[Federal Register Volume 82, Number 216 (Thursday, November 9, 2017)]
[Notices]
[Pages 52075-52079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24371]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82013; File No. SR-NASDAQ-2017-074]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Amendment No. 2 and Order Instituting Proceedings 
To Determine Whether To Approve or Disapprove a Proposed Rule Change, 
as Modified by Amendment Nos. 1 and 2, To Adopt the Midpoint Extended 
Life Order

November 3, 2017.

I. Introduction

    On July 21, 2017, the NASDAQ Stock Market LLC (``Exchange'' or 
``Nasdaq'') 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 adopt the Midpoint Extended Life Order 
(``MELO''). The proposed rule change was published for comment in the 
Federal Register on August 9, 2017.\3\ On August 9, 2017, the Exchange 
filed Amendment No. 1 to the proposed rule change.\4\ On September 21, 
2017, pursuant to Section 19(b)(2) of the Act,\5\ the Commission 
designated a longer period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule 
change.\6\ The Commission has received three comment letters on the 
proposal.\7\ On October 30, 2017, the Exchange filed Amendment No. 2 to 
the proposed rule change.\8\ The Commission is publishing this notice 
and order to solicit comments on the proposed rule change, as modified 
by Amendment Nos. 1 and 2, from interested persons and to institute 
proceedings pursuant to Section 19(b)(2)(B) of the Act \9\ to determine 
whether to approve or disapprove the proposed rule change, as modified 
by Amendment Nos. 1 and 2.
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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. 81311 (August 3, 
2017), 82 FR 37248 (``Notice'').
    \4\ In Amendment No. 1, the Exchange updated the proposal to 
reflect the approval of the proposal by the Exchange's Board of 
Directors on July 21, 2017. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2017-074/nasdaq2017074.htm. Because 
Amendment No. 1 is a technical amendment that does not alter the 
substance of the proposed rule change, it is not subject to notice 
and comment.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 81668, 82 FR 45095 
(September 27, 2017). The Commission designated November 7, 2017 as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \7\ See Letters to Brent J. Fields, Secretary, Commission, from 
Stephen John Berger, Managing Director, Government & Regulatory 
Policy, Citadel Securities, dated August 30, 2017 (``Citadel 
Letter''); Ray Ross, Chief Technology Officer, The Clearpool Group, 
dated September 12, 2017 (``Clearpool Letter''); and Joanna Mallers, 
Secretary, FIA Principal Traders Group, dated September 19, 2017 
(``FIA PTG Letter'').
    \8\ In Amendment No. 2, the Exchange: (1) Modified the proposal 
to prevent MELOs from trading when better-priced non-displayed 
orders rest on the Nasdaq book; (2) provided additional description, 
clarification, and rationale for certain aspects of the proposal; 
and (3) responded to several concerns raised by commenters on the 
proposal. Amendment No. 2 is available at https://www.sec.gov/comments/sr-nasdaq-2017-074/nasdaq2017074.htm.
    \9\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

