[Federal Register Volume 82, Number 89 (Wednesday, May 10, 2017)]
[Notices]
[Pages 21860-21863]
[FR Doc No: 2017-09422]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80593; File No. SR-NASDAQ-2017-042]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 4702 (Order Types) and Rule 4703 (Order Attributes)

May 4, 2017.
    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 April 21, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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\ 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 amend Rule 4702 (Order Types) and Rule
4703 (Order Attributes) to specify the behavior of Midpoint Peg Post-
Only Orders and Orders with Midpoint Pegging after initial entry and
posting to the Nasdaq Book when the market is crossed, or when there is
no best bid and/or offer. Nasdaq also proposes to change certain
references to cancelling or rejecting orders in Rule 4702 and Rule
4703.
    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaq.cchwallstreet.com, 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.

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

1. Purpose
    Nasdaq proposes to amend Rule 4702 (Order Types) and Rule 4703
(Order Attributes) to specify the behavior of Midpoint Peg Post-Only
Orders and Orders with Midpoint Pegging that are cancelled or rejected
when the market is crossed, or when there is no best bid and/or offer
after initial entry and posting to the Nasdaq Book. Nasdaq also
proposes to change certain references to cancelling or rejecting orders
in Rule 4702 and Rule 4703.
    Rule 4702(b)(5) describes the Midpoint Peg Post-Only Order. Among
other things, the Rule states that the Midpoint Peg Post-Only Order is
an Order Type with a Non-Display Order Attribute that is priced at the
midpoint between the National Best Bid and Offer (``NBBO'') and that
will execute upon entry only in circumstances where economically
beneficial to the party entering the Order. The Midpoint Peg Post-Only
Order is available during Market Hours only.
    Rule 4703(d) describes the Pegging Order Attribute, including
Midpoint Pegging. Pegging is an Order Attribute that allows an Order to
have its price automatically set with reference to the NBBO. Midpoint
Pegging means Pegging with reference to the midpoint between the Inside
Bid and the Inside Offer (the ``Midpoint'').\3\ An Order with Midpoint
Pegging is not displayed.
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    \3\ Thus, if the Inside Bid was $11 and the Inside Offer was
$11.06, an Order with Midpoint Pegging would be priced at $11.03.
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    Nasdaq recently proposed changes to Midpoint Peg Post-Only Orders
and Orders with Midpoint Pegging, which were approved by the SEC on
November 10, 2016.\4\ With this change, if the NBBO is crossed or if
there is no NBBO, any existing Midpoint Peg Post-Only Order would be
cancelled and any new Midpoint Peg Post-Only Order would be rejected.
Similarly, if the Inside Bid and Inside Offer are crossed, any existing
Order with Midpoint Pegging would be cancelled and any new Order with
Midpoint Pegging would be rejected.\5\
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    \4\ See Securities Exchange Act Release No. 79290 (November 10,
2016), 81 FR 81184 (November 17, 2016) (SR-NASDAQ-2016-111).
    \5\ Id.
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    Nasdaq now proposes to add language to Rule 4702(b)(5)(B) to
specify the treatment of a Midpoint Peg Post-Only Order after initial
entry and posting to the Nasdaq Book when the NBBO is subsequently
crossed, or when there is subsequently no NBBO. Specifically, for
Midpoint Peg Post-Only Orders entered through RASH, QIX or FIX, if the
Order is on the Nasdaq Book and subsequently the NBBO is crossed, or if
there is subsequently no NBBO, the Order will be removed from the
Nasdaq Book and will be re-entered at the new midpoint once there is a
valid NBBO that is not crossed.
    Similarly, Nasdaq proposes to add language to Rule 4703(d) to
specify the treatment of Orders with Midpoint Pegging after initial
entry and posting to the Nasdaq Book when the Inside Bid and Inside
Offer are subsequently crossed, or if there is subsequently no Inside
Bid and/or Inside Offer. Specifically, for Orders with Midpoint Pegging
entered through RASH, QIX or FIX, if the Order is on the Nasdaq Book
and subsequently the Inside Bid and Inside Offer become crossed, or if
there is no Inside Bid and/or Inside Offer, the Order will be removed
