[Federal Register Volume 81, Number 220 (Tuesday, November 15, 2016)]
[Notices]
[Pages 80154-80157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27368]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79263; File No. SR-NASDAQ-2016-151]


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

November 8, 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 31, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend 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'').\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
---------------------------------------------------------------------------

    The text of the proposed rule change is set forth below. Proposed 
new language is underlined; deleted text is in brackets.
* * * * *

The NASDAQ Stock Market Rules

* * * * *

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

    (a) through (d) No Change.

Commentary

    .01-.13 No change.
    .14 Until [October 31, 2016]November 14, 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

[[Page 80155]]

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.\4\ 
Nasdaq subsequently filed three Partial Amendments to clarify aspects 
of the Proposal. The Commission approved the Proposal, as amended, on 
October 7, 2016.\5\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 78837 (September 14, 
2016), 81 FR 64544 (September 20, 2016) (SR-NASDAQ-2016-126).
    \5\ See Securities Exchange Act Release No. 79075 (October 7, 
2016) (SR-NASDAQ-2016-126).
---------------------------------------------------------------------------

    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.\6\ 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.
---------------------------------------------------------------------------

    \6\ 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.
---------------------------------------------------------------------------

    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. In the Amendment, Nasdaq stated that it 
anticipated that this re-programming shall be completed no later than 
November 30, 2016. If it appeared that this functionality would 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 would 
describe the current operation of the Nasdaq systems in this regard, 
and the timing related to the re-programming.
    On October 17, 2016, Nasdaq filed a proposal to extend the date by 
which it would complete the re-programing of 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.\7\ In that proposal, Nasdaq stated that it anticipated that 
this re-programming shall be complete on or before October 31, 2016.\8\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 79155 (October 25, 
2016) (SR-NASDAQ-2016-143).
     Subsequent to the approval of SR-NASDAQ-2016-126, Nasdaq 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 included those Orders as part of 
SR-NASDAQ-2016-143 accordingly. Price to Display Orders will be 
treated in the same manner as Price to Comply Orders under the re-
pricing functionality.
    \8\ Id.
---------------------------------------------------------------------------

    At this time, Nasdaq is still determining how to modify its systems 
to eliminate the current 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 is therefore submitting this proposal 
to extend the date by which the current re-pricing functionality will 
be eliminated. Nasdaq anticipates that the re-programming to eliminate 
the current re-pricing functionality shall be completed on or before 
November 14, 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.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ 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 and 
SR-NASDAQ-

[[Page 80156]]

2016-143 in proposing the removal of this functionality.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 fully operational.\11\ The Exchange also notes that it is 
diligently working to eliminate the current 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 that it anticipates 
this re-programming to be complete on or before November 14, 2016.
---------------------------------------------------------------------------

    \11\ For example, on October 31, 2016, in the one hundred Test 
Group Three securities that are currently live, 0.06% of orders that 
were entered on Nasdaq in those securities were entered at a price 
that crossed the NBBO.
---------------------------------------------------------------------------

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 and SR-NASDAQ-2016-143.

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 \12\ and 
subparagraph (f)(6) of Rule 19-4 thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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 31, 2016, the date that Test Group Three securities are fully 
implemented and are 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 fully phased into the 
Pilot on October 31, 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.\14\
---------------------------------------------------------------------------

    \14\ 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).
---------------------------------------------------------------------------

    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-2016-151 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-2016-151. 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-2016-151, and should 
be

[[Page 80157]]

submitted on or before December 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-27368 Filed 11-14-16; 8:45 am]
 BILLING CODE 8011-01-P