Notice2024-28113
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Adopt an OTTO Protocol
Primary source
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Published
December 2, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 231 (Monday, December 2, 2024)</title>
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[Federal Register Volume 89, Number 231 (Monday, December 2, 2024)]
[Notices]
[Pages 95321-95328]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-28113]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101743; File No. SR-BX-2024-048]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change to Adopt an OTTO
Protocol
November 25, 2024.
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 November 15, 2024, Nasdaq BX, Inc. (``BX'' 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt a new protocol, ``Ouch to Trade
Options'' or ``OTTO'' and establish pricing for this new protocol.\3\
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\3\ On November 15, 2024, BX is withdrawing SR-BX-2024-019 and
is filing this rule change.
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The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, 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.
[[Page 95322]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
BX proposes to offer a new order entry protocol called OTTO. Today,
BX Participants may enter orders into the Exchange through the
``Financial Information eXchange'' or ``FIX.'' \4\ The proposed new
OTTO protocol is identical to the OTTO protocol offered today on 3
Nasdaq affiliated exchanges, Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX,
LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'').
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\4\ FIX is an interface that allows Participants and their
Sponsored Customers to connect, send, and receive messages related
to orders and auction orders and responses to and from the Exchange.
Features include the following: (1) execution messages; (2) order
messages; and (3) risk protection triggers and cancel notifications.
In addition, a BX Participant may elect to utilize FIX to send a
message and PRISM Order, as defined within Options 3, Section 13, to
all BX Participants that opt in to receive Requests for PRISM
requesting that it submit the sender's PRISM Order with responder's
Initiating Order, as defined within Options 3, Section 13, into the
Price Improvement Auction (``PRISM'') mechanism, pursuant to Options
3, Section 13 (``Request for PRISM''). See Options 3, Section
7(e)(1)(A).
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The OTTO protocol is a proprietary protocol of Nasdaq, Inc. The
Exchange continues to innovate and modernize technology so that it may
continue to compete among options markets. The ability to continue to
innovate with technology and offer new products to market participants
allows BX to remain competitive in the options space which currently
has eighteen options markets and potential new entrants.
OTTO Protocol
As proposed, OTTO would allow Participants and their Sponsored
Customers \5\ to connect, send, and receive messages related to orders,
auction orders, and auction responses to the Exchange. OTTO features
would include the following: (1) options symbol directory messages
(e.g., underlying and complex instruments); (2) System \6\ 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; (6) risk protection triggers and cancel
notifications; (7) auction notifications; (8) auction responses; and
(9) post trade allocation messages. The Exchange notes that unlike FIX,
which offers routing capability, OTTO does not permit routing. The
Exchange proposes to include this description of OTTO in new Options 3,
Section 7(e)(1)(B) and re-letter current ``B'' as ``C''.
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\5\ General 2, Section 22 describes Sponsored Access
arrangements.
\6\ The term ``System'' or ``Trading System'' means the
automated system for order execution and trade reporting owned and
operated by BX as the BX Options market. The BX Options market
comprises: (A) an order execution service that enables Participants
to automatically execute transactions in option series; and provides
Participants with sufficient monitoring and updating capability to
participate in an automated execution environment; (B) a trade
reporting service that submits ``locked-in'' trades for clearing to
a registered clearing agency for clearance and settlement; transmits
last-sale reports of transactions automatically to the Options Price
Reporting Authority for dissemination to the public and industry;
and provides participants with monitoring and risk management
capabilities to facilitate participation in a ``locked-in'' trading
environment; and (C) the data feeds described in Options 3, Section
23. See BX Options 1, Section 1(a)(59).
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Only one order protocol is required for a BX Participant to submit
orders into BX. Only BX Participants may utilize ports on BX. Any
market participant that sends orders to a BX Participant would not need
to utilize a port. The BX Participant may send all orders, proprietary
and agency, through one port to BX. Participants may elect to obtain
multiple ports to organize their business,\7\ however only one port is
necessary for a Participant to enter orders on BX.