    The Exchange proposed to offer the MELO order type. A MELO would be 
a non-displayed order priced at the midpoint between the National Best 
Bid and Offer (``NBBO'') and would not be eligible to execute until a 
minimum period of one half of a second (``Holding Period'') has passed 
after acceptance of the order by the system.\10\ Once eligible to 
trade, MELOs would be ranked in time priority at the NBBO midpoint 
among other MELOs.\11\ If a limit price is assigned to a MELO, the 
order would be: (1) Eligible for execution in time priority if upon 
acceptance of the order by the system, the midpoint price is within the 
limit set by the participant; or (2) held until the midpoint falls 
within the limit set by the participant, at which time the Holding 
Period would commence and thereafter the system would make the order 
eligible for execution in time priority.\12\
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    \10\ See proposed Nasdaq Rule 4702(b)(14)(A).
    \11\ See id.
    \12\ See id.
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    If a MELO is modified by a member (other than to decrease the size 
of the order or to modify the marking of a sell order as long, short, 
or short exempt) during the Holding Period, the system would restart 
the Holding Period.\13\ Similarly, if a MELO is modified by a member 
(other than to decrease the size of the order or to modify the marking 
of a sell order as long, short, or short exempt) after it has become 
eligible to execute, the order would have to satisfy a new Holding 
Period.\14\
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    \13\ See id. The Exchange noted that any change to a MELO that 
would result in a change in the order's timestamp would result in 
the MELO being considered altered, and thus the order would be 
subject to a new Holding Period before being eligible to trade and 
its priority would be based on the new timestamp. See Amendment No. 
2 at n.16.
    \14\ See proposed Nasdaq Rule 4702(b)(14)(A).
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    Movements in the NBBO while a MELO is in the Holding Period would 
not reset the Holding Period, even if, as a result of the NBBO move, 
the MELO's limit price is less aggressive than the NBBO midpoint.\15\ 
Also, if a MELO has met the Holding Period, but the NBBO midpoint is no 
longer within its limit, it would nonetheless be ranked in time 
priority among other MELOs if the NBBO later moves such that the 
midpoint is within the order's limit price (i.e., no new Holding 
Period).\16\
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    \15\ See Amendment No. 2 at n.11.
    \16\ See proposed Nasdaq Rule 4702(b)(14)(A); Amendment No. 2 at 
n.15.
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    MELOs may be entered via any of the Exchange's communications 
protocols and the type of communications protocol used would not affect 
how the system handles MELOs.\17\ If there is no NBB or NBO, the 
Exchange would accept MELOs but would not allow MELO executions until 
there is an

[[Page 52076]]

NBBO.\18\ MELOs would be eligible to trade if the NBBO is locked.\19\ 
If the NBBO is crossed, MELOs would be held by the system until such 
time that the NBBO is no longer crossed, at which time they would be 
eligible to trade.\20\ MELOs may be cancelled at any time, including 
during the Holding Period.\21\
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    \17\ See Amendment No. 2 at n.10.
    \18\ See id. at 12. If there is no NBB or NBO upon entry of a 
MELO, the system would hold the order in time priority, together 
with any other MELOs received while there is no NBB or NBO. See id. 
Once there is an NBBO, the Holding Period would begin for the held 
MELOs based on time priority. See id.
    \19\ See id. at 12-13.
    \20\ See id. at 13.
    \21\ See proposed Nasdaq Rule 4702(b)(14)(A).
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    MELOs would be active only during Market Hours.\22\ MELOs entered 
during Pre-Market Hours would be held by the system in time priority 
until Market Hours.\23\ MELOs entered during Post-Market Hours would 
not be accepted by the system, and MELOs remaining unexecuted after 
4:00 p.m. ET would be cancelled by the system.\24\ MELOs would not be 
eligible for the Nasdaq opening, halt, and closing crosses.\25\
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    \22\ See proposed Nasdaq Rule 4702(b)(14)(B). Market Hours begin 
after the completion of the Nasdaq Opening Cross (or at 9:30 a.m. ET 
in the case of a security for which no Nasdaq Opening Cross occurs). 
See Nasdaq Rule 4703(a).
    \23\ See proposed Nasdaq Rule 4702(b)(14)(B). ``Pre-Market 
Hours'' means the period of time beginning at 4:00 a.m. ET and 
ending immediately prior to the commencement of Market Hours. See 
Nasdaq Rule 4701(g). A MELO entered during Pre-Market Hours would be 
held by the system until the completion of the Opening Cross (or 
9:30 a.m. ET if no Opening Cross occurs), ranked in the time that it 
was received by the Nasdaq book upon satisfaction of the Holding 
Period. See Amendment No. 2 at 11-12.
    \24\ See proposed Nasdaq Rule 4702(b)(14)(B). ``Post-Market 
Hours'' means the period of time beginning immediately after the end 
of Market Hours and ending at 8:00 p.m. ET. See Nasdaq Rule 4701(g).
    \25\ See proposed Nasdaq Rule 4703(l); Amendment No. 2 at 12. 
MELOs in existence at the time a halt is initiated would be 
ineligible to execute and held by the system until trading has 
resumed and the NBBO has been received by Nasdaq. See proposed 
Nasdaq Rule 4702(b)(14)(A).
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    MELOs must be entered with a size of at least one round lot, and 
any shares of a MELO remaining after an execution that are less than 
one round lot would be cancelled.\26\ MELOs may have a minimum quantity 
order attribute.\27\ MELOs may not be designated with a time-in-force 
of immediate or cancel (``IOC'') and are ineligible for routing.\28\ 
They also may not have the discretion, reserve size, attribution, 
intermarket sweep order, display, or trade now order attributes.\29\
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    \26\ See proposed Nasdaq Rule 4702(b)(14)(B).
    \27\ See id.
    \28\ See id.; see also Amendment No. 2 at 11 and 13.
    \29\ See Amendment No. 2 at 13-14.
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    Once a MELO becomes eligible to execute by existing unchanged for 
the Holding Period, the MELO may only execute against other eligible 
MELOs.\30\ MELOs would not execute if there is a resting non-displayed 
order priced more aggressively than the NBBO midpoint, and they instead 
would be held until the resting non-displayed order is no longer on the 
Nasdaq book or the NBBO midpoint matches the price of the resting non-
displayed order.\31\ MELO executions would be reported to Securities 
Information Processors and provided to Nasdaq's proprietary data feeds 
without any new or special indication.\32\
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    \30\ See proposed Nasdaq Rule 4702(b)(14)(A).
    \31\ See id; see also Amendment No. 2 at 9.
    \32\ See Amendment No. 2 at 15.
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    As proposed, MELOs would be subject to real-time surveillance to 
determine if the order type is being abused by market participants.\33\ 
In addition, the Exchange intends to implement a process, at the same 
time as the implementation of MELOs, to monitor the use of MELOs with 
the intent to apply additional measures, as necessary, to ensure their 
usage is appropriately tied to the intent of the order type.\34\ The 
Exchange stated that this process may include metrics tied to 
participant behavior, such as the percentage of MELOs that are 
cancelled prior to the completion of the Holding Period, the average 
duration of MELOs, and the percentage of MELOs where the NBBO midpoint 
is within the limit price when received.\35\ The Exchange stated that 
it is committed to determining whether there is opportunity or 
prevalence of behavior that is inconsistent with normal risk management 
behavior.\36\ According to the Exchange, manipulative abuse is subject 
to potential disciplinary action under the Exchange's rules, and other 
behavior that is not necessarily manipulative but nonetheless 
frustrates the purposes of the MELO order type may be subject to 
penalties or other participant requirements to discourage such 
behavior, should it occur.\37\
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    \33\ See id. at 22.
    \34\ See id.
    \35\ See id.
    \36\ See id. at 22-23.
    \37\ See id. at 23.
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    The Exchange stated that it plans to implement MELO within thirty 
days after Commission approval of the proposal.\38\ The Exchange would 
make MELOs available to all members and to all securities upon 
implementation, and would announce the implementation date by Equity 
Trader Alert.\39\
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    \38\ See id. at 16.
    \39\ See id.
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III. Summary of Comments and the Exchange's Response

    The Commission received one comment letter that expressed support 
for the proposal \40\ and two comment letters that expressed concerns 
about the proposal.\41\
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    \40\ See Clearpool Letter.
    \41\ See Citadel Letter and FIA PTG Letter.
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    One commenter stated its belief that MELOs could provide a valuable 
tool for investors, and particularly institutional investors, seeking 
to execute in large size.\42\ This commenter also stated its belief 
that MELOs have the potential to attract longer-term market 
participants to Nasdaq, and would provide an additional method to allow 
investors to effectively implement their investment strategies on an 
exchange.\43\ The commenter observed that, because MELOs would be on an 
exchange, they would be available to all Exchange participants, which 
the commenter asserted is a fairer and more transparent way for markets 
to operate as compared to off-exchange trading venues.\44\
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    \42\ See Clearpool Letter at 1-3.
    \43\ See id. at 2.
    \44\ See id.
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    Two commenters expressed concern with the degree of order 
segmentation presented by the proposal.\45\ They expressed the view 
that MELOs would create a separate order book within the Nasdaq 
matching system where only MELOs could interact with each other.\46\ 
One of these commenters stated that the proposal represents an 
unprecedented level of exchange-based order flow segmentation.\47\ This 
commenter acknowledged the existence of limited exchange-based 
mechanisms that have the effect of restricting some order flow 
interaction, but contended that the proposal goes significantly beyond 
any such existing restrictions.\48\ This commenter noted that the use 
of MELOs would result in two orders failing to interact even if they 
are of the same size and have prices that cross each other, and 
suggested that the Commission consider carefully whether this is 
consistent with the definition and purpose of an exchange.\49\
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    \45\ See Citadel Letter at 1-3; FIA PTG Letter at 2. One of 
these commenters also expressed the concern that the costs of 
approving the MELO order type would far outweigh the potential 
benefits. See FIA PTG Letter at 2. This commenter asserted that 
artificially introducing latency negatively impacts the price 
discovery and formation functions of the exchange. See id. This 
commenter also expressed broad concerns about complexity in today's 
equity market structure, which are outside the scope of the 
Exchange's proposal. See id.
    \46\ See Citadel Letter at 1-3; FIA PTG Letter at 2.
    \47\ See Citadel Letter at 1.
    \48\ See id. at 3.
    \49\ See id.

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[[Page 52077]]

    In addition, one commenter remarked that market participants with 
marketable held orders or resting orders seeking to execute against 
marketable held order flow would be unlikely to utilize MELOs because 
marketable held orders are typically required to be executed fully and 
promptly.\50\ According to the commenter, as use of the ``MELO order 
book'' increases, liquidity in the ``legacy Nasdaq order book'' could 
be negatively impacted to the detriment of retail investors.\51\ 
Moreover, the commenter stated that investors submitting resting MELOs 
would not be able to interact with marketable held order flow.\52\ The 
commenter suggested that the Exchange could partially mitigate the 
negative impacts of MELO order segmentation by revising its proposal to 
allow any order to immediately interact with a resting MELO as long as 
it is priced beyond the midpoint.\53\
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    \50\ See id. at 1-2.
    \51\ See id. at 2.
    \52\ See id.
    \53\ See id.
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    In contrast, one commenter stated that allowing MELOs to interact 
with non-MELOs would defeat the purpose of the MELO order type.\54\ 
This commenter also stated that it does not believe that the proposal 
would negatively impact liquidity or price discovery on the Nasdaq 
market because the MELO order type should have little to no detrimental 
effect on participants using other order types.\55\ According to this 
commenter, to the extent that the MELO order type would provide 
incentives for order flow to be directed to a fair access exchange and 
away from private market centers, price discovery for the broader 
markets might improve.\56\
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    \54\ See Clearpool Letter at 3.
    \55\ See id.
    \56\ See id.
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    In Amendment No. 2, the Exchange stated that although MELOs may 
forgo the opportunity to interact with other liquidity on the Exchange, 
users of MELOs accepted this possibility in return for the ability to 
interact with other market participants with the same time horizon.\57\ 
The Exchange also stated its belief that it is not unfair or 
discriminatory that non-displayed orders resting on Nasdaq that are 
priced more aggressively than the NBBO midpoint would not participate 
in MELO executions.\58\ According to the Exchange, the use of resting 
non-displayed orders and MELOs would be available to all participants, 
and participants would simply need to evaluate which order type best 
serves their investment needs.\59\ Moreover, the Exchange stated that 
it has conducted a pro forma study of the effect of applying MELOs to 
the current market: It reviewed all executions occurring on Nasdaq in 
August 2017 and found that only 0.37% of resting non-displayed orders 
traded at a price better than the prevailing midpoint at the time of 
execution.\60\ According to the Exchange, consequently, the number of 
situations in which a participant would have to consider the trade-offs 
between posting a non-displayed buy (sell) order at a higher (lower) 
price as compared to submitting a MELO is minimal.\61\ In addition, the 
Exchange reiterated that all members may use MELOs and thus have access 
to MELO liquidity.\62\ Finally, in Amendment No. 2, the Exchange 
amended the proposal to provide that MELOs would not execute if there 
is a resting non-displayed order priced more aggressively than the NBBO 
midpoint; instead, MELOs would be held until the resting non-displayed 
order is no longer on the Nasdaq book or the NBBO midpoint matches the 
price of the resting non-displayed order.\63\
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    \57\ See Amendment No. 2 at 19. The Exchange also compared MELOs 
to the minimum quantity order attribute, as well as the retail price 
improvement orders available on Nasdaq BX, Inc. See id. The Exchange 
stated that both of these types of orders provide the opportunity to 
interact with orders meeting certain characteristics, and 
consequently may miss the opportunity to receive an execution if the 
contra-side order does not meet the specified characteristics. See 
id. In addition, the Exchange compared its proposal to the Nasdaq 
Crossing Network, which created a series of intra-day crosses at the 
NBBO midpoint. See id. at 20. The Exchange stated that Nasdaq 
Crossing Network eligible orders were not available for execution 
against orders resting on the Nasdaq book. See id. at 20-21.
    \58\ See id. at 20.
    \59\ See id.
    \60\ See id. at 21.
    \61\ See id.
    \62\ See id.
    \63\ See proposed Nasdaq Rule 4702(b)(14)(A).
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    One commenter raised the concern that, under the proposal, MELO 
executions would be reported to the Securities Information Processors 
and provided on Nasdaq's proprietary data feed in the same manner as 
all other transactions on Nasdaq.\64\ This commenter stated that this 
approach likely would raise concerns about market fairness and 
introduce significant complexity for investors, broker-dealers, and 
regulators when attempting to analyze market activity and assess 
execution quality.\65\ This commenter noted, by way of example, that 
investors may see their orders executed on Nasdaq at worse prices than 
other contemporaneous executions on Nasdaq and that, without Nasdaq 
labeling MELO executions as such, investors may not know why this has 
occurred.\66\ This commenter also asserted that, without labeling MELO 
executions differently than other executions on Nasdaq, broker-dealer 
routing logic may be influenced by liquidity that is not actually 
accessible, and regulators may experience difficulties in accurately 
filtering market data when evaluating compliance with regulatory 
requirements such as best execution.\67\ This commenter urged the 
Commission to require that executions resulting from MELOs be marked as 
such on the tape.\68\ Alternatively, the commenter suggested that 
Nasdaq offer the MELO order type on a separate exchange.\69\
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    \64\ See Citadel Letter at 3.
    \65\ See id.
    \66\ See id.
    \67\ See id.
    \68\ See id.
    \69\ See id.
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    By contrast, one commenter stated that it does not believe that the 
lack of specific identification of MELOs in trade reports would result 
in any difficulties for the markets, or complexity for investors or 
other market participants when assessing execution quality.\70\ 
According to this commenter, users of the MELO order type would be 
provided with anonymity and confidentiality, which the commenter 
asserted are critical tools in preventing potentially predatory 
counterparties from determining intention and using that information to 
generate short-term profits at the expense of longer-term 
investors.\71\ In addition, this commenter stated that Nasdaq and all 
other exchanges currently offer many order types that when executed do 
not provide specific indicators showing exactly which order types were 
used, and professed not to see how allowing an exchange to add another 
order type without such trade reporting disclosure would harm market 
participants' ability to measure market quality, as they do not 
currently have that ability.\72\
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    \70\ See Clearpool Letter at 2.
    \71\ See id.
    \72\ See id.
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    In Amendment No. 2, the Exchange stated that it currently does not 
identify on data feeds in real time the order types and attributes that 
resulted in an execution (e.g., reserve order attribute).\73\ According 
to the Exchange, not identifying MELOs is important to ensure that 
investors are protected from market participants that would

