[Federal Register Volume 81, Number 210 (Monday, October 31, 2016)]
[Notices]
[Pages 75471-75473]
[FR Doc No: 2016-26138]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79155; File No. SR-NASDAQ-2016-143]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Add Commentary .14 to Rule 4770 (Compliance With Regulation NMS Plan To
Implement a Tick Size Pilot)

October 25, 2016.
    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 October 17, 2016, 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.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The text of the proposed rule change is set forth below.
Proposed new language is in italics; deleted text is in brackets.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to add Commentary .14 to Rule 4770
(Compliance with Regulation NMS Plan to Implement a Tick Size Pilot) to
provide the SEC with notice of its efforts to re-program its systems to
eliminate a re-pricing functionality for certain orders in Test Group
Three securities in connection with the Regulation NMS Plan to
Implement a Tick Size Pilot Program (``Plan'' or ``Pilot'').\4\ Nasdaq
also proposes to re-number current Commentary .12 relating to the Block
Size exception to Commentary .13 as a technical correction.
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    \4\ See Securities Exchange Act Release No. 74892 (May 6, 2015),
80 FR 27513 (May 13, 2015) (``Approval Order'').

* * * * *

The NASDAQ Stock Market Rules

* * * * *

4770. Compliance With Regulation NMS Plan To Implement a Tick Size
Pilot

    (a) through (d) No Change.
    Commentary: .01-.12 No change.
    .1[2]3 For purposes of qualifying for the Block Size exception
under paragraph (c)(3)(D)(iii) of this Rule, the Order must have a
size of 5,000 shares or more and the resulting execution upon entry
must have a size of 5,000 shares or more in aggregate.
    .14 Until October 31, 2016, the treatment of Price to Comply
Orders, Price to Display Orders, Non-Displayed Orders, and Post-Only
Orders that are entered through the OUCH or FLITE protocols in Test
Group Three securities shall be as follows:
    Following entry, and if market conditions allow, a Price to
Comply Order in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO until such time as
the Price to Comply Order is able to be ranked and displayed at its
original entered limit price.
    Following entry, and if market conditions allow, a Price to
Display Order in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO until such time as
the Price to Display Order is able to be ranked and displayed at its
original entered limit price.
    Following entry, and if market conditions allow, a Non-Displayed
Order in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO up (down) to the
Order's limit price.
    Following entry, and if market conditions allow, the Post-Only
Order in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO or the best price
on the Nasdaq Book, as applicable until such time as the Post-Only
Order is able to be ranked and displayed at its original entered
limit price.
* * * * *

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
    On September 7, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') a proposed rule change (``Proposal'') to
adopt paragraph (d) and Commentary .12 to Exchange Rule 4770 to
describe changes to system functionality necessary to implement the
Plan. The Exchange also proposed amendments to Rule 4770(a) and (c) to
clarify how the Trade-at exception may be satisfied. The SEC published
the Proposal in the Federal Register for notice and comment on
September 20, 2016.\5\ Nasdaq subsequently filed three Partial
Amendments to clarify aspects of the Proposal. The Commission approved
the Proposal, as amended, on October 7, 2016.\6\
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    \5\ See Securities Exchange Act Release No. 78837 (September 14,
2016), 81 FR 64544 (September 20, 2016) (SR-NASDAQ-2016-126).
    \6\ See Securities Exchange Act Release No. 79075 (October 7,
2016) (SR-NASDAQ-2016-126).
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    In SR-NASDAQ-2016-126, Nasdaq had initially proposed a re-pricing
functionality for Price to Comply Orders, Non-Displayed Orders, and
Post-Only Orders entered through the OUCH and FLITE protocols in Group
Three securities.\7\ Nasdaq subsequently determined that it would not
offer this re-pricing functionality for Price to Comply Orders, Non-
Displayed Orders, and Post-Only Orders entered through the OUCH and
FLITE protocols in Group Three securities. As part of Partial Amendment
No. 2 to SR-NASDAQ-2016-126, Nasdaq proposed to delete the relevant
language from Rule 4770 related to this re-pricing functionality.
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    \7\ As originally proposed, Rule 4770(d)(2) stated that Price to
Comply Orders in a Test Group Three Pilot Security will be adjusted
repeatedly in accordance with changes to the NBBO until such time as
the Price to Comply Order is able to be ranked and displayed at its
original entered limit price. Rule 4770(d)(3) stated that, if market
conditions allow, a Non-Displayed Order in a Test Group Three Pilot
Security will be adjusted repeatedly in accordance with changes to
the NBBO up (down) to the Order's limit price. Rule 4770(d)(4)
stated that, if market conditions allow, the Post-Only Order in a
Test Group Three Pilot Security will be adjusted repeatedly in
accordance with changes to the NBBO or the best price on the Nasdaq
Book, as applicable until such time as the Post-Only Order is able
to be ranked and displayed at its original entered limit price.
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    In that amendment, Nasdaq noted that this change would only impact
the treatment of Price to Comply Orders, Non-Displayed Orders, and
Post-Only orders that are submitted through the