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\7\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons, segregating order flow among different
trading desks, or other determinations that are specific to that
Participant. A market participant may utilize multiple ports in some
cases to send multiple orders through different ports to avoid any
latency or queuing of orders. The Exchange notes that to the extent
that different OTTO Ports are used to send multiple orders as
compared to sending multiple orders through one OTTO Port the
difference from a latency standpoint would be in nanoseconds.
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Participants may elect to enter their orders through FIX, OTTO, or
both protocols, although both protocols are not necessary. Participants
may prefer one protocol as compared to another protocol, for example,
the ability to route may cause a Participant to utilize FIX and a
Participant that desires to execute an order locally may prefer OTTO.
Also, the OTTO Port offers lower latency as compared to the FIX Port,
which may be attractive to Participants depending on their trading
behavior. Nasdaq believes that the addition of OTTO will provide BX
Participants with additional choice when submitting orders to BX.
While the Exchange has no way of predicting with certainty the
amount or type of OTTO Ports market participants will in fact purchase,
the Exchange anticipates that some Participants will subscribe to
multiple OTTO Ports in combination with FIX Ports. The Exchange notes
that Options Participants may use varying number of OTTO ports based on
their business needs.
Other Amendments
In connection with offering OTTO, the Exchange proposes to amend
other rules within Options 3. Each amendment is described below.
Options 3, Section 7
BX proposes to amend Options 3, Section 7, Types of Orders and
Quote Protocols. Specifically, BX proposes to amend Options 3, Section
7 (b)(2) that describes the Immediate-or-Cancel'' or ``IOC'' order.
Today, Options 3, Section 7(b)(2)(B) notes that an IOC order may be
entered through FIX or SQF, provided that an IOC Order entered by a
Market Maker through SQF is not subject to the Order Price Protection,
the Market Order Spread Protection, or Size Limitation in Options 3,
Section 15(a)(1), (a)(2), and (b)(2), respectively. The Exchange
proposes to add ``OTTO'' to the list of protocols to note that an IOC
order may also be entered through OTTO.
BX also proposes to amend the ``DAY'' order in Options 3, Section
7(b)(3) that currently provides that a Day order may be entered through
FIX. With the addition of OTTO, a Day order may also be entered through
OTTO.
BX also proposes to amend the ``Good Til Cancelled'' or ``GTC''
order which currently does not specify that a GTC order may be entered
through FIX. GTC orders would only be able to be entered through FIX
and not OTTO. The Exchange proposes to amend Options 3, Section 7(b)(4)
to add a sentence to note that GTC orders may be entered through FIX.
Options 3, Section 8
BX proposes to amend Options 3, Section 8, Options Opening Process.
BX proposes to amend Options 3, Section 8(l) that describes the Opening
Process Cancel Timer. The Opening Process Cancel Timer represents a
period of time since the underlying market has opened. If an option
series has not opened before the conclusion of the Opening Process
Cancel Timer, a Participant may elect to have orders returned by
providing written notification to the Exchange. Today, these orders
include all non-Good Til Cancelled Orders received over the FIX
protocol. The Exchange proposes to add the OTTO protocol as well to the
rule text language in that paragraph.
Options 3, Section 12
The Exchange proposes to amend the Options 3, Section 12, Crossing
Orders.
[[Page 95323]]
Specifically, the Exchange proposes to amend Customer Crossing Orders
in Options 3, Section 12(a) that currently provides Public Customer-to-
Public Customer Cross Orders are automatically executed upon entry
provided that the execution is at or between the best bid and offer on
the Exchange and (i) is not at the same price as a Public Customer
Order on the Exchange's limit order book and (ii) will not trade
through the NBBO. Public Customer-to-Public Customer Cross Orders must
be entered through FIX. The Exchange proposes to remove the sentence
that provides that Public Customer-to-Public Customer Cross Orders must
be entered through FIX because they will be able to be entered through
both FIX and OTTO.
