[Federal Register Volume 82, Number 177 (Thursday, September 14, 2017)]
[Notices]
[Pages 43264-43267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19478]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81556; File No. SR-NASDAQ-2017-061]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend Rules 4702 and 4754 Relating to the Nasdaq Closing Cross and To 
Make Other Related Changes

September 8, 2017.

I. Introduction

    On July 13, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Exchange Rules 4702 and 4754 relating to 
the Nasdaq Closing Cross and to make other related changes. The 
proposed rule change was published for comment in the Federal Register 
on July 27, 2017.\3\ On August 22, 2017, the Exchange filed Amendment 
No. 1 to the proposed rule change.\4\ The Commission received no 
comment letters on the proposed rule change. The Commission is 
publishing this notice to solicit comments on Amendment No. 1 from 
interested persons, and is approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 81188 (July 21, 
2017), 82 FR 35014 (``Notice'').
    \4\ In Amendment No. 1, the Exchange proposes to remove a 
reference to Retail Order from Exchange Rule 4702(b)(12)(B) and to 
remove a reference to Retail Orders and RPI Orders from Exchange 
Rule 4703(l), as these two order types are no longer available on 
the Exchange. The Exchange also provides an example to illustrate 
its assertion that permitting members to submit Limit On Close 
(``LOC'') Orders until immediately prior to 3:55 p.m. would 
facilitate price discovery in the Nasdaq Closing Cross. Amendment 
No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2017-061/nasdaq2017061.htm.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1 5
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    \5\ For a more detailed description of the proposal, see Notice, 
supra note 3 and Amendment No. 1, supra note 4.
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    As described in more detail below, the Exchange proposes to enhance 
the operation of the Nasdaq Closing Cross by extending the time period 
during which members may submit LOC Orders,\6\ and to make other 
changes relating to the Nasdaq Closing Cross and the Nasdaq Opening 
Cross.
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    \6\ See Exchange Rule 4702(b)(12) (defining LOC Order).
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A. Acceptance of LOC Orders and Related Changes

    Currently, Exchange Rule 4702(b)(12)(A) provides that LOC Orders 
may be entered between 4:00 a.m. ET and immediately prior to 3:50 p.m. 
ET. The Exchange proposes to amend this rule to permit LOC orders to be 
entered between 3:50 p.m. ET and immediately prior to 3:55 p.m. ET, 
provided that there is a First Reference Price.\7\ The Exchange 
proposes to define the First Reference Price to mean the