OUCH and FLITE protocols in Test Group Three Pilot Securities, as these
types of Orders that are currently submitted to Nasdaq through the
RASH, QIX or FIX protocols are already subject to this re-pricing
functionality and will remain subject to this functionality under the
Pilot.
    In the Amendment, Nasdaq further noted that its systems are
currently programmed so that Price to Comply Orders, Non-Displayed
Orders and Post-Only Orders entered through the OUCH and FLITE
protocols in Test Group Three Securities may be adjusted repeatedly to
reflect changes to the NBBO and/or the best price on the Nasdaq book.
Nasdaq stated that it is re-programming its systems to remove this
functionality for Price to Comply Orders, Non-Displayed Orders and
Post-Only Orders entered through the OUCH and FLITE protocols in Test
Group Three Securities.\8\ In the Amendment, Nasdaq stated that it
anticipated that this re-programming shall be completed no later than
November 30, 2016. If it appears that this functionality will remain
operational by October 17, 2016, Nasdaq indicated that it would file a
proposed rule change with the SEC and will provide notice to market
participants sufficiently in advance of that date to provide effective
notice. The rule change and the notice to market participants will
describe the current operation of the Nasdaq systems in this regard,
and the timing related to the re-programming.
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    \8\ Nasdaq has become aware that this re-pricing functionality
also applies to Price to Display Orders that are entered through the
OUCH and FLITE protocols in Test Group Three Securities, and is
including those Orders as part of this proposal accordingly. Price
to Display Orders will be treated in the same manner as Price to
Comply Orders under the re-pricing functionality.
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    At this time, Nasdaq is still in the process of re-programming its
systems to eliminate the re-pricing functionality in Test Group Three
securities for Price to Comply Orders, Price to Display Orders, Non-
Displayed Orders, and Post-Only Orders that are entered through the
OUCH or FLITE protocols. Nasdaq anticipates that this re-programming
shall be complete on or before October 31, 2016.
    Therefore, the current treatment of Price to Comply Orders, Price
to Display Orders, Non-Displayed Orders, and Post-Only Orders that are
entered through the OUCH or FLITE protocols in Test Group Three
securities shall be as follows:
    Following entry, and if market conditions allow, a Price to Comply
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO until such time as the Price to
Comply Order is able to be ranked and displayed at its original entered
limit price.
    Following entry, and if market conditions allow, a Price to Display
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO until such time as the Price to
Display Order is able to be ranked and displayed at its original
entered limit price.
    Following entry, and if market conditions allow, a Non-Displayed
Order in a Test Group Three Pilot Security will be adjusted repeatedly
in accordance with changes to the NBBO up (down) to the Order's limit
price.
    Following entry, and if market conditions allow, a Post-Only Order
in a Test Group Three Pilot Security will be adjusted repeatedly in
accordance with changes to the NBBO or the best price on the Nasdaq
Book, as applicable until such time as the Post-Only Order is able to
be ranked and displayed at its original entered limit price.
    In addition to this proposal, Nasdaq will also issue an Equity
Trader Alert that describes the current operation of the Nasdaq systems
in this regard, and the timing related to the removal of this re-
pricing functionality.\9\
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    \9\ Nasdaq anticipates providing additional specificity to
market participants as to the timing of the new functionality at a
later date.
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    Nasdaq also proposes to re-number Commentary .12, which relates to
the Block Size exception, to Commentary .13. A previous filing (SR-
NASDAQ-2016-123) added Commentary to Rule 4770 that resulted in
Commentary .11, which addresses the effective date of the Rule, being
re-numbered as Commentary .12. Nasdaq therefore proposes to re-number
the Commentary .12 that addresses the Block Size exception as
Commentary .13.
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. The purpose of this filing is to inform the SEC and market