from the Nasdaq Book and will be re-entered at the new midpoint once
there is a valid Inside Bid and Inside Offer that is not crossed.
    As stated in the filing proposing the new functionality for
Midpoint Peg Post-Only Orders and Orders with Midpoint Pegging, Nasdaq
believes that the midpoint of a crossed market, or where there is no
NBBO, is not a clear and accurate indication of a valid price, and may
produce sub-optimal execution prices for members and investors.\6\
Prior to this change, Midpoint Peg Post-Only Orders entered through
RASH, QIX or FIX would have been nevertheless repriced to the midpoint
of the NBBO if the NBBO subsequently became crossed, or would have been
cancelled if there was subsequently no NBBO. Nasdaq is proposing to re-
enter such Orders at the new midpoint once there is a NBBO that is not
crossed because the new NBBO is indicative of a valid price.
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    \6\ See Securities Exchange Act Release No. 78908 (September 22,
2016), 81 FR 66702 (September 28, 2016) (SR-NASDAQ-2016-111).
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    Similarly, prior to this change, Orders with Midpoint Pegging
entered through RASH, QIX or FIX would have been nevertheless repriced
to the midpoint of the Inside Bid and Inside Offer if the Inside Bid
and Inside Offer subsequently became crossed, or would have been
cancelled if there was subsequently no Inside Bid and/or Inside Offer.
As with the change to Midpoint Peg Post-Only Orders, Nasdaq is
therefore proposing to re-enter such Orders at the new midpoint once
there is an Inside Bid and Inside Offer that is not crossed because the
new Inside Bid and Inside Offer is indicative of a valid price. Nasdaq
is proposing to re-enter Orders submitted through RASH, QIX or FIX
because Nasdaq typically assumes a more active role in managing the
order flow submitted by users of these protocols, and this
functionality reflects the order flow management practices of these
participants.
    While Nasdaq is only proposing to adopt this re-entry functionality
for Orders that are entered through RASH, QIX or FIX, Nasdaq believes
that it is appropriate to also modify the treatment of Midpoint Peg
Post-Only Orders and Orders with Midpoint Pegging entered through OUCH
or FLITE where the NBBO subsequently becomes crossed, or there is
subsequently no NBBO or Inside Bid and/or Offer. Accordingly, Nasdaq is
also proposing to amend Rule 4702(b)(5)(B) to state that if, after a
Midpoint Peg Post-Only Order entered through OUCH or FLITE is posted to
the Nasdaq Book, the NBBO changes so that the NBBO is crossed, or there
is no NBBO, the Midpoint Peg Post-Only Order will be cancelled back to
the Participant. Similarly, Nasdaq will amend Rule 4703(d) to state
that if, after an Order with Midpoint Pegging is entered through OUCH
or FLITE, the Inside Bid and Inside Offer changes so that the Midpoint
is lower than (higher than) the price of an Order to buy (sell), the
Inside Bid and Inside Offer are crossed or if there is no Inside Bid
and/or Inside Offer, the Pegged Order will be cancelled back to the
Participant.\7\
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    \7\ Nasdaq is proposing to change the reference in this sentence
from NBBO to Inside Bid and Inside Offer to make this sentence more
consistent with the rest of Rule 4703, which uses the concept of the
Inside Bid and Insider Offer rather than the NBBO.
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    Finally, Nasdaq is proposing to change certain instances in Rule
4702 and Rule 4703 that describe the cancellation or rejection of an
Order. For example, Rule 4702(b)(5)(A) currently states that, if the
NBBO is locked when a Midpoint Peg Post-Only Order is entered, the
Midpoint Peg Post-Only Order will be priced at the locking price, and
if the NBBO is crossed or if there is no NBBO, the Order will be
cancelled or rejected. Rule 4702(b)(5)(A) also provides that a Midpoint
Peg Post-Only Order that would be assigned a price of $1 or less per
share will be rejected or cancelled, as applicable. Similarly, Rule
4703(d) states that, in the case of an Order with Midpoint Pegging, if
the Inside Bid and Inside Offer are locked, the Order will be priced at
the locking price, and if the Inside Bid and Inside Offer are crossed
or if there is no Inside Bid and/or Inside Offer, the Order will be
cancelled or rejected.
    Nasdaq proposes to change references to cancelling or rejecting an
order to ``not accepting'' an Order. Depending on

