83 FR 7274 - Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Memorialize Functionality Designed To Assist Members in the Event That They Lose Communication
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 34 (February 20, 2018)
Federal Register Volume 83, Issue 34 (February 20, 2018)
| Page Range | 7274-7278 | |
| FR Document | 2018-03310 |
[Federal Register Volume 83, Number 34 (Tuesday, February 20, 2018)] [Notices] [Pages 7274-7278] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-03310] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82701; File No. SR-MRX-2018-04] Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Memorialize Functionality Designed To Assist Members in the Event That They Lose Communication February 13, 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 February 2, 2018, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \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 a proposal to memorialize functionality which is designed to assist Members in the event that they lose communication with their assigned Specialized Quote Feed (``SQF''),\3\ Financial Information [[Page 7275]] eXchange (``FIX''),\4\ or Ouch to Trade Options (``OTTO'') \5\ Ports due to a loss of connectivity. --------------------------------------------------------------------------- \3\ SQF is an interface that allows market makers to connect and send quotes, sweeps and auction responses into the Exchange. \4\ FIX is an interface that allows market participants to connect and send orders and auction orders into the Exchange. \5\ OTTO is an interface that allows market participants to connect and send orders, auction orders and auction responses into the Exchange. --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's website at http://nasdaqmrx.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 memorialize its detection of loss of connection risk protection, which is applicable to all Members, at MRX Rule 711(e). This automated process is in effect if a Member's SQF, FIX or OTTO Port loses communication with a Client Application due to a loss of connectivity. This feature is designed to protect MRX Market Makers \6\ and other market participants from inadvertent exposure to excessive risk. --------------------------------------------------------------------------- \6\ The term ``market makers'' refers to ``Competitive MRX Market Makers'' and ``Primary MRX Market Makers'' collectively. --------------------------------------------------------------------------- Members currently enter quotes and/or orders utilizing either an SQF, FIX or OTTO Port. SQF is utilized by MRX Market Makers and FIX and OTTO are utilized by all market participants. These ports are trading system components through which a Member communicates its quotes and/or orders to the Exchange's match engine through the Member's Client Application. The Exchange proposes to define ``Client Application'' as the system component of the Member through which the Member communicates its quotes and orders to the Exchange at proposed Rule 711(e)(i)(E). Under the proposed rule change, an SQF Port would be defined as the Exchange's proprietary system component through which MRX Market Makers communicate their quotes from the Client Application at proposed Rule 711(e)(i)(B). A FIX Port would be defined as the Exchange's universal system component through which Members communicate their orders from the Member's Client Application at proposed Rule 711(e)(i)(D). An OTTO Port would be defined as the Exchange's proprietary system component through which Members communicate their orders from the Member's Client Application at proposed Rule 711(e)(i)(C). MRX Market Makers may submit quotes to the Exchange from one or more SQF Ports. Similarly, market participants may submit orders to the Exchange from one or more FIX or OTTO Ports. The proposed cancellation feature will be mandatory for each MRX Market Maker utilizing SQF for the removal of quotes and optional for any market participant utilizing FIX or OTTO for the removal of orders. When the SQF Port detects the loss of communication with a Member's Client Application because the Exchange's server does not receive a Heartbeat message \7\ for a certain period of time (a period of ``nn'' seconds), the Exchange will automatically logoff the Member's affected Client Application and automatically cancel all of the Member's open quotes. Quotes will be cancelled across all Client Applications that are associated with the same MRX Market Maker ID and underlying issues. --------------------------------------------------------------------------- \7\ It is important to note that the Exchange separately sends a connectivity message to the Member as evidence of connectivity. --------------------------------------------------------------------------- The Exchange proposes to define a ``Heartbeat'' message as a communication which acts as a virtual pulse between the SQF, FIX or OTTO Port and the Client Application at proposed Rule 711(e)(i)(A). The Heartbeat message sent by the Member and subsequently received by the Exchange allows the SQF, FIX or OTTO Port to continually monitor its connection with the Member. SQF Ports The Exchange's system has a default time period, which will trigger a disconnect from the Exchange and remove quotes, set to fifteen (15) seconds for SQF Ports. A Member may change the default period of ``nn'' seconds of no technical connectivity to trigger a disconnect from the Exchange and remove quotes to a number between one hundred (100) milliseconds and 99,999 milliseconds for SQF Ports prior to each Session of Connectivity to the Exchange. This feature is enabled for each MRX Market Maker and may not be disabled. There are two ways to change the number of ``nn'' seconds: (1) Systematically or (2) by contacting the Exchange's operations staff. If the Member 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.