participants of the status of Nasdaq's attempts to re-program its
systems to remove the re-pricing functionality in Test Group Three
securities for Price to Comply Orders, Price to Display Orders, Non-
Displayed Orders, and Post-Only Orders that are entered through the
OUCH or FLITE protocols, and the current treatment of such orders
pending the removal of this functionality. This proposal is consistent
with the Act because it provides the SEC and market participants with
notice of Nasdaq's efforts in this regard, and is being submitted in
connection with the statements made by Nasdaq in SR-NASDAQ-2016-126 in
proposing the removal of this functionality.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    Nasdaq also believes that the proposal is consistent with the Act
because the re-pricing functionality will not significantly impact the
data gathered pursuant to the Pilot. Nasdaq notes that this re-pricing
functionality only affects Price to Comply Orders, Price to Display
Orders, Non-Displayed Orders, and Post-Only Orders that are entered
through the OUCH or FLITE protocols for Test Group Three securities
until the re-pricing functionality is eliminated, and only becomes
relevant when an Order in a Test Group Three security would cross a
Protected Quotation of another market center. Nasdaq has analyzed data
relating to the frequency with which Orders in Test Group Three
securities are entered with a limit price that would cross a Protected
Quotation of another market center, and believes that the re-pricing
functionality will be triggered infrequently once Test Group Three
becomes operational.\12\ The Exchange also notes that it is diligently
working to re-program its systems to remove this re-pricing
functionality, and that it anticipates this re-programming to be
complete on or before October 31, 2016.
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    \12\ For example, on September 23, 2016, 0.3% of orders in Test
Group Three securities were entered on Nasdaq at a price that
crossed the NBBO. Nasdaq believes that this number will be even
lower starting October 17, 2016, when the $0.05 tick increment for
Test Group Three securities is in place.
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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 purpose of this proposal is
to provide the SEC and market participants with notice of Nasdaq's
efforts to remove its re-pricing functionality in Test Group Three
securities for Price to Comply Orders, Price to Display Orders, Non-
Displayed Orders, and Post-Only Orders that are entered through the
OUCH or FLITE

protocols, consistent with its statements in SR-NASDAQ-2016-126.

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)(iii) of the Act\13\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of filing. Rule
19b-4(f)(6)(iii), however, permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange requests that the
Commission waive the 30-day operative delay contained in Rule 19b-
4(f)(6)(iii) so that this proposed change will be in operative as of
October 17, 2016, the date that Test Group Three securities begin to be
subject to the quoting and trading restrictions of the Plan and,
therefore, the relevant language in Rule 4770.
    The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
because it will allow the Exchange to implement the proposed rules
immediately thereby preventing delays in the implementation of the
Plan. The Commission notes that the Pilot started implementation on
October 3, 2016, Test Group Three securities were phased into the Pilot
starting on October 17, 2016, and waiving the 30-day operative delay
would ensure that the rules of the Exchange would be in place during
implementation. Therefore, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change to be operative
upon filing with the Commission.\15\
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    \15\ For purposes only of waiving the operative delay for this
proposal, 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 the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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 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-2016-143 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-2016-143. 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-2016-143, and should
be submitted on or before November 21, 2016.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Brent J. Fields,
Secretary.
[FR Doc. 2016-26138 Filed 10-28-16; 8:45 am]
 BILLING CODE 8011-01-P