Options 3, Section 17
The Exchange proposes to amend the Kill Switch at Options 3,
Section 17. The Kill Switch provides Participants with an optional risk
management tool to promptly cancel and restrict orders. With the
introduction of OTTO, the Exchange proposes to align its Kill Switch
rule text with MRX's Kill Switch.\8\ The Exchange proposes to note in
Options 3, Section 17(a) that BX Participants may initiate a message(s)
to the System to promptly cancel and restrict their order activity on
the Exchange, as is the case today, as described in section (a)(1).
This amendment simply rewords the rule text without a substantive
amendment to the rule text.
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\8\ See MRX Options 3, Section 17.
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The Exchange proposes to renumber Options 3, Section 17(a)(i) and
(ii) as (a)(1) and (2). Current Options 3, Section 17(a)(i) states,
``If orders are cancelled by the BX Participant utilizing the Kill
Switch, it will result in the cancellation of all orders requested for
the Identifier(s). The BX Participant will be unable to enter
additional orders for the affected Identifier(s) until re-entry has
been enabled pursuant to section (a)(ii).'' The Exchange proposes to
instead provide, ``A BX Participant may submit a request to the System
through FIX or OTTO to cancel all existing orders and restrict entry of
additional orders for the requested Identifier(s) on a user level on
the Exchange.'' With the addition of OTTO, the Exchange notes that both
FIX and OTTO orders may be cancelled. Further, today, BX Participants
utilize an interface to send a message to the Exchange to initiate a
Kill Switch.\9\ The Exchange notes that in lieu of the interface, BX
Participants will only be able to initiate a cancellation of their
orders by sending a mass purge request through FIX or OTTO. This change
will align the Kill Switch functionality to that of ISE, GEMX and MRX
Options 3, Section 17 and will enable BX Participants to initiate the
Kill Switch more seamlessly without the need to utilize a separate
interface. When initiating a cancellation of their orders by sending a
mass purge request through FIX or OTTO, Participants will be able to
submit a Kill Switch request on a user level only. This is a change
from the ability to cancel orders on either a user or group level \10\
with the interface. The Exchange proposes to amend Options 3, Section
17(a) to note this change by removing the words ``or group'' and the
following sentence that applies to a group.\11\
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\9\ See Securities Exchange Act Release No. 76116 (October 8,
2015), 80 FR 62147 (October 15, 2015) (SR-BX-2015-050) (Order
Approving Proposed Rule Change To Adopt a Kill Switch).
\10\ A permissible group could include all badges associated
with a Market Maker. Today, a Participant is able to set up these
groups in the interface to include all or some of the Identifiers
associated with the Participant firm so that a GUI Kill Switch
request could apply to this pre-defined group.
\11\ The Exchange proposes to remove this sentence,
``Permissible groups must reside within a single broker-dealer'' as
the group option would no longer exist.
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Finally, the Exchange proposes to amend proposed Options 3, Section
17(a)(2) to align to MRX's rule text by providing ``Once a BX
Participant initiates a Kill Switch pursuant to (a)(1) above . . .'' in
the first sentence. This amendment simply rewords the rule text without
a substantive amendment to the rule text.
Options 3, Section 18
The Exchange proposes to amend Options 3, Section 18, Detection of
Loss of Communication. The Exchange proposes to add OTTO to Options 3,
Section 18 as OTTO would also be subject to this rule. Today, when the
SQF Port or the FIX Port detects the loss of communication with a
Participant's Client Application because the Exchange's server does not
receive a Heartbeat message for a certain time period, the Exchange
will automatically logoff the Participant's affected Client Application
and automatically cancel all of the Participant's open quotes through
SQF and open orders through FIX. Quotes and orders are cancelled across
all Client Applications that are associated with the same BX Options
Market Maker ID and underlying issues.
At this time, the Exchange proposes to permit orders entered
through OTTO to be cancelled similar to FIX orders when the Exchange's
server does not receive a Heartbeat message for a certain time period.
The Exchange is proposing to amend Options 3, Section 18 to also
rearrange the rule text to add the word ``Definitions'' next to ``a''
and move the rule text in current ``a'' to ``b'' and re-letter the
other paragraphs accordingly. Also, the Exchange proposes to define
``Session of Connectivity'' for purposes of this rule to mean each time
the Participant connects to the Exchange's System. Further, each new
connection, intra-day or otherwise, is a new Session of Connectivity.