\8\ The Member may change the default setting prior to each Session of Connectivity. A Session of Connectivity would be defined to mean each time the Member connects to the Exchange's system. If the Member were to connect and then disconnect within a trading day several times, each time the Member disconnected the next session would be a new Session of Connectivity. This definition is proposed at proposed Rule 711(e)(i)(F). The Member may also communicate the time to the Exchange by calling the Exchange's operations staff. If the time period is communicated to the Exchange by calling Exchange operations, the number of ``nn'' seconds selected by the Member shall persist for each subsequent Session of Connectivity until the Member either contacts Exchange operations by phone and changes the setting or the Member selects another time period in the Client Application prior to the next Session of Connectivity. --------------------------------------------------------------------------- \8\ The Exchange's system would capture the new setting information that was changed by the Member and utilize the amended setting for that particular session. The setting would not persist beyond the current Session of Connectivity and the setting would default back to 15 seconds for the next session if the Member did not change the setting again. --------------------------------------------------------------------------- FIX and OTTO Ports The Exchange's system has a default time period, which will trigger a disconnect from the Exchange and remove orders, set to thirty (30) seconds for FIX Ports and fifteen (15) seconds for OTTO Ports. The Member may disable the removal of orders feature, but not the disconnect feature. If the Member elects to have its orders removed, in addition to the disconnect for FIX, the Member may determine a time period of no technical connectivity to trigger the disconnect and removal of orders between one (1) second and thirty (30) seconds. If the Member elects to have its orders removed, in addition to the disconnect for OTTO, the Member may determine a time period of no technical connectivity to trigger the disconnect and removal of orders between one hundred (100) milliseconds and 99,999 [[Page 7276]] milliseconds. All orders will be automatically cancelled. There are two ways to change the number of ``nn'' seconds: (1) Systematically or (2) by contacting the Exchange's operations staff. If the Member changes the default number of ``nn'' seconds, that new setting shall be in effect throughout that Session of Connectivity and will then default back to thirty seconds for FIX Ports or fifteen seconds for OTTO Ports at the end of that session. The Member may change the default setting prior to each Session of Connectivity. The Member may also communicate the time to the Exchange by calling the Exchange's operations staff. If the time period is communicated to the Exchange by calling Exchange operations, the number of ``nn'' seconds selected by the Member shall persist for each subsequent Session of Connectivity until the Member either contacts Exchange operations by phone and changes the setting or the Member selects another time period through the Client Application prior to the next Session of Connectivity. Similar to SQF Ports, when a FIX or OTTO Port detects the loss of communication with a Member's Client Application for a certain time period (a period of ``nn'' seconds), the Exchange will automatically logoff the Member's affected Client Application and if elected, automatically cancel all orders. The Member may have an order which has routed away prior to the cancellation, in the event that the order returns to the Order Book, because it was either not filled or partially filled, that order will be cancelled. The disconnect feature is mandatory for FIX and OTTO users however the user has the ability to elect to also enable a removal feature, which will cancel all orders submitted through that FIX or OTTO Port. If the removal of orders feature is not enabled, the system will simply disconnect the FIX and/or OTTO user and not cancel any orders. The FIX and/or OTTO user would have to commence a new Session of Connectivity to add, modify or cancel its orders once disconnected. The trigger for the SQF, FIX and OTTO Ports is Client Application specific. The automatic cancellation of the MRX Market Maker's quotes for SQF Ports and open orders, if elected by the Member for FIX or OTTO Ports, entered into the respective SQF, FIX or OTTO Ports via a particular Client Application will neither impact nor determine the treatment of the quotes of other MRX Market Makers (not associated with the same Market Maker ID) entered into SQF Ports or orders of the same or other Members entered into the FIX or OTTO Ports via a separate and distinct Client Application. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \9\ in general, and furthers the objectives of Section 6(b)(5) of the Act \10\ 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 imposing this mandatory removal functionality on MRX Market Makers to prevent disruption in the marketplace and also offering this removal feature to other market participants. Requiring MRX Market Makers to utilize the disconnect feature will avoid risks associated with inadvertent executions in the event of a loss of connectivity. Other market participants will have the option to either enable or disable the cancellation feature, thereby offering the same risk protections throughout the market. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78f(b). \10\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- MRX Market Makers will be required to utilize this disconnect and removal functionality with respect to SQF Ports. This feature will remove impediments to and improve the mechanism of a free and open market and a national market system aimed at protecting investors and the public interest by requiring MRX Market Makers quotes to be removed in the event of a loss of connectivity with the Exchange's system. MRX Market Makers provide liquidity to the market place and have obligations unlike other market participants.