[Federal Register Volume 81, Number 222 (Thursday, November 17, 2016)]
[Notices]
[Pages 81203-81206]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27591]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79281; File No. SR-BX-2016-059]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4702
and Rule 4703 To Add a ``Trade Now'' Instruction to Certain Order Types
November 10, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 8, 2016, NASDAQ BX, Inc. (``BX'' 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 4702 (Order Types) and Rule
4703 (Order Attributes) to add a ``Trade Now'' instruction to certain
order types.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqbx.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
[[Page 81204]]
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
BX proposes to amend Rules [sic] 4702 (Order Types) and Rule 4703
(Order Attributes) to add a ``Trade Now'' instruction to certain order
types. BX will offer this functionality through its OUCH, RASH, FLITE,
and FIX protocols. This instruction will provide resting orders with a
greater ability to receive an execution when that resting order is
locked, e.g., the price of a resting non-display buy order equals the
price of a resting displayed sell order on the BX book. The Trade Now
instruction will allow participants to enter an instruction to have a
locked resting buy (sell) order execute against the locking sell (buy)
order. Depending on the protocol used by the participant to access the
BX system, the participant may either specify that the order execute
against locking interest automatically, or the participant may be
required to send a Trade Now instruction to the Exchange once the order
has become locked. As discussed in greater detail below, BX is offering
the Trade Now instruction for all orders that may be sent to the BX
book and that are not subject to other BX rules regarding the display
and execution of those orders.
When a Trade Now instruction is applied to a resting buy (sell)
order, the order will execute against the available size of the locking
sell (buy) order at the locked price. The following example illustrates
this scenario:
Participant A enters a Non-Display buy order for 200
shares at $0.95, and specifies the Trade Now instruction;
Participant B enters a Post Only sell order for 100 shares
at $0.95; \3\
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\3\ The Exchange recently submitted a proposal to amend BX Rules
4702 and 4703 to change the way in which Post Only Orders interact
with resting Non-Display orders and preventing the execution of
midpoint pegged orders during a crossed market. See Securities
Exchange Act 78909 (September 22, 2016), 81 FR 66708 (September 28,
2016) (SR-BX-2016-046).
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The Post Only order is posted at $0.95 and locks the Non-
Display order;
The buy order will execute for 100 shares at $0.95 as the
remover of liquidity.
If a buy (sell) order with the Trade Now instruction is only
partially executed, the unexecuted portion of that order remains on the
BX book and maintains its priority. When a Trade Now instruction is
entered through the OUCH or FLITE protocol for a resting buy (sell)
order and there is no locking order on the opposite side of the market,
the Trade Now instruction will be ignored and the buy (sell) order will
remain on the BX book, retaining its priority.
As noted above, BX is proposing to offer the Trade Now instruction
for all orders that may be sent to the BX book and that are not subject
to other BX rules regarding the display and execution of those orders.
Accordingly, the Trade Now instruction shall not be available for
Retail Price Improving Orders (Rule 4702(b)(5)) or Retail Orders (Rule
4702(b)(6)). A Retail Price Improving Order is held on the Exchange
Book in order to provide liquidity at a price at least $0.001 better
than the NBBO, and may execute only against a Retail Order, and only if
its price is at least $0.001 better than the NBBO. A Retail Order will
attempt to execute against Retail Price Improving Orders and any other
orders on the Exchange Book with a price that is (i) equal to or better
than the price of the Retail Order and (ii) at least $0.001 better than
the NBBO. Given that Retail Price Improving Orders and Retail Orders
are already subject to rules governing the handling and execution of
such orders, there is not a need to implement the Trade Now instruction
for these order types.
Depending on the interface being used by the participant, the Trade
Now attribute may either allow the order to execute against locking
interest automatically (``Reactive Trade Now''), or the participant may
be required to send a Trade Now instruction to the Exchange once the
order has become locked (``Non-Reactive Trade Now''). All orders that
are entered through the RASH and FIX protocols with a Trade Now order
attribute will be Reactive Trade Now, and those orders shall execute
against locking interest automatically.
The Reactive Trade Now instruction will be available on an order-
by-order basis, and will also be available as an optional port level
setting. If the Reactive Trade Now setting is enabled on a specific
port, all orders entered via the specific port will, by default, be
designated with the Reactive Trade Now instruction. If the Reactive
Trade Now setting is enabled on a specific port, participants will have
the ability to designate on an order-by-order basis that a particular
order entered via the specific port will not be designated with the
Reactive Trade Now instruction, thereby overriding the port level
setting for the order. If the Reactive Trade Now instruction is
specified for an order for which the Trade Now instruction does not
apply, e.g., a Retail Price Improving Order or a Retail Order, the
system will not invoke the Trade Now instruction for that order.