The Exchange proposes to use the new definition throughout Options 3,
Section 18.
Similar to FIX, when the OTTO Port detects the loss of
communication with a Participant's Client Application because the
Exchange's server does not receive a Heartbeat message for a certain
time period, the Exchange will automatically logoff the Participant's
affected Client Application and automatically cancel all of the
Participant's open orders through OTTO. Orders would be cancelled
across all Client Applications that are associated with the same BX
Options Market Maker ID and underlying issues. The Exchange proposes to
update Options 3, Section 18 to provide in proposed Options 3, Section
18(a)(3) that the OTTO Port is the Exchange's proprietary System
component through which Participants communicate their orders from the
Client Application. Further, the Exchange would note in proposed
Options 3, Section 18(c) that when the OTTO Port detects the loss of
communication with a Participant'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 Participant's affected Client Application and if the Participant
has elected to have its orders cancelled pursuant to proposed Section
18(f), automatically cancel all orders. Proposed Options 3, Section
18(f) would provide that the default period of ``nn'' seconds for OTTO
Ports would be fifteen (15) seconds for the disconnect and, if elected,
the removal of orders. A Participant may determine another time period
of ``nn'' seconds of no technical connectivity, as required in proposed
paragraph (c), to trigger the disconnect and, if so elected, the
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 OTTO Ports prior to each
Session of Connectivity to the Exchange. This feature may be disabled
for the removal of orders;
[[Page 95324]]
however, the Participant will be disconnected.
Proposed Options 3, Section 18(f)(1) would provide that if the
Participant 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
Participant may change the default setting prior to each Session of
Connectivity. Finally, as proposed in Options 3, Section 18(f)(2), if
the time period is communicated to the Exchange by calling Exchange
operations, the number of ``nn'' seconds selected by the Participant
will persist for each subsequent Session of Connectivity until the
Participant either contacts Exchange operations by phone and changes
the setting or the Participant selects another time period through the
Client Application prior to the next Session of Connectivity. The
trigger for OTTO Ports is event and Client Application specific. The
automatic cancellation of the BX Options Market Maker's open orders for
OTTO Ports entered into the respective OTTO Ports via a particular
Client Application will neither impact nor determine the treatment of
orders of the same or other Participants entered into the OTTO Ports
via a separate and distinct Client Application. The proposed amendments
for OTTO mirror the manner in which FIX Ports are treated when the
Exchange's server does not receive a Heartbeat message for a certain
time period for a FIX Port.\12\
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\12\ The Exchange proposes to update internal cross-references
to accommodate relocated text.
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Pricing
BX proposes to amend its Pricing Schedule at Options 7, Section 3,
BX Options Market--Ports and other Services, to adopt a port fee for
the new OTTO protocol of $650 per port, per month, per account number.
OTTO would be an additional order entry protocol for BX Participants in
addition to FIX, which is currently utilized by BX Participants to
enter orders into BX. The Exchange currently assesses a FIX Port Fee of
$650 per port, per month, per account number.\13\ The Exchange will
provide each Participant the first FIX Port at no cost to submit orders
into BX. BX Participants utilizing the first FIX Port offered at no
cost do not need to purchase an OTTO Port, which is optional.
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\13\ The term ``account number'' means a number assigned to a
Participant. Participants may have more than one account number. See
Options 1, Section 1(a)(2). Account numbers are free on BX.
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The Exchange also proposes to add OTTO to the list of ports that
are capped at $7,500 on BX. Today, the maximum monthly fees in the
aggregate for FIX Port, CTI Port, FIX DROP Port, BX Depth Port and BX
TOP Port Fees on BX is $7,500.\14\ These ports are available to all BX
Participants. To the extent that a Participant expended more than
$7,500 for FIX or OTTO Ports in a month, BX would not charge a
Participant for additional FIX or OTTO Ports, respectively, beyond the
cap.
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\14\ See BX Options 7, Section 3(i).
