[Federal Register Volume 86, Number 161 (Tuesday, August 24, 2021)]
[Notices]
[Pages 47343-47345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18118]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92697; File No. SR-NASDAQ-2021-063]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Options 3, Section 17 (Kill Switch)

August 18, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on August 9, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 decommission the Exchange's quote removal 
Kill Switch functionality at Options 3, Section 17.

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

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

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

1. Purpose
    The Exchange proposes to amend Options 3, Section 17 to 
decommission the Exchange's quote removal Kill Switch functionality, 
which is an optional tool that allows Market Makers to initiate a 
message (or messages) \4\ to the System \5\ to promptly remove their 
quotes from the market. Market Makers may submit a request to the 
System to remove quotes based on certain identifier(s) on either a user 
or group level (``Identifier'').\6\ If quotes are cancelled by the 
Market Maker using Kill Switch, it will result in the removal of all 
quotes requested for the Identifier(s). The Market Maker will be unable 
to enter any additional quotes for the affected Identifier(s) until the 
Market Maker sends a re-entry request to the Exchange.\7\
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    \4\ Today, Market Makers can log into an interface to send a 
message to the Exchange to initiate the Kill Switch.
    \5\ The term ``System'' means the automated system for order 
execution and trade reporting owned and operated by The Nasdaq 
Options Market LLC (``NOM''). See Options 1, Section 1(a)(59).
    \6\ Identifiers include Exchange accounts, ports, and/or badges 
or mnemonics. Thus, a Market Maker using Kill Switch may elect to 
remove quotes for an individual Identifier (e.g., badge) or any 
group of Identifiers (e.g., all badges within one Market Maker 
firm). Permissible groups must reside within a single member firm.
    \7\ See Options 3, Section 17. The Kill Switch tool also 
currently allows NOM Participants to cancel open orders and prevent 
new order submission. The Exchange is not proposing to decommission 
the order cancellation portion of the Kill Switch tool at this time.
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    Due to the lack of demand for the quote removal Kill Switch by 
Market Makers, the Exchange proposes to decommission this optional tool 
by the end of Q4 2021.\8\ The Exchange will provide market participants 
with prior notice of the decommission. With the

[[Page 47344]]

proposed changes, the Exchange seeks to streamline its product 
offerings and to reallocate Exchange resources to other business and 
risk management initiatives. While the Exchange will no longer offer 
this optional functionality to Market Makers, it will continue to offer 
similar quote management tools that would assist Market Makers with 
their efforts to manage their risk with respect to quotes on the 
Exchange. For example, Market Makers are currently able to send a mass 
purge request through Specialized Quote Feed (``SQF'') to pull their 
existing quotes from the market and inhibit the entry of new quotes 
until the Market Maker sends a message to the Exchange to re-enter the 
System.\9\ Indeed, the Exchange has found that Market Makers utilize 
this SQF purge functionality instead of the Kill Switch quote removal 
tool when they want to remove their quotes from the market.
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    \8\ No Market Makers have used the Kill Switch for quote removal 
in 2021.
    \9\ ``SQF'' is an interface that allows Market Makers to 
connect, send, and receive messages related to quotes and Immediate-
or-Cancel Orders into and from the Exchange. Features include the 
following: (1) Options symbol directory messages (e.g., underlying 
instruments); (2) system event messages (e.g., start of trading 
hours messages and start of opening); (3) trading action messages 
(e.g., halts and resumes); (4) execution messages; (5) quote 
messages; (6) Immediate-or-Cancel Order messages; (7) risk 
protection triggers and purge notifications; and (8) opening 
imbalance messages. The SQF Purge Interface only receives and 
notifies of purge requests from the Market Maker. Market Makers may 
only enter interest into SQF in their assigned options series. See 
Options 3, Section 7(e)(1)(B).
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    In addition, all Participants, including Market Makers, may contact 
the Exchange's market operations staff to request that the Exchange 
cancel any of their existing bids, offers, or orders in any series of 
options.\10\ Furthermore, the Exchange will continue to have mandatory 
System-enforced risk mechanisms that automatically remove quotes for 
the Market Maker once certain pre-set thresholds or conditions are met. 
This includes risk protections such as rapid fire risk controls \11\ 
and cancel on disconnect.\12\
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    \10\ See Options 3, Section 19.
    \11\ The rapid fire risk controls automatically remove Market 
Maker quotes submitted over SQF when certain firm-set thresholds are 
met. Once the thresholds are triggered, the Market Maker must send a 
re-entry indicator to re-enter the System. See Options 3, Section 
15(c)(2).
    \12\ When the SQF Port detects the loss of communication with a 
NOM 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 NOM 
Participant's affected Client Application and automatically cancel 
all of the NOM Participant's open quotes. Quotes will be cancelled 
across all Client Applications that are associated with the same NOM 
Options Market Maker ID and underlying issues. See Options 3, 
Section 18(a).
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    To effect the decommissioning of the quote removal Kill Switch, the 
Exchange proposes to amend Options 3, Section 17 by eliminating all 
references to quote removal within this Rule. In connection with this 
change, the Exchange will also renumber current Options 3, Section 
17(a)(ii) and (a)(iii) as Options 3, Section 17(a)(i) and (a)(ii), 
respectively.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\14\ 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. Additionally, the Exchange believes that the proposed rule 
change is consistent with the Section 6(b)(5) requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange does not believe that the proposed rule 
change will affect the protection of investors or the public interest 
or the maintenance of a fair and orderly market because no Market 
Makers have used the quote removal Kill Switch risk control in 2021. In 
addition, the Exchange notes that the use of this tool is completely 
optional, and the Exchange will continue to offer Market Makers similar 
risk management tools such as the SQF mass quote purge functionality. 
As discussed above, the Exchange has found that Market Makers use the 
SQF purge functionality much more frequently than the quote removal 
Kill Switch to pull their quotes from the market. Furthermore, Market 
Makers will retain the ability to contact market operations staff to 
manually purge their quotes from the market. In addition, the Exchange 
will continue to implement mandatory System-enforced risk mechanisms 
that automatically remove quotes for the Market Maker once certain pre-
set thresholds or conditions are met (i.e., rapid fire and cancel on 
disconnect).
    Also, the Exchange believes that the low usage rate for the quote 
removal Kill Switch does not warrant the continuous resources necessary 
for System support of such tools. As a result, the Exchange also 
believes that the proposal will remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
allowing the Exchange to reallocate System capacity and resources 
currently used to maintain this functionality to the development and 
maintenance of other business initiatives and risk management products.
    As noted above, the Exchange will retain the ability for 
Participants to utilize Kill Switch to cancel orders and prevent new 
order submission. The Exchange does not believe that decommissioning 
the quote removal portion of the Kill Switch tool for Market Makers is 
unfairly discriminatory because Market Makers are professional traders 
with their own risk settings, and have more sophisticated 
infrastructures than most other market participants. Furthermore, as 
discussed above, the Exchange has determined that Market Makers 
currently use the mass purge functionality on SQF to pull their quotes 
from the market instead of using the quote removal Kill Switch tool to 
achieve the same result.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change will 
allow the Exchange to decommission a risk management tool that is 
rarely, if ever, used on the Exchange. As discussed above, Market 
Makers currently have a variety of similar tools like the quote removal 
Kill Switch that allow them to pull their quotes from the market and 
inhibit the entry of new quotes, including the mass quote purge 
functionality on SQF that the Exchange has found Market Makers use much 
more frequently than the quote removal Kill Switch to achieve the same 
result.
    As noted above, the Exchange will retain the ability for 
Participants to utilize Kill Switch to cancel orders and prevent new 
order submission. The Exchange does not believe that decommissioning 
the quote removal portion of the Kill Switch tool for Market Makers 
will impose an undue burden on competition because Market Makers are 
professional traders with their own risk settings, and have more 
sophisticated infrastructures than most other market participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

[[Page 47345]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2021-063 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2021-063. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2021-063, and should be submitted 
on or before September 14, 2021.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18118 Filed 8-23-21; 8:45 am]
BILLING CODE 8011-01-P


