[Federal Register Volume 78, Number 227 (Monday, November 25, 2013)]
[Notices]
[Pages 70388-70391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28157]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70897; File No. SR-NASDAQ-2013-139]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Regarding Post-Only Orders Received Prior to the Opening

November 19, 2013.
    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 November 8, 2013, 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, II, and III, below, which Items have been prepared by NASDAQ. 
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

    NASDAQ is filing with the Commission a proposal to modify Chapter 
VI (Trading Systems), Section 1 (Definitions) of the NASDAQ Options 
Market, LLC (``NOM''), to indicate that Post-Only Orders received prior 
to the opening will be eligible for execution during the opening cross. 
The text of the proposed rule change is set forth immediately below.
    Deleted text is [bracketed]. New text is italicized.

NASDAQ Stock Market Rules

Options Rules

* * * * *

Chapter VI Trading Systems

* * * * *

Sec. 1 Definitions

    The following definitions apply to Chapter VI for the trading of 
options listed on NOM.
    (a)-(d) No Change.
    (e) The term ``Order Type'' shall mean the unique processing 
prescribed for designated orders that are eligible for entry into the 
System, and shall include:
    (1)-(10) No Change.
    (11) ``Post-Only Orders'' are orders that will not remove liquidity 
from the System. Post-Only Orders are to be ranked and executed on the 
Exchange or cancelled, as appropriate, without

[[Page 70389]]

routing away to another market. Post-Only Orders are evaluated at the 
time of entry with respect to locking or crossing other orders as 
follows: (i) If a Post-Only Order would lock or cross an order on the 
System, the order will be re-priced to $.01 below the current low offer 
(for bids) or above the current best bid (for offers) and displayed by 
the System at one minimum price increment below the current low offer 
(for bids) or above the current best bid (for offers); and (ii) if a 
Post-Only Order would not lock or cross an order on the System but 
would lock or cross the NBBO as reflected in the protected quotation of 
another market center, the order will be handled pursuant to Chapter 
VI, Section 7(b)(3)(C). Participants may choose to have their Post-Only 
Orders returned whenever the order would lock or cross the NBBO or be 
placed on the book at a price other than its limit price. Post-Only 
Orders received prior to the opening [cross or] will be eligible for 
execution during the opening cross and will be processed as per Chapter 
VI, Section 8. Post-Only Orders received after market close will be 
rejected. Post-Only Orders may not have a time-in-force designation of 
Good Til Cancelled or Immediate or Cancel.
    (f)-(h) No Change.
* * * * *
    The text of the proposed rule change is available from NASDAQ's Web 
site at http://nasdaq.cchwallstreet.com, at NASDAQ's principal office, 
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, NASDAQ 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. NASDAQ 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
    The purpose of the proposed rule change is to modify NOM Chapter 
VI, Section 1(e)(11) to indicate that Post-Only Orders received prior 
to the opening will now be eligible for execution during the opening 
cross.\3\
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    \3\ The Exchange will explain the proposed change to its 
participants via an Options Trading Alert.
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    Currently, subsection (e) of Section 1 states that ``Order Type'' 
means the unique processing prescribed for designated orders that are 
eligible for entry into the System \4\ by NOM Participants and Market 
Makers.\5\ Subsection (e)(11) states that one of these order types, 
specifically ``Post-Only Orders'', are orders \6\ that will not remove 
liquidity from the System. Post-Only Orders are ranked and executed on 
the Exchange or cancelled, as appropriate, without routing away to 
another market. Post-Only Orders are evaluated at the time of entry 
with respect to locking or crossing other orders as follows: (i) If a 
Post-Only Order would lock or cross an order on the System, the order 
will be re-priced to $.01 below the current low offer (for bids) or 
above the current best bid (for offers) and displayed by the System at 
one minimum price increment below the current low offer (for bids) or 
above the current best bid (for offers); and (ii) if a Post-Only Order 
would not lock or cross an order on the System but would lock or cross 
the NBBO as reflected in the protected quotation of another market 
center, the order will be handled pursuant to Chapter VI, Section 
7(b)(3)(C).\7\ Participants may choose to have their Post-Only Orders 
returned whenever the order would lock or cross the NBBO or be placed 
on the book at a price other than its limit price. Post-Only Orders may 
not have a time-in-force designation of Good Til Cancelled or Immediate 
or Cancel.\8\ Post-Only Orders received prior to the opening cross or 
after market close will be rejected.\9\ Thus, if today at 9:29:00 
Market Maker A submits a buy Post-Only Order to buy 100 MSFT calls at 
$1.25, that order will be rejected. The Exchange is proposing to update 
how such pre-market orders will be handled.
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    \4\ The term ``System'' means, in relevant part, the automated 
system for order execution and trade reporting owned and operated by 
NOM. See Chapter VI, Section 1(a).
    \5\ Options Participants registered as Market Makers have 
certain rights and bear certain responsibilities beyond those of 
other Options Participants. All Market Makers are designated as 
specialists on NOM for all purposes under the Exchange Act or Rules 
thereunder. See Chapter VII, Section 2. An Options Participant that 
has qualified as an Options Market Maker may register to make 
markets in individual options. See Chapter VII, Section 3(a).
    \6\ The term ``order'' means a firm commitment to buy or sell 
options contracts. See Chapter 1, Section 1(a)(44).
    \7\ Section 7(b)(3)(C) states regarding Trade-Through and Locked 
and Crossed Markets: An order will not be executed at a price that 
trades through another market or displayed at a price that would 
lock or cross another market. An order that is designated by the 
member as routable will be routed in compliance with applicable 
Trade-Through and Locked and Crossed Markets restrictions. An order 
that is designated by a member as non-routable will be re-priced in 
order to comply with applicable Trade-Through and Locked and Crossed 
Markets restrictions.
    \8\ See Securities Exchange Act Release No. 65761 (November 16, 
2011), 76 FR 72230 (November 22, 2011) (SR-NASDAQ-2011-152) (notice 
of filing and immediate effectiveness adopting a ``Post-Only Order'' 
type on NOM) (the ``Post-Only Order proposal'').
    \9\ The Exchange's options market is open from 9:30 a.m. to 4:00 
p.m. Eastern Time (``ET''), except for option contracts on certain 
fund shares or broad-based indexes which close as of 4:15 p.m. See 
Chapter VI, Section 2.
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    The Exchange is proposing to state in subsection (e)(11) of Section 
1 that Post-Only Orders received prior to market open will be allowed 
to execute as part of the opening process. The Exchange believes that 
this narrow change is, as discussed below, desirable in today's market 
and will significantly reduce unnecessary complexity to the benefit of 
traders and market participants.
    It has come to the attention of the Exchange that rejecting all 
Post-Only Orders prior to the opening cross causes unnecessary 
complexity for Market Makers that provide liquidity to the Exchange as 
part of the opening process. Currently, in order to provide liquidity 
at the market open, Market Makers must not mark orders as Post-Only, as 
they will be rejected; rather they must mark the orders as regular 
orders. Immediately after the opening process has concluded, however, 
Market Makers have to switch over to marking orders as Post-Only 
Orders. The process of switching from regular to Post-Only Orders is 
further complicated because each symbol on the Exchange opens at a 
unique time. The Exchange's open for options requires that the 
underlying security be open, which may not necessarily be exactly at 
9:30 a.m. ET, and also requires that two other options exchanges begin 
trading the option, as evidenced by dissemination of a firm quote to 
the Options Price Reporting Authority (``OPRA'').\10\ The nature of the 
opening process thus results in varying opening times across many 
hundreds of thousands of different options symbols that open for 
trading every day on the Exchange. As a result, Market Makers must know 
exactly when a particular symbol is open for trading before the switch 
can be made from regular orders to Post-Only Orders. This complexity 
unnecessarily increases risk to Market Makers and thus the trading 
environment. The Exchange is proposing to accept Post-Only Orders 
received prior to the market open. The