\11\ This risk feature is important because it will enable MRX Market Makers to avoid risks associated with inadvertent executions in the event of a loss of connectivity with the Exchange. The proposed rule change is designed to not permit unfair discrimination among market participants, as it would apply uniformly to all MRX Market Makers utilizing SQF Ports. --------------------------------------------------------------------------- \11\ See MRX Rule 804(e). --------------------------------------------------------------------------- The disconnect feature of FIX and OTTO is mandatory, however market participants will have the option to either enable or disable the cancellation feature, which would result in the cancellation of all orders submitted over the applicable FIX or OTTO Port when such port disconnect [sic]. It is appropriate to offer this removal feature as optional to all market participants utilizing FIX or OTTO, because unlike MRX Market Makers who are required to provide quotes in all products in which they are registered, market participants utilizing FIX or OTTO do not bear the same magnitude of risk of potential erroneous or unintended executions. In addition, market participants utilizing FIX or 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 FIX and/or OTTO port is disconnected. Utilizing a time period for SQF and OTTO Ports of fifteen (15) seconds and permitting MRX Market Makers and Members to modify the setting to between 100 milliseconds and 99,999 milliseconds is consistent with the Act because the Exchange does not desire to trigger unwarranted logoffs of Members and therefore allows Members the ability to set their time in order to enable the Exchange the authority to disconnect the Member with this feature. Both SQF and OTTO are proprietary system components offered by MRX. The Exchange believes that the proposed settings for SQF and OTTO are appropriate timeframes. Each MRX Market Maker and Member has different levels of sensitivity with respect to this disconnect setting and each MRX Market Maker and Member has their own system safeguards as well. A default setting of fifteen (15) seconds is appropriate to capture the needs of all MRX Market Makers and Members and high enough not to trigger unwarranted removal of quotes and orders. Further, MRX Market Makers and Members are able to customize their settings. The Exchange's proposal to permit a timeframe for SQF and OTTO Ports between 100 milliseconds and 99,999 milliseconds is consistent with the Act and the protection of investors because the purpose of this feature is to mitigate the risk of potential erroneous or unintended executions associated with a loss in communication with a Client Application. Members are able to better anticipate the appropriate time within which they may require prior to a logoff as compared to the Exchange. The Member is being offered a timeframe by the Exchange within which to select the appropriate time. The Exchange does not desire to trigger unwarranted logoffs of Members and therefore permits Members to provide an alternative time to the Exchange, within the Exchange's prescribed timeframe, which authorizes the Exchange to disconnect the Member. The ``nn'' seconds serve as the Member's instruction to the Exchange to act upon the loss of connection and [[Page 7277]] remove quotes from the system, and if elected, orders from the System. This range will accommodate Members in selecting their appropriate times within the prescribed timeframes. With respect to SQF, the Exchange's proposal is further consistent with the Act because it will mitigate the risk of potential erroneous or unintended executions associated with a loss in communication with a Client Application which protects investors and the public interest. Also, any interest that is executable against a MRX Market Maker's quotes that is received \12\ by the Exchange prior to the trigger of the disconnect to the Client Application, which is processed by the system, automatically executes at the price up to the MRX Market Maker's size. In other words, the system will process the request for cancellation in the order it was received by the system. --------------------------------------------------------------------------- \12\ The time of receipt for an order or quote is the time such message is processed by the Exchange book. --------------------------------------------------------------------------- With respect to FIX, a universal system component, the Exchange's proposal would set a default timeframe of thirty (30) seconds and permit a FIX user to modify the timeframe for FIX Ports to between 1 second and 30 seconds for the removal of orders. This proposal is consistent with the Act and the protection of investors because this feature, which is optional, will mitigate the risk of potential erroneous or unintended executions associated with a loss in communication with a Client Application. With respect to the longer timeframe for FIX, as compared to SQF and OTTO, the Exchange notes that unlike SQF and OTTO which are proprietary system components, FIX is a universal component. The settings on FIX remain different given FIX is not a proprietary system component. MRX Market Makers require a quicker timeframe (15 seconds as compared to 30 seconds). MRX Market Makers have quoting obligations \13\ and are more sensitive to price movements as compared to other market participants. It is consistent with the Act to provide a longer timeframe within which to customize settings for FIX as compared to SQF Ports because MRX Market Makers need to remain vigilant of market conditions and react more quickly to market movements as compared to other Members entering orders into the system. The proposal acknowledges this sensitivity borne by MRX Market Makers and reflects the reaction time of MRX Market Makers as compared to Members entering orders. Of note, the proposed customized timeframe for FIX might be too long for MRX Market Makers given their quoting requirements and sensitivity to price movements. MRX Market Makers would be severely impacted by a loss of connectivity of more than several seconds. The MRX Market Maker would have exposure during the time period in which they are unable to manage their quote and update that quote. The Member is best positioned to determine their setting. With respect to other market participants that enter orders, they have the option of selecting either OTTO or FIX and therefore are able to obtain a shortened timeframe with OTTO if they desire. --------------------------------------------------------------------------- \13\ See note 11 above. --------------------------------------------------------------------------- The system operates consistently with the firm quote obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS. Specifically, with respect to MRX Market Makers, their obligation to provide continuous two-sided quotes on a daily basis is not diminished by the automatic removal of such quotes triggered by the disconnect. MRX Market Makers are required to provide continuous two-sided quotes on a daily basis.