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Current Reference Price \8\ in the first Order Imbalance Indicator \9\ 
disseminated at or after 3:50 p.m. ET.\10\ As proposed, a LOC Order 
entered between 3:50 p.m. ET and immediately prior to 3:55 p.m. ET 
would be accepted at its limit price, unless the limit price is higher 
(lower) than the First Reference Price for a LOC order to buy (sell), 
in which case the LOC order would be re-priced to the First Reference 
Price.\11\ If the First Reference Price is not at a permissible minimum 
increment of $0.01 or $0.0001, as applicable, the First Reference Price 
would be rounded (i) to the nearest permitted minimum increment (with 
midpoint prices being rounded up) if there is no imbalance, (ii) up if 
there is a buy imbalance, or (iii) down if there is a sell 
imbalance.\12\
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    \7\ The Exchange proposes a related change to Exchange Rule 
4702(b)(12)(B) to provide that LOC Orders and Closing Cross/Extended 
Hours Orders entered at or after 3:55 p.m. ET would be rejected.
    \8\ See Exchange Rule 4754(a)(7)(A) (defining Current Reference 
Price for the Nasdaq Closing Cross).
    \9\ See Exchange Rule 4754(a)(7) (defining Order Imbalance 
Indicator for the Nasdaq Closing Cross).
    \10\ See proposed Exchange Rule 4754(a)(9). According to the 
Exchange, if there is no First Reference Price, a value of zero will 
be disseminated in the first Order Imbalance Indicator, and a non-
zero value indicates that there is a First Reference Price. See 
Notice, supra note 3, at 35015 n.16. The Exchange also states that 
the presence of a First Reference Price indicates that there is 
matched buy and sell interest that is eligible to participate in the 
Nasdaq Closing Cross. See id., at 35015.
    \11\ See proposed changes to Exchange Rule 4702(b)(12)(A).
    \12\ See id.
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    The Exchange also proposes to amend its rules relating to the LULD 
Closing Cross \13\ and the Primary Contingency Procedures to reflect 
that LOC Orders can be entered until immediately prior to 3:55 p.m. 
Specifically, the Exchange proposes to amend Exchange Rule 
4754(b)(6)(C)(i) to permit Market On Close (``MOC''), LOC, and 
Imbalance Only (``IO'') Orders intended for the Nasdaq Closing Cross 
that are entered into the system and placed on the book prior to a 
Trading Pause to remain on the book to participate in the LULD Closing 
Cross.\14\ As a result, if the Exchange conducts an LULD Closing Cross, 
LOC Orders would be eligible to be entered until the earlier of the 
Trading Pause or immediately prior to 3:55 p.m.\15\ Similarly, the 
Exchange proposes to amend Exchange Rule 4754(b)(7)(B) to permit LOC 
Orders entered prior to 3:55 p.m. to participate in the Contingency 
Closing Cross.\16\
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    \13\ The Exchange currently uses the LULD Closing Cross when a 
Trading Pause pursuant to Exchange Rule 4120(a)(12) is triggered at 
or after 3:50 p.m. and before 4:00 p.m. See Exchange Rule 
4754(b)(6). The Commission recently approved a proposed rule change 
that provided that the LULD Closing Cross would be used when a 
Trading Pause exists at or after 3:50 p.m. and before 4:00 p.m. See 
Securities Exchange Act Release No. 79876 (January 25, 2017), 82 FR 
8888 (January 31, 2017) (SR-NASDAQ-2016-131). The Exchange 
represents that the recently approved change is not yet operative, 
and the discussion in this proposed rule change is based on 
currently implemented functionality. See Notice, supra note 3, at 
35015. n.19.
    \14\ The Exchange also proposes a conforming change to Exchange 
Rule 4754(b)(6)(C)(iii).
    \15\ See Notice, supra note 3, at 35015. This change would also 
correct the rule to reflect that, consistent with current 
functionality, IO Orders entered prior to a Trading Pause would 
participate in the LULD Closing Cross, instead of only those IO 
Orders entered prior to 3:50 p.m. See id. MOC Orders entered after 
3:50 p.m. would continue to be rejected, and therefore would not be 
eligible for the LULD Closing Cross. See id., at 35015 n.21.
    \16\ The Exchange also proposes to correct a typographical error 
in Exchange Rule 4754(b)(7)(E). In addition, the Exchange proposes 
to amend Exchange Rule 4754(b)(5), related to auxiliary procedures 
for the Closing Cross, to correct an erroneous subparagraph cross-
reference from (c)(2)(D) to (b)(2)(E).
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B. Closing Cross/Extended Hours Orders

    Currently, Exchange Rule 4702(b)(12)(B) states that, following the 
Nasdaq Closing Cross, a Closing Cross/Extended Hours Order \17\ may not 
operate as a Post-Only Order, Midpoint Peg Post-Only Order, 
Supplemental Order, Retail Order, or RPI Order. The Exchange proposes 
to amend this rule to provide that Post-Only Orders, Midpoint Peg Post-
Only Orders, and Supplemental Orders may not operate as Closing Cross/
Extended Hours Orders. According to the Exchange, these order types are 
eligible to participate in the Nasdaq Closing Cross as part of the 
continuous book, but cannot be entered with a flag designating an on-
close instruction, and therefore cannot be Closing Cross/Extended Hours 
Orders.\18\ The Exchange also proposes that Market Maker Peg Orders 
would no longer be eligible to be entered with a flag designating an 
on-close instruction, and therefore would no longer be able to operate 
as Closing Cross/Extended Hours Orders.\19\ In addition, the Exchange 
proposes to delete the reference to Retail Order and RPI Order from 
Exchange Rule 4702(b)(12)(B), because these order types are no longer 
offered on the Exchange.\20\
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    \17\ See Exchange Rule 4702(b)(12)(B) (defining Closing Cross/
Extended Hours Order).
    \18\ See Notice, supra note 3, at 35016.
    \19\ See proposed changes to Exchange Rule 4702(b)(12)(B) and 
Notice, supra note 3, at 35016.
    \20\ See Amendment No. 1, supra note 4. See also proposed 
changes to Exchange Rule 4703(l) (deleting a reference to Retail 
Orders and RPI Orders).
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    Finally, Exchange Rule 4702(b)(12)(B) currently provides that 
certain Closing Cross/Extended Hours Orders entered between 3:50 p.m. 
and the time of the Nasdaq Closing Cross are treated as IO Orders. The 
Exchange proposes to remove this functionality.

C. Order Imbalance Indicator

    Currently, Exchange Rule 4752(a)(2) provides that the Order 
Imbalance Indicator for the Nasdaq Opening Cross includes, among other 
things, the Current Reference Price, the Imbalance, and the number of 
paired shares. The definitions of Imbalance,\21\ Current Reference 
Price,\22\ and the number of paired shares \23\ currently include Open 
Eligible Interest.\24\ The Exchange proposes to delete references to 
Open Eligible Interest from these definitions.\25\ According to the 
Exchange, in practice, Open Eligible Interest is not included in the 
Imbalance, the Current Reference Price, or the number of paired 
shares.\26\
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    \21\ See Exchange Rule 4752(a)(1) (defining Imbalance for the 
Nasdaq Opening Cross).
    \22\ See Exchange Rule 4752(a)(2)(A) (defining Current Reference 
Price for the Nasdaq Opening Cross).
    \23\ See Exchange Rule 4752(a)(2)(B) (describing the calculation 
of the number of paired shares for the Nasdaq Opening Cross).
    \24\ See Exchange Rule 4752(a)(8) (defining Open Eligible 
Interest).
    \25\ See proposed changes to Exchange Rules 4752(a)(1), 
4752(a)(2)(A)(i), and 4752(a)(2)(B).
    \26\ See Notice, supra note 3, at 35016-17.
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    Similarly, Exchange Rule 4754(a)(7) provides that the Order 
Imbalance Indicator for the Nasdaq Closing Cross includes, among other 
things, the Current Reference Price, the Imbalance, and the number of 
paired shares. The definitions of Imbalance,\27\ Current Reference 
Price,\28\ and the number of paired shares \29\ currently include Close 
Eligible Interest.\30\ The Exchange proposes to delete references to 
Close Eligible Interest from these definitions.\31\ According to the 
Exchange, in practice, Close Eligible Interest is not included in the 
Imbalance, the Current Reference Price, or the number of paired 
shares.\32\
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    \27\ See Exchange Rule 4754(a)(2) (defining Imbalance for the 
Nasdaq Closing Cross).
    \28\ See Exchange Rule 4754(a)(7)(A)(i) (defining Current 
Reference Price for the Nasdaq Closing Cross).
    \29\ See Exchange Rule 4754(a)(7)(B) (describing the calculation 
of the number of paired shares for the Nasdaq Closing Cross).
    \30\ See Exchange Rule 4754(a)(1) (defining Close Eligible 
Interest).
    \31\ See proposed changes to Exchange Rules 4754(a)(2), 
4754(a)(7)(A)(i), and 4754(a)(7)(B).
    \32\ See Notice, supra note 3, at 35016-17.
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D. Implementation

    The Exchange proposes to implement the functionality described in 
the proposal in a symbol-by-symbol rollout in either Q3 or Q4 2017.\33\ 
The Exchange

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will announce the implementation date and the symbol rollout in an 
Equity Trader Alert issued to members prior to the implementation 
date.\34\
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    \33\ See id., at 35017.
    \34\ See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\35\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\36\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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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    \35\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \36\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Exchange proposes to permit members to 
submit LOC Orders between 3:50 p.m. and immediately prior to 3:55 p.m. 
if there is a First Reference Price. The Exchange also proposes to re-
price LOC Orders entered during this time period to the First Reference 
Price if their limit price is more aggressive than the First Reference 
Price. The Commission believes that these changes could encourage 
additional participation in the Nasdaq Closing Cross, reduce 
imbalances, and promote price discovery, without creating a significant 
impact on the price of the Nasdaq Closing Cross. In addition, as 
discussed above, the Exchange proposes to permit MOC, LOC, and IO 
Orders intended for the Closing Cross that are entered into the system 
and placed on the book prior to the Trading Pause to remain on the book 
and participate in an LULD Closing Cross. Similarly, the Exchange 
proposes to permit LOC Orders entered prior to 3:55 p.m. to participate 
in a Contingency Closing Cross. The Commission believes that these 
changes are consistent with the proposal to permit members to submit 
LOC Orders between 3:50 p.m. and immediately prior to 3:55 p.m., and 
would allow these LOC Orders to participate in an LULD Closing Cross or 
Contingency Closing Cross.\37\
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    \37\ The Commission also notes that the proposal to correct a 
typographical error in Exchange Rule 4754(b)(7)(E) and to change a 
cross-reference in Exchange Rule 4754(b)(5) are technical 
corrections to the rules.
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    As discussed above, the Exchange proposes to amend Exchange Rule 
4702(b)(12)(B) to identify the order types that are currently not 
eligible to operate as Closing Cross/Extended Hours Orders, provide 
that Market Maker Peg Orders cannot operate as Closing Cross/Extended 
Hours Orders, and delete a reference to Retail Order and RPI Order. The 
Commission believes that these proposed changes are reasonable. The 
Commission notes that, according to the Exchange, Market Maker Peg 
Orders are designed to assist Nasdaq members in meeting their quoting 
obligations, and not to submit interest flagged with an on-close 
instruction.\38\ The Commission also notes that Retail Orders and RPI 
Orders are no longer available on the Exchange.\39\
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    \38\ See Notice, supra note 3, at 35018. The exchange also notes 
that the proposed changes to Closing Cross/Extended Hours Orders 
would align its on-close order handling with the characteristics of 
various order types. See id., at 35014.
    \39\ See Amendment No. 1, supra note 4.
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    Moreover, as discussed above, the Exchange proposes to amend 
Exchange Rule 4702(b)(12)(B) to eliminate provisions that would treat 
certain Closing Cross/Extended Hours Orders entered between 3:50 p.m. 
and the time of the Nasdaq Closing Cross as IO Orders. The Commission 
notes that the proposal would allow Closing Cross/Extended Hours Orders 
entered between 3:50 p.m. and immediately prior to 3:55 p.m. to operate 
as LOC Orders,\40\ rather than converting to IO Orders, which, unlike 
LOC Orders, do not trade if there is no Imbalance and do not maintain 
price priority as a result being continuously re-priced to the best bid 
or offer.\41\ The Commission also notes that Nasdaq members may 
continue to enter IO Orders until the time of execution of the Nasdaq 
Closing Cross, and may continue to enter other Close Eligible Interest 
on the continuous book up until the time of the Nasdaq Closing 
Cross.\42\
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    \40\ As noted above, LOC Orders and Closing Cross/Extended Hours 
Orders entered after 3:55 p.m. would be rejected.
    \41\ See Notice, supra note 3, at 35018.
    \42\ See id., at 35014.
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    Finally, as discussed above, the Exchange proposes to exclude Open 
Eligible Interest and Close Eligible Interest from certain information 
disseminated in the Order Imbalance Indicator for the Nasdaq Opening 
Cross and the Nasdaq Closing Cross. The Commission notes that, as 
proposed, the Imbalance, Current Reference Price, and paired shares 
calculations would not include types of orders that may be executed in 
the continuous market before the Opening Cross or the Closing 
Cross.\43\ The Commission also notes that these changes would enhance 
transparency because they would reflect the information that is 
currently disseminated in the Order Imbalance Indicator.
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    \43\ See id., at 35018.
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-2017-061 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-2017-061. 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;

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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-2017-061, and should be submitted on or before October 5, 2017.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of Amendment No. 1 in the Federal 
Register. In Amendment No. 1, the Exchange proposes to remove outdated 
references to Retail Orders and RPI Orders, which are no longer offered 
on the Exchange. The Commission believes that deleting these outdated 
references would help to bring clarity and accuracy to the Exchange 
rules. The Commission also believes that these changes are of a 
technical nature and do not materially or substantively alter the 
proposed rule change. In addition, in Amendment No. 1, the Exchange 
provides an example to illustrate and support its assertion that 
extending the time period for the entry of LOC orders until immediately 
prior to 3:55 p.m. should facilitate the price discovery mechanism of 
the Nasdaq Closing Cross. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\44\ to approve the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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    \44\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\45\ that the proposed rule change (SR-NASDAQ-2017-061), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \45\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-19478 Filed 9-13-17; 8:45 am]
 BILLING CODE 8011-01-P