[[Page 70390]]

Exchange believes that this will significantly reduce complexity and 
risk for Market Makers wishing to provide liquidity for the opening 
auction and thereby improve prices at the open. The Exchange believes 
that the proposal may, in addition, result in message traffic reduction 
by eliminating the need for Market Makers to cancel and re-enter orders 
depending on time of opening.
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    \10\ Chapter VI, Section 8.
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    For example, if a Market Maker submits a non-Post-Only bid of $1.00 
for 100 CSCO calls at 9:29:50, it will be available for execution in 
the opening cross because the bid is not marked as Post-Only. Assume 
that the underlying then opens at 9:30:03, and two other options 
exchanges open by 9:30:07, and the CSCO calls open on the Exchange. The 
Market Maker will now need to mark new bids as Post-Only. Moreover, if 
at 9:30:10 the Market Maker wants to update the size of his bid to 50, 
the Market Maker will need to cancel the non-Post-Only bid and submit a 
new bid: $1.00 (50). Under the proposed rule, the Market Maker would be 
able to mark its pre-market bid as Post-Only. After the market is open, 
if the Market Maker wishes to update its bid, only one message is 
needed. The Market Maker simply reduces the bid size with one message 
rather than having to send a cancellation of the non-Post-Only bid 
followed by a new Post-Only bid.
    By modifying the handling of Post-Only Orders received prior to 
opening, the proposal serves to reduce confusion and unnecessary 
complexity regarding orders that come in prior to market opening, and 
serves to promote liquidity at a crucial time for the market to the 
benefit of traders and market participants.\11\
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    \11\ The Exchange believes that its proposal will not add any 
surveillance burden that cannot be managed by current surveillance 
systems; and the proposal will not have any negative influence on 
Exchange capacity. Moreover, the Exchange notes that this proposal 
is written from the perspective of Market Makers because they are by 
far the largest users of Post-Only Orders, and as such stand to 
benefit from the proposal. The Exchange does not believe that this 
change raises any concerns in respect of non-Market Maker users of 
Post-Only Orders as the change will similarly benefit them.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \13\ in particular, in that the proposal 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 Exchange believes that this minor rule change will 
simplify its market structure, minimize or negate unnecessary 
complexity, and encourage liquidity at the crucial time of market open. 
The Exchange believes this change will make the transition from the 
pre-open period to regular market trading more efficient and thus 
promote just and equitable principles of trade and serve to protect 
investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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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. While the Exchange does not 
believe that the proposal should have an impact on competition, it 
believes the proposal will reduce order entry complexity, enhance 
market liquidity, and be beneficial to market participants.

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

    The Exchange believes that the foregoing proposed rule change may 
take effect upon filing with the Commission pursuant to Section 
19(b)(3)(A) \14\ of the Act and Rule 19b-4(f)(6)(iii) thereunder \15\ 
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.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
The Exchange has satisfied this requirement.
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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 protected]. Please include 
File Number SR-NASDAQ-2013-139 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2013-139. 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 NASDAQ. 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-2013-139 and should 
be submitted on or before December 16, 2013.


[[Page 70391]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28157 Filed 11-22-13; 8:45 am]
BILLING CODE 8011-01-P