\14\ MRX Market Makers will not be relieved of the obligation to provide continuous two-sided quotes on a daily basis, nor will it prohibit the Exchange from taking disciplinary action against a MRX Market Maker for failing to meet the continuous quoting obligation each trading day as a result of disconnects. --------------------------------------------------------------------------- \14\ See note 11 above. --------------------------------------------------------------------------- With respect to FIX and OTTO Ports, the Exchange will offer this optional removal functionality to all market participants. Offering the removal feature on a voluntary basis to all other market participants is consistent with the Act because it permits them an opportunity to utilize this risk feature, if desired, and avoid risks associated with inadvertent executions in the event of a loss of connectivity with the Exchange. The removal feature is designed to mitigate the risk of missed and/or unintended executions associated with a loss in communication with a Client Application. The proposed rule change is designed to not permit unfair discrimination among market participants, as this optional removal feature will be offered uniformly to all Members utilizing FIX and/or OTTO. The Exchange will disconnect Members from the Exchange and not cancel a Member's orders if the removal feature is disabled. The disconnect feature is mandatory and will cause the Member to be disconnected within the default timeframe or the timeframe otherwise specified by the Member. This feature is consistent with the Act because it enables FIX and OTTO users the ability to disconnect from the Exchange, assess the situation and make a determination concerning their risk exposure. The Exchange notes that in the event that orders need to be removed, the Member may elect to utilize the Kill Switch \15\ feature. 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 Member simply needs to reconnect to commence submitting and cancelling orders. The Exchange believes requiring a disconnect when a loss of communication is detected is a rational course of action for the Exchange to alert the Member of the technical connectivity issue. --------------------------------------------------------------------------- \15\ See MRX Rule 711(d). --------------------------------------------------------------------------- The proposed rule change will help maintain a fair and orderly market which promotes efficiency and protects investors. This mandatory removal feature for MRX Market Makers and optional removal for all other market participants will mitigate the risk of potential erroneous or unintended executions associated with a loss in communication with a Client Application. 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. Specifically, the Exchange does not believe the proposed rule change will cause an undue burden on intra-market competition because MRX Market Makers, unlike other market participants, have greater risks in the market place. Quoting across many series in an option creates large principal positions that expose MRX Market Makers, who are required to continuously quote in assigned options, to potentially significant market risk. Providing a broader timeframe for the disconnect and removal of orders for FIX as compared to the removal of quotes for SQF Ports and OTTO orders does not create an undue burden on competition because MRX Market Makers have quoting obligations \16\ and are more sensitive to price movements as compared to other market participants. MRX Market Makers need to remain vigilant of market conditions and react more quickly to market movements as compared to other Members entering multiple orders into [[Page 7278]] the system. The proposal reflects this sensitivity borne by MRX Market Makers and reflects the reaction time of MRX Market Makers as compared to other Members entering orders. With respect to other market participants that enter orders, they have the option of selecting either OTTO or FIX and therefore are able to obtain a shortened timeframe with OTTO if they desire. --------------------------------------------------------------------------- \16\ See note 11 above. --------------------------------------------------------------------------- Offering the removal feature to other market participants on an optional basis does not create an undue burden on intra-market competition because unlike MRX Market Makers, other market participants do not bear the same risks of potential erroneous or unintended executions. FIX and OTTO users have the opportunity to disable the cancellation feature and simply disconnect from the Exchange. FIX and OTTO users may also set a timeframe that is appropriate for their business. It is appropriate to offer this optional cancellation functionality to other market participants for open orders, because those orders are subject to risks of missed and/or unintended executions due to a lack of connectivity which the participants needs to weigh. Finally, the Exchange does not believe that such change will impose any burden on inter-market competition that is not necessary or appropriate in furtherance of the purposes of the Act. Other options exchanges offer similar functionality.\17\ --------------------------------------------------------------------------- \17\ See Phlx Rule 1019(c), NOM Rules at Chapter VI, Section 6(e) and BX Rules at Chapter VI, Section 6(e). --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \18\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\19\ --------------------------------------------------------------------------- \18\ 15 U.S.C. 78s(b)(3)(A)(iii). \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-MRX-2018-04 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number SR-MRX-2018-04. 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-MRX-2018-04, and should be submitted on or before March 13, 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. 2018-03310 Filed 2-16-18; 8:45 am] BILLING CODE 8011-01-P
![7274 Federal Register / Vol. 83, No. 34 / Tuesday, February 20, 2018 / Notices
commenters noted state law protections, impact on certain companies and the 10:00 a.m. and 3:00 p.m. Copies of such
such as the fiduciary duties of care and lack of importance placed on this filing also will be available for
loyalty imposed on management and requirement by investors. inspection and copying at the principal
directors to act in the best interest of the office of the Exchange. All comments
III. Date of Effectiveness of the
company and its shareholders.27 Thus, received will be posted without change.