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Implementation
The Exchange will implement this rule change on or before December
20, 2025. The Exchange will announce the operative date to Participants
in an Options Trader Alert.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\16\ 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.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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OTTO Protocol
The Exchange's proposal to adopt OTTO is consistent with the Act
because OTTO would provide BX Participants with an alternative protocol
to submit orders to the Exchange. As proposed, BX would offer the first
FIX Port at no cost to submit orders into BX, which would remove
impediments to and perfect the mechanism of a free and open market.
While BX Participants may elect to obtain multiple ports to organize
their business,\17\ only one order port is necessary for a Participant
to enter orders on BX. A BX Participant may send all orders,
proprietary and agency, through one port to BX without incurring any
cost with this proposal. In the alternative, BX Participants may elect
to obtain multiple ports to organize their business.\18\
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\17\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that Participant.
\18\ For example, a Participant may desire to utilize multiple
FIX or OTTO Ports for accounting purposes, to measure performance,
for regulatory reasons or other determinations that are specific to
that Participant.
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With the addition of OTTO, a BX Participant may elect to enter
their orders through FIX, OTTO, or both protocols, although both
protocols are not necessary. Each BX Participant would receive one FIX
Port at no cost, thereby promoting just and equitable principles of
trade. The Exchange notes that Participants may prefer one order
protocol as compared to another order protocol, for example, the
ability to route an order may cause a Participant to utilize FIX and a
Participant that desires to execute an order locally may utilize OTTO.
Also, the OTTO Port offers lower latency as compared to the FIX Port,
which may be attractive to Participants depending on their trading
behavior. With this proposal, BX Participant may organize their
business as they chose with the ability to send orders to BX at no
cost. The proposed new OTTO protocol is identical to the OTTO protocol
offered today on ISE, GEMX, and MRX.
Other Amendments
In connection with offering OTTO, the Exchange proposes to amend
other rules within Options 3 to make clear where the FIX and OTTO
protocols may be utilized. IOC Orders may be entered through FIX, OTTO
or SQF. A Day order may be entered through FIX or OTTO. A GTC order may
only be entered through FIX. A Public Customer-to-Public Customer Cross
Order may be entered through FIX or OTTO. Other processes such the
Opening Cancel Timer would impact FIX and OTTO equally.
The Exchange's proposal to amend the Kill Switch at Options 3,
Section 17 to align its rule text in proposed Options 3, Section 17(a)
and (a)(2) with MRX's Options 3, Section 17 is consistent with the Act
because it does not substantively amend the functionality beyond
removing the group level cancel capability. The Exchange's proposal to
amend proposed Options 3, Section 17(a)(2) to specify that FIX and OTTO
orders may be cancelled is consistent with the Act as it will make
clear that all orders entered on BX may be purged through the Kill
Switch. Finally, allowing BX Participants to send a mass purge request
through FIX or OTTO, in lieu of an interface, is consistent with Act
and the protection of investors and the general public because it will
enable BX Participants to initiate the Kill Switch more seamlessly
without the need to utilize a separate interface. Further, utilizing
the order protocols directly, in lieu of the interface, will align the
Kill Switch functionality to that of ISE, GEMX and MRX. When initiating
a cancellation of their orders by sending a mass purge request through
FIX or OTTO, Participants will be able to submit a Kill Switch request
on a user level only because the purge
[[Page 95325]]
will be specific to a FIX or OTTO user for these ports.
Finally, the Detection of Loss of Communication would apply equally
to FIX and OTTO. The Exchange believes that its proposal is consistent
with the Act and protects investors as the Exchange is making clear
what types of order types and other mechanisms may utilize OTTO. Today,
BX Participants utilize FIX to enter their orders. Despite the fact
that OTTO would not be available for the GTC Time-In-Force modifier,
the Exchange notes that one FIX Port is being provided to Participants
at no cost. Today, FIX is the only manner in which to enter orders into
BX.
Pricing
Proposed Port Fees Are Reasonable, Equitable and Not Unfairly
Discriminatory
The Exchange believes that its proposal furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. This belief is based on
comparability: the proposed fees are comparable to, and in some cases
less than, those of similarly situated exchanges.
