FR 2021-01129

Summary of the Document:

The document relates to a proposal by Nasdaq Phlx LLC to the Securities and Exchange Commission (SEC) to enable Floor Brokers to use an electronic system called the Options Floor Based Management System (FBMS) remotely. This system allows brokers to handle certain types of orders that do not require open outcry, meaning they don't need to be physically on the trading floor. The proposal aims to enhance operational flexibility, particularly useful during times when the trading floor might be closed, like during a pandemic or other emergencies. The SEC is inviting public comments on this proposal to ensure it aligns with goals of investor protection and market fairness.

Significant Issues and Concerns:

One of the primary concerns is the complexity of the language used throughout the document. This complexity can make it difficult for individuals who are not well-versed in legal or financial terminologies to understand the proposed changes. Moreover, there is a lack of clarity regarding the financial implications that this shift to remote access might have on both the exchange and the brokers. Questions arise about how this change could impact fee structures and revenues, as it alters the landscape in which these brokers operate.

Another issue is the limited examination of the long-term effects of allowing remote access. While the document briefly discusses the proposal as a temporary solution during physical trading floor closures, it lacks an in-depth analysis of how this change might influence broker operations and market fairness over time. There is also an absence of detailed consideration regarding whether certain member organizations might be inadvertently advantaged over others due to this change.

Security and compliance present another area of concern. Remote access inherently introduces risks related to cybersecurity and regulatory compliance; however, the document does not delve deeply into how these risks will be managed. There also appears to be an insufficient assessment of how this change could shift the dynamics of trading volumes and associated risks.

Impact on the Public Broadly:

For the general public, the proposal could signify a step towards modernization and flexibility in financial markets. The ability to perform certain transactions remotely may ensure continuity and reliability in trading activities, even during unforeseen events that could lead to physical trading floor closures. However, the document leaves unanswered questions about potential unintended consequences, such as changes to pricing structures or risks of increased financial volatility that might arise with more remote operations.

Impact on Specific Stakeholders:

On one hand, Floor Brokers stand to benefit from increased flexibility and operational efficiency. The proposal could allow them to better manage their workloads and potentially offer more consistent services to their clients despite physical constraints. On the other hand, Market Makers and other trading participants may feel disadvantaged if remote access alters competitive dynamics without appropriate checks and balances.

Member organizations could find themselves in a mixed situation. Larger entities with sophisticated infrastructure and technology might adapt easily, potentially gaining from the efficiencies that remote access might bring. In contrast, smaller firms might struggle with the technological and security requirements of remote operations, potentially exacerbating inequalities within the trading ecosystem.

Overall, while the document outlines a well-intentioned change meant to provide flexibility and continuity, it raises several concerns that require careful consideration and public input to ensure fair and equitable market operations.

The document under review does not contain explicit references to spending, appropriations, or financial allocations. Instead, it discusses technical changes to the Nasdaq Phlx LLC rules concerning the operations of Floor Brokers and their access to the Options Floor Based Management System (FBMS). While these changes could have indirect financial implications, they are not directly addressed in terms of specific monetary values or budgetary considerations within the document.

One of the key aspects mentioned is the FBMS, described as an order management system that facilitates the electronic execution of various options orders represented by Floor Brokers. The document states that FBMS is the "gateway for the electronic execution of equity, equity index, and U.S. dollar-settled foreign currency option orders" on the exchange's Options Floor. The term "U.S. dollar-settled" suggests a financial component tied to these transactions, indicating that trades conducted through FBMS are concluded in U.S. dollars. However, this mention does not detail any direct financial outcomes or changes in monetary flow.

Issues Related to Financial References

The decision to allow Floor Brokers remote access to FBMS raises questions about financial implications and operational shifts. Although the document clarifies that remote usage does not change the structure of fees or pricing incentives, there might be circumspect financial outcomes due to potential changes in trading volumes facilitated by the ease of remote access. The document does not delve into whether these operational changes could alter the revenue streams or financial assessments of transactions done through the FBMS.

Furthermore, allowing remote access might optimize staffing, potentially reducing costs associated with maintaining traders on-site. The diminished necessity for a physical presence could mean operational cost savings for member organizations, although this is not specifically quantified or discussed in the document.

Potential implications of security and compliance risk are pointed out as concerns surrounding remote access. These risks could indirectly impact financial aspects if security breaches result in financial losses or legal penalties. However, the document assures that the security infrastructure is in place to handle such remote operations securely.

Overall, while the document addresses technological and procedural changes, it lacks a comprehensive exploration of direct financial impacts. There is an opportunity for more detailed analysis regarding how changes to the FBMS access and operations might financially affect Nasdaq Phlx LLC, Floor Brokers, or the broader market.