You have 'reference if possible' on.
So it will try to send a reference to pro tools and not convert and copy and ask PT to play it from its original position and ignore any edit you make
And secondly, since it is referencing, pro tools will decide what happens so be careful PT is is not creating new content because it is enforcing a copy or deciding to ignore the reference and make a new copy for whatever reason.
'handles' is a copy and convert approach. It explicitly sets SM to pre-copy(thereby making a new file) and add xxx to either end of an edit. You are not in that mode based on that preference screen grab(turn reference original off).
steve