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\19\ See 15 U.S.C. 78f(b)(4) and (5).
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The proposed fees for BX OTTO are nearly identical to fees on MRX
\20\ and GEMX \21\ for OTTO, an identical protocol. Additionally, the
proposed fees for BX OTTO are comparable to those of its closest
competitors, Cboe C2 Exchange, Inc. (``C2''), MEMX LLC (``MEMX''),\22\
MIAX Emerald, LLC (``Emerald'') \23\ and Cboe EDGX Exchange, Inc.'s
(``BatsEDGX'') \24\ based on market share. Below is a chart comparing
BX to affiliated Nasdaq exchanges that have an identical OTTO Port.
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\20\ MRX offers one free FIX Port to its Members and assesses
the same OTTO Port fee of $650 per port, per month, per account
number. MRX also offers a free FIX Disaster Recovery Port. Today, BX
does not assess Disaster Recovery Port fees. Finally, today, MRX
offers a $7,500 monthly cap for OTTO Ports, CTI Ports, FIX Ports,
FIX Drop Ports and all Disaster Recovery Ports. BX's proposed
monthly cap is $7,500 and includes the same ports as MRX, except
that BX also includes two data ports in addition to the other ports,
BX Depth Ports and BX Top Ports. BX Depth Ports and BX Top Ports are
assessed fees of $650 per port, per month. Therefore, BX's proposed
cap can also be obtained utilizing BX Depth Port and BX Top Port in
addition to the same ports that MRX aggregates for purposes of the
monthly cap.
\21\ GEMX does not offer the first FIX Port for free and
assesses the same OTTO Port fee of $650 per port, per month, per
account number. Also, GEMX caps OTTO Ports, CTI Ports, FIX Ports,
FIX Drop Ports and all Disaster Recovery Ports at $7,500 a month the
same as the proposed fee for BX.
\22\ MEMX assesses $450 per port for an order entry port.
\23\ Emerald assesses $550 for the first FIX Port, $350 for 2
through 5 FIX Ports and $150 for over 5 FIX Ports.
\24\ BatsEDGX assesses $750 per port, per month for a Logical
Port.
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Market share
Exchange (%) OTTO First free FIX port Cap
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BX............................... 2 $650 per port, per yes................ OTTO Port subject
month, per account to monthly cap of
number. $7,500.
MRX.............................. 2.5 $650 per port, per yes................ OTTO Port currently
month, per account subject to monthly
number. cap of $7,500.
GEMX............................. 2.4 $650 per port, per no................. OTTO Port currently
month, per account subject to monthly
number. cap of $7,500.
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Below is a chart comparing BX to unaffiliated exchanges with
comparable logical ports.
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Market share
Exchange (%) Proprietary port First free port Cap
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BX............................... 2 $650 per port, per yes................ OTTO Port subject
month, per account to monthly cap of
number. $7,500.
C2............................... 2.8 BOE Port fee of no................. no.
$650 per port.
MEMX............................. 2.3 MEMO SBE Port fee no................. no.
of $450 per port.
Emerald.......................... 3.6 Emerald does not no................. no.
offer a
proprietary port
similar to OTTO.
BatsEDGX......................... 3.6 BOE Port fee of no................. no.
$750 per port, per
month.
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The Exchange's analysis utilizes the below graph representing the
market share \25\ for each of the eighteen options markets based on
total options contracts traded in 2024 through October 28, 2024.
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\25\ Market share is the percentage of volume on a particular
exchange relative to the total volume across all exchanges, and
indicates the amount of order flow directed to that exchange. High
levels of market share enhance the value of trading and ports. Total
contracts include both multi-list options and proprietary options
products. Proprietary options products are products with
intellectual property rights that are not multi-listed. BX does not
list proprietary products.
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[[Page 95326]]
[GRAPHIC] [TIFF OMITTED] TN02DE24.004
MRX
MRX has market share of 2.5% which is comparable to BX's market
share of 2.0%. MRX offers one free FIX Port to its Members and assesses
the same OTTO Port fee of $650 per port, per month, per account number.