Proposed Rule Change and Timing for
given the cool reception received from Commission Action Persons submitting comments are
investors, who did not believe the cautioned that we do not redact or edit
addition of this listing requirement Within 45 days of the date of personal identifying information from
would meaningfully add to investor publication of this notice in the Federal comment submissions. You should
protection,28 and the belief of Register or within such longer period (i) submit only information that you wish
commenters that the Independent as the Commission may designate up to to make available publicly. All
Director Approval Requirement is 90 days of such date if it finds such submissions should refer to File
‘‘solving the problem that does not longer period to be appropriate and Number SR–NASDAQ–2018–008, and
exist,’’ 29 Nasdaq is not proposing to publishes its reasons for so finding or should be submitted on or before March
adopt the Independent Director (ii) as to which the Exchange consents, 13, 2018.
Approval Requirement at this time. the Commission shall: (a) By order
For the Commission, by the Division of
With regard to the proposal to approve or disapprove such proposed Trading and Markets, pursuant to delegated
eliminate the requirement for rule change, or (b) institute proceedings authority.32
shareholder approval of issuances at a to determine whether the proposed rule Eduardo A. Aleman,
price less than book value but greater change should be disapproved.
Assistant Secretary.
than market value, of the 12 IV. Solicitation of Comments [FR Doc. 2018–03311 Filed 2–16–18; 8:45 am]
commenters, only one specifically
opposed the proposed rule change.30 Interested persons are invited to BILLING CODE 8011–01–P
The commenter that opposed the submit written data, views, and
proposed rule change seemed to have arguments concerning the foregoing,
including whether the proposed rule SECURITIES AND EXCHANGE
been concerned with potentially COMMISSION
negative market perception of issuances change is consistent with the Act.
below book value and with potential Comments may be submitted by any of [Release No. 34–82701; File No. SR–MRX–
stock price manipulations by suggesting the following methods: 2018–04]
that the ‘‘. . . proposed rule change Electronic Comments Self-Regulatory Organizations; Nasdaq
compromises Nasdaq’s commitment to • Use the Commission’s internet MRX, LLC; Notice of Filing and
protect investors . . . by allowing comment form (http://www.sec.gov/ Immediate Effectiveness of Proposed
companies the potential power to rules/sro.shtml); or Rule Change To Memorialize
materially affect the stock price without • Send an email to rule-comments@ Functionality Designed To Assist
prior approval of current sec.gov. Please include File Number SR– Members in the Event That They Lose
stockholders.’’ 31 The commenter did NASDAQ–2018–008 on the subject line. Communication
not elaborate and did not provide any
evidence of price manipulation (which Paper Comments February 13, 2018.
would be investigated by Nasdaq • Send paper comments in triplicate Pursuant to Section 19(b)(1) of the
Regulation and FINRA) and Nasdaq to Brent J. Fields, Secretary, Securities Securities Exchange Act of 1934
does not believe this single hypothetical and Exchange Commission, 100 F Street (‘‘Act’’),1 and Rule 19b–4 thereunder,2
and unsubstantiated concern justifies NE, Washington, DC 20549–1090. notice is hereby given that on February
retaining the book value requirement in All submissions should refer to File 2, 2018, Nasdaq MRX, LLC (‘‘MRX’’ or
light of the other concerns raised about Number SR–NASDAQ–2018–008. This ‘‘Exchange’’) filed with the Securities
its arbitrary and disproportionate file number should be included on the and Exchange Commission
subject line if email is used. To help the (‘‘Commission’’) the proposed rule
would be duplicative of, and already more Commission process and review your change as described in Items I, II, and
effectively addressed by, the corporate law
requirements of an issuer’s jurisdiction of comments more efficiently, please use III below, which Items have been
incorporation in the vast majority of cases.’’). See only one method. The Commission will prepared by the Exchange. The
also, Grundei Letter (‘‘. . . there are already state post all comments on the Commission’s Commission is publishing this notice to
law requirements regarding such approvals.’’). internet website (http://www.sec.gov/ solicit comments on the proposed rule
27 See Wilson Sonsini Letter.
28 See CALSTERS Letter (‘‘[W]e genuinely believe
rules/sro.shtml). Copies of the change from interested persons.