In contrast, orders entered through the OUCH and FLITE protocols
will use the Non-Reactive Trade Now functionality, and participants
must send the Trade Now instruction after the order becomes locked. If
a participant enters a Non-Reactive Trade Now instruction when there is
no locking interest, the instruction will be ignored by the system and
the order will remain on the BX Book with the same priority.
The Non-Reactive Trade Now instruction will be available to
participants on order-by-order basis. If the Non-Reactive Trade Now
instruction is entered for an order for which the Trade Now instruction
does not apply, the system will not invoke the Trade Now instruction
for that order.
BX is offering two different variations of the Trade Now
instruction to reflect the differences in behavior among participants
who use the different BX protocols. For example, BX typically assumes a
more active role in managing the order flow submitted by users of the
RASH and FIX protocols. Allowing these participants to use the Reactive
Trade Now instruction at the time of order entry will allow for the
automatic execution of orders, and reflects the order flow management
practices of these participants. In contrast, users of the OUCH and
FLITE protocols generally assume a more active role in managing their
order flow. Offering the Non-Reactive Trade Now instruction for these
protocols, and its requirement that the instruction must be sent after
the order becomes locked, reflects the order flow management practices
of these participants.
BX notes that a similar functionality currently exists on NYSE
Arca, Inc. (``NYSE Arca''), which NYSE Arca refers to as a ``Non-
Display Remove Modifier.'' As set forth in NYSE Arca Rule 7.31, a Limit
Non-Displayed Order may be
[[Page 81205]]
designated with a Non-Display Remove Modifier. If so designated, a
Limit Non-Displayed Order to buy (sell) will trade as the liquidity-
taking order with an incoming Adding Liquidity Only Order (``ALO
Order'') to sell (buy) that has a working price equal to the working
price of the Limit Non-Displayed Order.\4\ NYSE Arca also provides this
functionality for other orders, such as Mid-Point Passive Liquidity
Orders (``MPL Orders'') designated Day and MPL-ALO Orders \5\ and Arca
Only Orders.\6\
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\4\ See NYSE Arca Rule 7.31(d)(2)(B).
\5\ See NYSE Arca Rule 7.31(d)(3)(G).
\6\ See NYSE Arca Rule 7.31(e)(1)(C). To the extent that the
Trade-Now functionality will be made available for Price to Comply
Orders, Price to Display Orders, Non-Displayed Orders, Post-Only
Orders, and Market Maker Peg Orders, BX notes that the Trade-Now
functionality will apply to different order types than the NYSE Arca
Non-Display Remove Modifier functionality.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\8\ 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,
by offering participants an additional functionality that will
facilitate the execution of locked orders, thereby increasing the
efficient functioning of the BX market. The Trade Now functionality is
an optional feature that is being offered at no additional charge, and
is designed to reflect both the objectives of the BX market, and the
order flow management practices of various market participants. For
these reasons, the Trade Now functionality will only be made available
for orders that are entered in the BX book and that are not subject to
other BX rules regarding the display and execution of those orders,
i.e., Retail Price Improving Orders and Retail Orders. Depending on the
protocol, the Trade Now functionality will be offered as either the
Reactive Trade Now or Non-Reactive Trade Now functionality.
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\7\ 15 U.S.C. 78f(b).
\8\ 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. This is an optional
functionality that is being offered at no charge, and which may be used
equally by similarly-situated participants. Although the functionality
of the Trade Now instruction will differ depending upon the protocol
that is being used to access BX, BX believes that the difference in
functionality reflects the different ways in which participants enter
and manage their order flow.
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.\9\
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\9\ 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 \10\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ 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 so that
the proposal may become operative immediately upon filing. The Exchange
states that the Trade Now functionality is complementary to its recent
proposal to change the way in which Post Only Orders interact with
resting Non-Display orders.\12\ The Exchange believes that releasing
both complementary functionalities at the same time will be easier for
market participants to manage and implement. The Exchange further
believes that the Trade Now functionality will facilitate the execution
of locked orders, thereby increasing the efficient functioning of the
BX market, and that waiver of the operative delay will allow this
functionality to be made available at an earlier date. Finally, the
Exchange notes that NYSE Arca currently utilizes a similar
functionality in the form of its Non-Display Remove Modifier. The
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission hereby waives the operative delay and
designates the proposed rule change operative upon filing.\13\
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\10\ 17 CFR 240.19b-4(f)(6).
\11\ 17 CFR 240.19b-4(f)(6)(iii).
\12\ See supra note 3.
\13\ 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 the 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 protected]. Please include
File Number SR-BX-2016-059 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-BX-2016-059. 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
[[Page 81206]]
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
such 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-BX-2016-059, and should be submitted on or before
December 8, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27591 Filed 11-16-16; 8:45 am]
BILLING CODE 8011-01-P