MRX also offers a free FIX Disaster Recovery Port. Today, BX does not
assess Disaster Recovery Port fees. Finally, today, MRX offers a $7,500
monthly cap for OTTO Ports, CTI Ports, FIX Ports, FIX Drop Ports and
all Disaster Recovery Ports. BX's proposed monthly cap is $7,500 and
includes the same ports as MRX, except that BX also includes two data
ports in addition to the other ports, BX Depth Ports and BX Top Ports.
BX Depth Ports and BX Top Ports are assessed fees of $650 per port, per
month. Therefore, BX's proposed cap can also be obtained utilizing BX
Depth Port and BX Top Port in addition to the same ports that MRX
aggregates for purposes of the monthly cap. The proposed fees are
nearly identical to MRX's OTTO fees.
GEMX
GEMX has market share of 2.4% which is comparable to BX's market
share of 2.0%. GEMX does not offer the first FIX Port for free and
assesses the same OTTO Port fee of $650 per port, per month, per
account number. Also, GEMX caps OTTO Ports, CTI Ports, FIX Ports, FIX
Drop Ports and all Disaster Recovery Ports at $7,500 a month the same
as the proposed fee for BX. The proposed fees are nearly identical to
GEMX's fees.
C2
C2 has market share of 2.8% which is comparable to BX's market
share of 2.0%. C2 assesses $650 per port for its Binary Order Entry
(``BOE'') Logical Port, a Cboe proprietary order entry protocol.\26\
BOE provide users the ability to enter order/quotes. Unlike BOE, OTTO
is only for order submission and is similarly a proprietary protocol.
While OTTO is subject to a cap, BOE's logical port fee is applicable
when used to enter up to 20,000 orders per trading day per logical port
as measured on average in a single month. Each incremental usage of up
to 20,000 per day per logical port will incur an additional logical
port fee of $650 per month. Incremental usage will be determined on a
monthly basis based on the average orders per day entered in a single
month across all of a market participant's subscribed BOE Logical
Ports. OTTO does not have a similar limitation on its port for number
of orders which would require additional ports if the orders per day
were exceeded. With its proposal, BX is offering the first FIX at no
cost, while C2 does not offer any ports at no cost. The proposed fees
are similar to C2's fees.
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\26\ <a href="https://cdn.cboe.com/resources/membership/US_Options_BOE_Specification.pdf">https://cdn.cboe.com/resources/membership/US_Options_BOE_Specification.pdf</a>.
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MEMX
MEMX has market share of 2.3% which is comparable to BX's market
share of 2.0%. MEMX assesses $450 per port for an order entry port.
MEMO SBE, a binary, proprietary protocol used for order submission on
MEMX Options,\27\ would be similar to OTTO. MEMX does not cap its fees
and also does not offer any ports at no cost. The proposed fees are
higher than MEMX's fees. MEMX is a new options market that only
recently began trading as compared to BX which began trading in 2012,
Typically, new options entrants have no port fees \28\ or lower port
fees.
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\27\ See MEMO SBE V1.12 specifications. Specifications must be
downloaded from MEMX's website to be viewed.
\28\ MRX had no port fees for the first 6 years of trading.
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Emerald
Emerald has market share of 3.6% which is comparable to BX's market
share of 2.0%. Emerald assesses $550 for the first FIX Port, $350 for 2
through 5 FIX Ports and $150 for over 5 FIX Ports. FIX is a universal
protocol while BX OTTO is a proprietary protocol. Emerald offers a FIX
Port but not a similar proprietary logical port.\29\ Emerald does not
cap its fees and does not offer a FIX Port at no cost. The proposed
fees are similar to Emerald's FIX fees for the first port and higher
for subsequent Emerald FIX ports, however
[[Page 95327]]
Emerald does not offer any FIX ports at no cost.
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\29\ <a href="https://www.miaxglobal.com/miax_emerald_user_manual.pdf">https://www.miaxglobal.com/miax_emerald_user_manual.pdf</a>.