and appreciate that a majority of independent submission, all subsequent I. Self-Regulatory Organization’s
directors should always screen and vote on any amendments, all written statements Statement of the Terms of Substance of
stock issuances . . .’’). Yet, CALSTERS Letter with respect to the proposed rule the Proposed Rule Change
suggested removal the Independent Director change that are filed with the
Approval Requirement for the proposed rule. See The Exchange proposes to a proposal
also, CII Letter (suggesting removal the Independent Commission, and all written
Director Approval Requirement for the proposed communications relating to the to memorialize functionality which is
rule and the imposition of shareholder approval proposed rule change between the designed to assist Members in the event
requirements for any issuance a price that is below Commission and any person, other than that they lose communication with their
market price and any 20% Issuances). See also, assigned Specialized Quote Feed
those that may be withheld from the
sradovich on DSK3GMQ082PROD with NOTICES
Ellenoff Grossman Letter (‘‘[Independent Director
Approval Requirement] may not prove helpful to public in accordance with the (‘‘SQF’’),3 Financial Information
outside shareholders, in practice’’). See also, NV5 provisions of 5 U.S.C. 552, will be
Letter. 32 17 CFR 200.30–3(a)(12).
29 Grundei Letter.
available for website viewing and 1 15 U.S.C. 78s(b)(1).
30 One commenter indicated that he disagreed
printing in the Commission’s Public 2 17 CFR 240.19b–4.
with the proposed change, but did not address the Reference Room, 100 F Street NE, 3 SQF is an interface that allows market makers
issue directly. See NV5 Letter. Washington, DC 20549 on official to connect and send quotes, sweeps and auction
31 Conifer Letter. business days between the hours of responses into the Exchange.
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![7276 Federal Register / Vol. 83, No. 34 / Tuesday, February 20, 2018 / Notices
milliseconds. All orders will be Ports via a separate and distinct Client MRX Market Makers who are required
automatically cancelled. Application. to provide quotes in all products in
There are two ways to change the which they are registered, market
number of ‘‘nn’’ seconds: (1) 2. Statutory Basis
participants utilizing FIX or OTTO do
Systematically or (2) by contacting the The Exchange believes that its not bear the same magnitude of risk of
Exchange’s operations staff. If the proposal is consistent with Section 6(b) potential erroneous or unintended
Member changes the default number of of the Act 9 in general, and furthers the executions. In addition, market
‘‘nn’’ seconds, that new setting shall be objectives of Section 6(b)(5) of the Act 10 participants utilizing FIX or OTTO may
in effect throughout that Session of in particular, in that it is designed to desire their orders to remain on the
Connectivity and will then default back promote just and equitable principles of order book despite a technical
to thirty seconds for FIX Ports or fifteen trade, to remove impediments to and disconnect, so as not to miss any
seconds for OTTO Ports at the end of perfect the mechanism of a free and opportunities for execution of such
that session. The Member may change open market and a national market orders while the FIX and/or OTTO port
the default setting prior to each Session system, and, in general to protect is disconnected.
of Connectivity. The Member may also investors and the public interest, by Utilizing a time period for SQF and
communicate the time to the Exchange imposing this mandatory removal OTTO Ports of fifteen (15) seconds and
by calling the Exchange’s operations functionality on MRX Market Makers to permitting MRX Market Makers and
staff. If the time period is communicated prevent disruption in the marketplace Members to modify the setting to
to the Exchange by calling Exchange and also offering this removal feature to between 100 milliseconds and 99,999
operations, the number of ‘‘nn’’ seconds other market participants. Requiring milliseconds is consistent with the Act
selected by the Member shall persist for MRX Market Makers to utilize the because the Exchange does not desire to
each subsequent Session of Connectivity disconnect feature will avoid risks trigger unwarranted logoffs of Members
until the Member either contacts associated with inadvertent executions and therefore allows Members the
Exchange operations by phone and in the event of a loss of connectivity. ability to set their time in order to
changes the setting or the Member Other market participants will have the enable the Exchange the authority to
selects another time period through the option to either enable or disable the disconnect the Member with this
Client Application prior to the next cancellation feature, thereby offering the feature. Both SQF and OTTO are
Session of Connectivity. same risk protections throughout the proprietary system components offered
Similar to SQF Ports, when a FIX or market. by MRX. The Exchange believes that the
OTTO Port detects the loss of MRX Market Makers will be required proposed settings for SQF and OTTO
communication with a Member’s Client to utilize this disconnect and removal are appropriate timeframes. Each MRX
Application for a certain time period (a functionality with respect to SQF Ports. Market Maker and Member has different
period of ‘‘nn’’ seconds), the Exchange This feature will remove impediments levels of sensitivity with respect to this
will automatically logoff the Member’s to and improve the mechanism of a free disconnect setting and each MRX
affected Client Application and if and open market and a national market Market Maker and Member has their
elected, automatically cancel all orders. system aimed at protecting investors own system safeguards as well. A
The Member may have an order which and the public interest by requiring default setting of fifteen (15) seconds is
has routed away prior to the MRX Market Makers quotes to be appropriate to capture the needs of all
cancellation, in the event that the order removed in the event of a loss of MRX Market Makers and Members and
returns to the Order Book, because it connectivity with the Exchange’s high enough not to trigger unwarranted
was either not filled or partially filled, system. MRX Market Makers provide removal of quotes and orders.
