice.
Snapshot if it would violate trade-
Based on recent filings of notifications Dated: November 19, 2018. though or priority rules.7
of registration on Form N–8A, we Eduardo A. Aleman,
estimate that about 96 investment Currently, the ‘‘Snapshot’’ feature of
Assistant Secretary. the FBMS may only be used to
companies file such notifications each
year. An investment company must only [FR Doc. 2018–25490 Filed 11–21–18; 8:45 am] provisionally execute certain types of
file a notification of registration on BILLING CODE 8011–01–P orders in the trading crowd.
Form N–8A once. The currently Specifically, Floor Brokers, Specialists,
approved average hour burden per and ROTS may only use Snapshot to
SECURITIES AND EXCHANGE provisionally execute multi-leg orders
investment company of preparing and
COMMISSION and simple orders in options on
filing a notification of registration on
Form N–8A is one hour. Based on the [Release No. 34–84610; File No. SR–Phlx– Exchange Traded Funds (‘‘ETFs’’) that
Commission staff’s experience with the 2018–59] are included in the Options Penny
requirements of Form N–8A and with Pilot.8 The Exchange proposes to
disclosure documents generally—and Self-Regulatory Organizations; Nasdaq expand the use of the Snapshot
considering that investment companies PHLX LLC; Order Approving a functionality to all orders on the trading
that are filing notifications of Proposed Rule Change To Amend floor, subject to the current procedures
registration on Form N–8A Rules 1000, 1064, and 1069 To Allow for and the limitations on the use of
simultaneously with the registration for the Snapshot Functionality of the Snapshot.9 The Exchange believes that
statement under the Investment Floor-Based Management System To
Company Act are only required by Form Be Used for All Orders 3 See Securities Exchange Act Release No. 84290
(September 26, 2018), 83 FR 49596 (‘‘Notice’’).
N–8A to file a signed cover page—we November 16, 2018. 4 A ‘‘provisional execution’’ occurs in the trading
continue to believe that this estimate is crowd when either (1) the participants to a trade
appropriate. Therefore, we estimate that I. Introduction reach a verbal agreement in the trading crowd as to
the total annual hour burden to prepare On September 18, 2018, Nasdaq PHLX the terms of the trade; or (ii) a member announces
and file notifications of registration on that he is crossing an order in accordance with Phlx
LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with Rule 1064(a). See Phlx Rule 1069(a)(i)(A). See also
Form N–8A is 96 hours. The currently the Securities and Exchange Notice, supra note 3, at 49596–97 n.5.
approved cost burden of Form N–8A is Commission (‘‘Commission’’), pursuant 5 See Securities Exchange Act Release No. 81980
$449. We continue to believe that this to Section 19(b)(1) of the Securities (October 30, 2017), 82 FR 51313 (November 3, 2017)
estimate is appropriate. Therefore, we Exchange Act of 1934 (‘‘Act’’) 1 and Rule (SR–Phlx–2017–34) (approving the Snapshot
estimate that the total annual cost functionality as an exception to Phlx Rule 1000(f))
19b–4 thereunder,2 a proposed rule (‘‘Snapshot Approval’’). See also Securities
burden to associated with preparing and change to allow the Snapshot Exchange Act Release No. 83656 (July 17, 2018), 82
filing notifications of registration on functionality of the Floor-Based FR 34899 (July 23, 2018) (SR–Phlx–2018–40)
amozie on DSK3GDR082PROD with NOTICES1
Form N–8A is about $43,104. Management System (‘‘FBMS’’) to be (expanding the availability of the Snapshot feature
Estimates of average burden hours to ROTS and Specialists).
used for all orders on the trading floor. 6 See Notice, supra note 3, at 49596–97.
and costs are made solely for the The proposed rule change was 7 See id. at 49597.
purposes of the Paperwork Reduction published for comment in the Federal 8 See Phlx Rule 1069(a)(i)(A).
Act, and are not derived from a 9 See Notice, supra note 3, at 49596–97. The
comprehensive or even representative 1 15 U.S.C. 78s(b)(1). procedures and limitations regarding the current
survey or study of the costs of 2 17 CFR 240.19b–4. Continued
VerDate Sep<11>2014 18:33 Nov 21, 2018 Jkt 247001 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 E:\FR\FM\23NON1.SGM 23NON1](https://thefederalregister.org/doc/83_FR_59659/page/1.svg)
![59434 Federal Register / Vol. 83, No. 226 / Friday, November 23, 2018 / Notices
its proposed expansion of the use of to permit unfair discrimination between rules.22 The Commission notes that
Snapshot will make the functionality customers, issuers, brokers, or dealers. these measures will continue to apply to
simpler, more consistent, and more The Commission notes that use of the the expanded application of Snapshot to
useful in a greater number of Snapshot functionality for certain orders all orders and should continue to ensure
circumstances than it is currently.10 To is one of the current exceptions set forth that the Snapshot functionality will be
effectuate these changes, the Exchange in Phlx Rule 1000(f), and allows Floor used in a manner that is consistent with
proposes several modifications to Phlx Brokers, ROTS, and Specialists to the Act and Phlx’s Rules. For example,
Rules 1000, 1064, and 1069.11 provisionally execute, in the options Phlx Rule 1069(a)(i)(B) will continue to
The Exchange represents that it does trading crowd (as opposed to through prohibit all members from triggering the
not anticipate that the use of Snapshot FBMS), multi-leg orders and simple Snapshot feature for the purpose of
to provisionally execute all orders, orders in options on ETFs that are obtaining favorable, or avoiding
rather than just multi-leg or simple included in the Options Penny Pilot.17 unfavorable, priority or trade-through
orders in options on ETFs that are According to the Exchange, Snapshot conditions. In addition, the Exchange
included in the Options Penny Pilot, promotes just and equitable principles represents that its surveillance staff will
will materially increase the risk that of trade and serves the interests of monitor the expanded use of Snapshot
Snapshot will be overused or abused investors and the public by increasing and will evaluate whether additional
relative to its current use.12 Therefore, the likelihood that investors will be able controls are needed if the Exchange
the Exchange proposes to utilize the to execute their orders and do so in line detects a significant uptick in improper
same methods it currently uses to with their expectations.18 The Exchange usage.23
surveil its members’ use of the Snapshot further represents that Snapshot is For the foregoing reasons, the
functionality and represents that if designed to mitigate the risk that the Commission finds that the proposed
Surveillance detects a significant uptick Trading System will reject a trade due rule change is consistent with Section
in improper usage, the Exchange will to a change in market conditions that 6(b)(5) of the Act 24 and the rules and
evaluate whether additional controls are occurs between the time when the regulations thereunder applicable to
necessary.13 parties to a trade negotiate a valid trade national securities exchanges.