the context, the reference to rejecting an order may have one of two
meanings.\8\ Nasdaq believes that changing references from rejecting or
cancelling an Order to not accepting an Order is appropriate because
the proposed language resolves the ambiguity that may arise when
referring to an Order rejection, and is sufficiently broad to encompass
the contexts in which the concept of Order rejection or cancellation
may be used.
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    \8\ Specifically, an Order may be referred to as ``rejected'' if
it is not initially accepted by the customer-facing Nasdaq
interface. Alternatively, after an Order has been initially accepted
by the customer-facing interface, and is being transmitted from one
Nasdaq interface to another, it may be ``rejected'' if the Order is
not accepted by another part of the Nasdaq system for various
reasons.
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    This proposed change supplements the recently-approved changes to
Midpoint Peg Post-Only Orders and Orders with Midpoint Pegging, and the
resulting modifications to Nasdaq systems.\9\
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    \9\ See Securities Exchange Act Release No. 79290 (November 10,
2016), 81 FR 81184 (November 17, 2016) (SR-NASDAQ-2016-111). Nasdaq
initially proposed to implement the new functionality for Midpoint
Peg Post-Only Orders and Orders with Midpoint Pegging on November
21, 2016. See Equity Trader Alert #2016-291. However, following
testing, Nasdaq has decided to delay the implementation of this new
functionality to provide additional time for systems testing. The
new functionality shall be implemented no later than May 31, 2017.
See Securities Exchange Act Release No. 80045 (February 15, 2017),
82 FR 11389 (February 22, 2017) (SR-NASDAQ-2017-013) (extending the
implementation date to no later than March 31, 2017); Securities
Exchange Act Release No. 80391 (April 6, 2017), 82 FR 17714 (April
12, 2017) (SR-NASDAQ-2017-034) (extending the implementation date to
no later than May 31, 2017).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The proposed change is consistent with the Act because it
supplements the recently-approved changes to Midpoint Peg Post-Only
Orders and Orders with Midpoint Pegging and the resulting modifications
to Nasdaq systems, and reflects the Exchange's belief that the midpoint
of a crossed market, or where there is no NBBO or Inside Bid and/or
Inside Offer, is not a clear and accurate indication of a valid price,
and may produce sub-optimal execution prices for members and investors.
The proposal adopts a functionality for Midpoint Peg Post-Only Orders
and Orders with Midpoint Pegging after initial entry and posting to the
Nasdaq Book where the NBBO or Inside Bid and Inside Offer subsequently
becomes crossed, or where there is subsequently no NBBO or Inside Bid
and/or Inside Offer, that reflects the order flow management practices
of the participants that use those protocols, e.g., re-submitting such
Orders that are entered through RASH, QIX or FIX, and cancelling such
Orders that are submitted through OUCH or FLITE.
    The proposal to replace certain references to rejecting or
cancelling an order to ``not accepting'' an order is consistent with
the Act because the proposed language encompasses the contexts in which
the concept of order rejection or cancellation may be used and resolves
any ambiguity that may arise when referring to an order rejection.

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 change supplements
the recently-approved changes to Midpoint Peg Post-Only Orders and
Orders with Midpoint Pegging and the resulting modifications to Nasdaq
systems by adopting a functionality for Midpoint Peg Post-Only Orders
and Orders with Midpoint Pegging after initial entry and posting to the
Nasdaq Book where the NBBO subsequently becomes crossed, or where there
is subsequently no NBBO or Inside Bid and/or Inside Offer, that
reflects the order flow management practices of the participants that
use those protocols. Moreover, the use of Exchange Order types and
attributes is voluntary, and no member is required to use any specific
Order type or attribute or even to use any Exchange Order type or
attribute or any Exchange functionality at all. If an Exchange member
believes for any reason that the proposed rule change will be
detrimental, that perceived detriment can be avoided by choosing not to
enter or interact with the Order type modified by this proposed rule
change. Finally, the proposal will apply equally to all Orders that
meet its criteria.

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) of the Act and Rule 19b-
4(f)(6) thereunder.\12\
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    \12\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \13\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \14\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Exchange states that the proposal supplements the recently-approved
changes to Midpoint Peg Post-Only Orders and Orders with Midpoint
Pegging, and that it intends to implement these previously-approved
changes shortly (and no later than May 31, 2017).\15\ Waiver of the 30-
day operative delay would allow the Exchange to implement the
previously-approved changes concurrently with the supplemental changes
in this proposal. The Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change to be operative
upon filing.\16\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See supra note 9.
    \16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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    At any time within 60 days of the filing of such 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 change 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2017-042 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2017-042. 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 Web site (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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2017-042 and should
be submitted on or before May 31, 2017.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Assistant Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-09422 Filed 5-9-17; 8:45 am]
 BILLING CODE 8011-01-P