that order will be cancelled. liquidity to the market place and have Further, MRX Market Makers and
The disconnect feature is mandatory obligations unlike other market Members are able to customize their
for FIX and OTTO users however the participants.11 This risk feature is settings. The Exchange’s proposal to
user has the ability to elect to also important because it will enable MRX permit a timeframe for SQF and OTTO
enable a removal feature, which will Market Makers to avoid risks associated Ports between 100 milliseconds and
cancel all orders submitted through that with inadvertent executions in the event 99,999 milliseconds is consistent with
FIX or OTTO Port. If the removal of of a loss of connectivity with the the Act and the protection of investors
orders feature is not enabled, the system Exchange. The proposed rule change is because the purpose of this feature is to
will simply disconnect the FIX and/or designed to not permit unfair mitigate the risk of potential erroneous
OTTO user and not cancel any orders. discrimination among market or unintended executions associated
The FIX and/or OTTO user would have participants, as it would apply with a loss in communication with a
to commence a new Session of uniformly to all MRX Market Makers Client Application. Members are able to
Connectivity to add, modify or cancel utilizing SQF Ports. better anticipate the appropriate time
its orders once disconnected. The disconnect feature of FIX and within which they may require prior to
The trigger for the SQF, FIX and OTTO is mandatory, however market a logoff as compared to the Exchange.
OTTO Ports is Client Application participants will have the option to The Member is being offered a
specific. The automatic cancellation of either enable or disable the cancellation timeframe by the Exchange within
the MRX Market Maker’s quotes for SQF feature, which would result in the which to select the appropriate time.
Ports and open orders, if elected by the cancellation of all orders submitted over The Exchange does not desire to trigger
Member for FIX or OTTO Ports, entered the applicable FIX or OTTO Port when unwarranted logoffs of Members and
into the respective SQF, FIX or OTTO
sradovich on DSK3GMQ082PROD with NOTICES
such port disconnect [sic]. It is therefore permits Members to provide
Ports via a particular Client Application appropriate to offer this removal feature an alternative time to the Exchange,
will neither impact nor determine the as optional to all market participants within the Exchange’s prescribed
treatment of the quotes of other MRX utilizing FIX or OTTO, because unlike timeframe, which authorizes the
Market Makers (not associated with the Exchange to disconnect the Member.
same Market Maker ID) entered into 9 15 U.S.C. 78f(b). The ‘‘nn’’ seconds serve as the
SQF Ports or orders of the same or other 10 15 U.S.C. 78f(b)(5). Member’s instruction to the Exchange to
Members entered into the FIX or OTTO 11 See MRX Rule 804(e). act upon the loss of connection and
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![7278 Federal Register / Vol. 83, No. 34 / Tuesday, February 20, 2018 / Notices
the system. The proposal reflects this At any time within 60 days of the received will be posted without change.
sensitivity borne by MRX Market filing of the proposed rule change, the Persons submitting comments are
Makers and reflects the reaction time of Commission summarily may cautioned that we do not redact or edit
MRX Market Makers as compared to temporarily suspend such rule change if personal identifying information from
other Members entering orders. With it appears to the Commission that such comment submissions. You should
respect to other market participants that action is: (i) Necessary or appropriate in submit only information that you wish
enter orders, they have the option of the public interest; (ii) for the protection to make available publicly. All
selecting either OTTO or FIX and of investors; or (iii) otherwise in submissions should refer to File
therefore are able to obtain a shortened furtherance of the purposes of the Act. Number SR–MRX–2018–04, and should
timeframe with OTTO if they desire. If the Commission takes such action, the be submitted on or before March 13,
Offering the removal feature to other Commission shall institute proceedings 2018.
market participants on an optional basis to determine whether the proposed rule For the Commission, by the Division of
does not create an undue burden on should be approved or disapproved. Trading and Markets, pursuant to delegated
intra-market competition because unlike IV. Solicitation of Comments authority.20
MRX Market Makers, other market Eduardo A. Aleman,
participants do not bear the same risks Interested persons are invited to
Assistant Secretary.