Finally, the Exchange notes that it on the trading floor and the time when
expects to make Snapshot available for the Trading System receives the trade. IV. Conclusion
all orders before the end of the fourth The Exchange believes that expanding It is therefore ordered, pursuant to
quarter of 2018 and represents that it the availability of Snapshot to all orders Section 19(b)(2) of the Act,25 that the
will notify its members via an Options will broaden the scope of these proposed rule change (SR–Phlx–2018–
Trader Alert, to be posted on the protections to the benefit of investors 59) be, and hereby is, approved.
Exchange’s website, at least seven and will make the exchange’s trading
calendar days prior to the date when For the Commission, by the Division of
floor more competitive with other Trading and Markets, pursuant to delegated
Snapshot will be available for expanded trading venues because it will make the authority.26
use.14 trading floor operate more efficiently.19 Eduardo A. Aleman,
III. Discussion and Commission Further, the Exchange represents that
Assistant Secretary.
Findings the proposal is consistent with Rule 611
[FR Doc. 2018–25467 Filed 11–21–18; 8:45 am]
of Regulation NMS, which requires the
After careful review, the Commission Exchange to establish policies and BILLING CODE 8011–01–P
finds that the proposed rule change is procedures that are reasonably designed
consistent with the requirements of the to prevent trade-throughs of protected
Act and the rules and regulations SECURITIES AND EXCHANGE
quotations. The Exchange notes that
thereunder applicable to a national COMMISSION
although the proposal will change the
securities exchange.15 In particular, the
time of execution of a trade for purposes [SEC File No. 270–172, OMB Control No.
Commission finds that the proposed
of verifying compliance with trade- 3235–0169]
rule change is consistent with Section
though and priority rules, the current
6(b)(5) of the Act,16 which requires, Proposed Collection; Comment
automated compliance verification
among other things, that the rules of a Request
process will continue to apply and will
national securities exchange be
systematically prevent any violation of Upon Written Request, Copies Available
designed to promote just and equitable
the trade-though and priority rules.20 From: Securities and Exchange
principles of trade, to foster cooperation
Finally, as noted above, the Exchange Commission, Office of FOIA Services,
and coordination with persons engaged
in regulating, clearing, settling, does not believe that the proposal will 100 F Street NE, Washington, DC
processing information with respect to, increase the risk that Snapshot will be 20549–2736.
and facilitating transactions in securities used improperly and believes that its
existing design controls are sufficient to Extension:
and, in general, to protect investors and Form N–5.
the public interest, and not be designed continue to closely monitor Snapshot
usage by its members.21 Notice is hereby given that, pursuant
use of Snapshot are currently set forth in Phlx Rule
The Commission notes that, at the to the Paperwork Reduction Act of 1995
1069 and will continue to apply. time Snapshot was adopted, the (44 U.S.C. 3501 et seq.), the Securities
10 See Notice, supra note 3, at 49597. Exchange adopted several measures to and Exchange Commission (the
11 A more detailed description of the proposal help ensure that Snapshot operates, and ‘‘Commission’’) is soliciting comments
appears in the Notice.
amozie on DSK3GDR082PROD with NOTICES1
12 See Notice, supra note 3, at 49597.
is used by members, in a manner that on the collection of information
13 See id.
is consistent with the Act and Phlx’s summarized below. The Commission
14 See id.
17 See Phlx Rule 1000(f)(iii)(E). 22 See Snapshot Approval, supra note 5, at 51316.
15 In approving this proposed rule change, the
18 See Notice, supra note 3, at 49597. 23 See Notice, supra note 3, at 49597.
Commission has considered the proposed rule’s
19 See id. at 49597–98. 24 15 U.S.C. 78f(b)(5).
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f). 20 See id. at 49598. 25 15 U.S.C. 78s(b)(2).
16 15 U.S.C. 78f(b)(5). 21 See id. at 49597. 26 17 CFR 200.30–3(a)(12).
VerDate Sep<11>2014 18:33 Nov 21, 2018 Jkt 247001 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 E:\FR\FM\23NON1.SGM 23NON1](https://thefederalregister.org/doc/83_FR_59659/page/2.svg)
Document Created: 2018-11-27 12:58:55
Document Modified: 2018-11-27 12:58:55
| 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 59433 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR