SEC approves Nasdaq PHLX’s proposal to expand use of Snapshot functionality of Floor-Based Management System

Maria Nikolova

The proposed change will allow for the Snapshot functionality of the Floor-Based Management System to be used for all orders.

The United States Securities and Exchange Commission (SEC) has approved a proposed change to the rules of Nasdaq PHLX LLC that will see expansion of the application of Snapshot functionality of the Floor-Based Management System (FBMS). The proposed rule change will allow the Snapshot functionality to be used for all orders on the trading floor.

The “Snapshot” functionality of the FBMS allows a Floor Broker, Registered Options Trader (ROT), or Specialist to “provisionally execute” a trade in the trading crowd and capture and record the market conditions that exist at the time of the provisional execution. When the member triggers the Snapshot, the member has up to 30 seconds to use the information recorded on the Snapshot for purposes of entering the terms of the provisionally-executed trade into FBMS and submitting the trade to the Trading System. Once submitted, the Trading System will only execute the trade if it is consistent with the applicable priority and trade-through rules based upon the prevailing market as reflected on the Snapshot at the time of the provisional execution. The Trading System will reject a trade that is subject to a Snapshot if it would violate trade-though or priority rules.

At present, the “Snapshot” feature of the FBMS may only be used to provisionally execute certain types of orders in the trading crowd. In particular, Floor Brokers, Specialists, and ROTS may only use Snapshot to provisionally execute multi-leg orders and simple orders in options on Exchange Traded Funds (ETFs) that are included in the Options Penny Pilot.

The Exchange has proposed to expand the use of the Snapshot functionality to all orders on the trading floor, subject to the current procedures for and the limitations on the use of Snapshot. According to the Exchange, this is set to make the functionality simpler, more consistent, and more useful in a greater number of circumstances than it is currently.

According to the Exchange, Snapshot promotes just and equitable principles of trade and serves the interests of investors and the public by increasing the likelihood that investors will be able to execute their orders and do so in line with their expectations. The Exchange further says that Snapshot is designed to mitigate the risk that the Trading System will reject a trade due to a change in market conditions that occurs between the time when the parties to a trade negotiate a valid trade on the trading floor and the time when the Trading System receives the trade. The Exchange believes that expanding the availability of Snapshot to all orders will broaden the scope of these protections to the benefit of investors and will make the exchange’s trading floor more competitive with other trading venues because it will make the trading floor operate more efficiently.

After careful review, the SEC has determined that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.

The Commission explains that, at the time Snapshot was adopted, the Exchange implemented several measures to help ensure that Snapshot operates, and is used by members, in a manner that is consistent with the Act and Phlx’s rules.

The Commission notes that these measures will continue to apply to the expanded application of Snapshot to all orders and should continue to ensure that the Snapshot functionality will be used in a manner that is consistent with the Act and Phlx’s Rules. For example, Phlx Rule 1069(a)(i)(B) will continue to prohibit all members from triggering the Snapshot feature for the purpose of obtaining favorable, or avoiding unfavorable, priority or trade-through conditions.

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