of potential erroneous or unintended submit written data, views, and
[FR Doc. 2018–03310 Filed 2–16–18; 8:45 am]
executions. FIX and OTTO users have arguments concerning the foregoing,
including whether the proposed rule BILLING CODE 8011–01–P
the opportunity to disable the
cancellation feature and simply change is consistent with the Act.
disconnect from the Exchange. FIX and Comments may be submitted by any of
SECURITIES AND EXCHANGE
OTTO users may also set a timeframe the following methods:
COMMISSION
that is appropriate for their business. It Electronic Comments
is appropriate to offer this optional Sunshine Act Meetings
cancellation functionality to other • Use the Commission’s internet
market participants for open orders, comment form (http://www.sec.gov/ TIME AND DATE: Notice is hereby given,
because those orders are subject to risks rules/sro.shtml); or pursuant to the provisions of the
• Send an email to rule-comments@
of missed and/or unintended executions Government in the Sunshine Act, Public
sec.gov. Please include File Number SR–
due to a lack of connectivity which the Law 94–409, the Securities and
MRX–2018–04 on the subject line.
participants needs to weigh. Finally, the Exchange Commission will hold an
Exchange does not believe that such Paper Comments Open Meeting on Wednesday, February
change will impose any burden on inter- • Send paper comments in triplicate 21, 2018 at 10:00 a.m.
market competition that is not necessary to Secretary, Securities and Exchange PLACE: The meeting will be held in
or appropriate in furtherance of the Commission, 100 F Street NE, Auditorium LL–002 at the
purposes of the Act. Other options Washington, DC 20549–1090. Commission’s headquarters, 100 F
exchanges offer similar functionality.17 All submissions should refer to File Street NE, Washington, DC 20549.
C. Self-Regulatory Organization’s Number SR–MRX–2018–04. This file STATUS: This meeting will begin at 10:00
Statement on Comments on the number should be included on the a.m. (ET) and will be open to the public.
Proposed Rule Change Received From subject line if email is used. To help the Seating will be on a first-come, first-
Members, Participants, or Others Commission process and review your served basis. Visitors will be subject to
comments more efficiently, please use security checks. The meeting will be
No written comments were either
only one method. The Commission will webcast on the Commission’s website at
solicited or received.
post all comments on the Commission’s www.sec.gov.
III. Date of Effectiveness of the internet website (http://www.sec.gov/ MATTERS TO BE CONSIDERED: The subject
Proposed Rule Change and Timing for rules/sro.shtml). Copies of the matters of the Open Meeting will be the
Commission Action submission, all subsequent Commission’s consideration of:
amendments, all written statements • Whether to approve the issuance of
Because the foregoing proposed rule
with respect to the proposed rule an interpretive release to provide
change does not: (i) Significantly affect
change that are filed with the guidance to assist public companies in
the protection of investors or the public
Commission, and all written preparing disclosures about
interest; (ii) impose any significant
communications relating to the cybersecurity risks and incidents.
burden on competition; and (iii) become
proposed rule change between the
operative for 30 days from the date on • whether to adopt an interim final
Commission and any person, other than
which it was filed, or such shorter time rule revising the compliance date for
those that may be withheld from the
as the Commission may designate, it has certain provisions of rule 22e–4 under
public in accordance with the
become effective pursuant to Section the Investment Company Act of 1940
provisions of 5 U.S.C. 552, will be
19(b)(3)(A)(iii) of the Act 18 and and related reporting and disclosure
available for website viewing and
subparagraph (f)(6) of Rule 19b–4 requirements.
printing in the Commission’s Public
thereunder.19
Reference Room, 100 F Street NE, • whether to propose amendments to
Washington, DC 20549 on official Form N–PORT and Form N–1A related
17 See Phlx Rule 1019(c), NOM Rules at Chapter
to disclosures of liquidity risk
sradovich on DSK3GMQ082PROD with NOTICES
VI, Section 6(e) and BX Rules at Chapter VI, Section business days between the hours of
6(e). 10:00 a.m. and 3:00 p.m. Copies of the management for open end management
18 15 U.S.C. 78s(b)(3)(A)(iii).
filing also will be available for investment companies.
19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
inspection and copying at the principal At times, changes in Commission
4(f)(6) requires a self-regulatory organization to give
office of the Exchange. All comments priorities require alterations in the
the Commission written notice of its intent to file scheduling of meeting items.
the proposed rule change at least five business days
prior to the date of filing of the proposed rule Commission. The Exchange has satisfied this
change, or such shorter time as designated by the requirement. 20 17 CFR 200.30–3(a)(12).
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Document Created: 2018-02-17 02:29:19
Document Modified: 2018-02-17 02:29:19
| 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 7274 |
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