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BatsEDGX
BatsEDGX has market share of 3.6% which is comparable to BX's
market share of 2.0%. BatsEDGX assesses $750 per port, per month for
its Binary Order Entry (``BOE'') Logical Port, a Cboe proprietary order
entry protocol.\30\ BOE provide users the ability to enter order/
quotes. Unlike BOE, OTTO is only for order submission and is similarly
a proprietary protocol. BatsEDGX does not cap its fees and also does
not offer any ports at no cost. The proposed fees are lower than
BatsEDGX's fees.
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\30\ <a href="https://cdn.cboe.com/resources/membership/US_Options_BOE_Specification.pdf">https://cdn.cboe.com/resources/membership/US_Options_BOE_Specification.pdf</a>.
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In summary, (i) the proposed OTTO Port fees are (i) substantially
similar to GEMX and MRX; (ii) comparable to C2; (iii) comparable, but
less than BatsEDGX; and (iv) comparable, but higher than MEMX. Emerald
offers a FIX Port but not a similar proprietary logical port.
The Proposal is equitable as the proposed fees would apply to all
BX Participants in a uniform manner. Each BX Participant would be
entitled to the first FIX Port at no cost. Also, the proposed BX OTTO
fees would be assessed uniformly to each BX Participant that subscribes
to OTTO. Finally, the proposed monthly cap would be applied uniformly
to all BX Participants. The Proposal is not unfairly discriminatory. BX
OTTO, a new protocol, would be an optional protocol available to all
Participants on a non-discriminatory basis.
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.
OTTO Protocol
The OTTO protocol is a proprietary protocol of Nasdaq, Inc. The
Exchange continues to innovate and modernize technology so that it may
continue to compete among options markets. The ability to continue to
innovate with technology and offer new products to market participants
allows BX to remain competitive in the options space which currently
has eighteen options markets and potential new entrants. The Exchange's
proposal to adopt an OTTO Protocol does not impose an undue burden on
intramarket competition. Today, all BX Participants utilize FIX to send
orders to BX. The Exchange would offer each BX Participant the first
FIX Port at no cost with this proposal. With the addition of OTTO
Ports, a BX Participant may elect to enter their orders through FIX,
OTTO, or both protocols, although both protocols are not necessary. The
Exchange's proposal to adopt an OTTO Protocol does not impose an undue
burden on intermarket competition as other options exchanges offer
multiple protocols today such as ISE, GEMX and MRX.
Other Amendments
The Exchange's proposal to amend other rules within Options 3 to
make clear where the FIX and OTTO protocols may be utilized does not
impose an undue burden on intramarket competition as these rules will
apply in the same manner to all Participants. The Exchange's proposal
to amend other rules within Options 3 to make clear where the FIX and
OTTO protocols may be utilized does not impose an undue burden on
intermarket competition as other options exchanges may elect to utilize
their order entry protocols in different ways.
Pricing
Nothing in the proposal burdens inter-market competition (the
competition among self-regulatory organizations) because approval of
the Proposal does not impose any burden on the ability of other options
exchanges to compete. BX OTTO fees are comparable to, and in some cases
less than, those of other exchanges, as discussed above.
Nothing in the Proposal burdens intra-market competition (the
competition among consumers of exchange data) because BX OTTO is
available to any Participant at the same price and any Participant that
elects to subscribe to OTTO may do so on a non-discriminatory basis.
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 \31\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\32\
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\31\ 15 U.S.C. 78s(b)(3)(A)(iii).
\32\ 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.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule 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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2755524b420a44484a4a424953546754424409404851"><span class="__cf_email__" data-cfemail="d3a1a6bfb6feb0bcbebeb6bda7a093a0b6b0fdb4bca5">[email protected]</span></a>. Please include
file number SR-BX-2024-048 on the subject line.
Paper Comments
<bullet> 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-BX-2024-048. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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
[[Page 95328]]
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 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to file number
SR-BX-2024-048 and should be submitted on or before December 23, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28113 Filed 11-29-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on December 2, 2024.
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