[[Page 52078]]

otherwise take advantage of such knowledge and undermine the usefulness 
of the order type.\74\ In addition, the Exchange stated that, like any 
of the order types or attributes provided by the Exchange, members must 
assess which ones would provide them with the best execution in 
achieving their investment goals.\75\
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    \73\ See Amendment No. 2 at n.34. The Exchange also noted that 
there is no real-time transparency regarding which destination or 
broker matched a buyer and seller when transactions are reported to 
a trade reporting facility. See id. at 25-26. Instead, there are 
delayed reports that identify where the executions occurred. See id. 
at 26.
    \74\ See id. at 25. According to the Exchange, MELO is designed 
to increase access to, and participation on, Nasdaq for investors 
that are less concerned with the time to execution, but rather are 
looking to source liquidity, often in greater size, at the NBBO 
midpoint against a counterparty order that has the same objectives. 
See id. at 17. The Exchange noted that the proposal is designed to 
help ensure that members with MELOs are not disadvantaged by other 
order types entered by participants that have the benefit of 
knowing, and reacting to, rapid changes in the market. See id. at 9.
    \75\ See id. at 25.
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    Lastly, one commenter asserted that allowing MELOs to be cancelled 
at any time during the Holding Period does not appear to be consistent 
with the intended use of the order type.\76\ Instead, according to this 
commenter, a MELO should only be permitted to be cancelled after the 
Holding Period has expired and the order has been placed in the order 
book.\77\ Another commenter, by contrast, did not have an issue with 
providing market participants the ability to cancel MELOs during the 
Holding Period.\78\ This commenter stated that it believes this would 
be an important feature of the MELO order type because many firms use 
algorithms to source liquidity simultaneously from multiple venues.\79\ 
According to the commenter, to the extent that liquidity is found 
elsewhere than Nasdaq within the Holding Period, it would be critically 
important that the firm be able to cancel its orders from Nasdaq and 
re-allocate those shares to other venues.\80\ This commenter stated 
that it does not believe any market participants would be gamed or 
harmed in such a circumstance.\81\
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    \76\ See Citadel Letter at 4.
    \77\ See id. This commenter also suggested that the Exchange 
should clarify that MELOs cannot be designated IOC, see id., but the 
Commission notes that that fact is already stated in the proposal, 
see supra note 28 and accompanying text.
    \78\ See Clearpool Letter at 3.
    \79\ See id.
    \80\ See id.
    \81\ See id.
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    In Amendment No. 2, the Exchange stated that MELOs may be cancelled 
at any time, including during the Holding Period, in order to allow 
members to effectively manage risk.\82\ The Exchange also acknowledged 
that the potential exists for some participants to use MELOs in a way 
that conflicts with the stated intention of the order type to allow 
longer term investors the opportunity to safely find like-minded 
counterparties at the midpoint on Nasdaq.\83\ For this reason, the 
Exchange represented that MELOs would be subject to real-time 
surveillance to determine if the order type is being abused by market 
participants.\84\ The Exchange also stated that it plans to implement a 
process, at the same time as the implementation of MELOs, to monitor 
the use of MELOs, with the intent to apply additional measures, as 
necessary, to ensure their usage is appropriately tied to the intent of 
the order type.\85\ According to the Exchange, manipulative abuse is 
subject to potential disciplinary action under the Exchange's rules, 
and other behavior that is not necessarily manipulative but nonetheless 
frustrates the purposes of the MELO order type may be subject to 
penalties or other participant requirements to discourage such 
behavior, should it occur.\86\
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    \82\ See Amendment No. 2 at 8.
    \83\ See id. at 22.
    \84\ See id.
    \85\ See id. According to the Exchange, this process may include 
metrics tied to participant behavior, such as the percentage of 
MELOs cancelled prior to completion of the Holding Period, the 
average duration of MELOs, and the percentage of MELOs where the 
NBBO midpoint is within the limit price when received. See id.
    \86\ See id. at 23. The Exchange stated that punitive fees or 
other prerequisite requirements tied to MELO usage would be 
implemented by rule filing under Section 19(b) of the Act, should 
the Exchange determine that they are necessary to maintain a fair 
and orderly market. See id.
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V. Proceedings To Determine Whether To Approve or Disapprove SR-NASDAQ-
2017-074, as Modified by Amendment Nos. 1 and 2, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \87\ to determine whether the proposed rule 
change, as modified by Amendment Nos. 1 and 2, should be approved or 
disapproved. Institution of proceedings is appropriate at this time in 
view of the legal and policy issues raised by the proposal, as 
discussed below. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to any of the 
issues involved. Rather, as described below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change, as modified by Amendment Nos. 1 and 2.
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    \87\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\88\ the Commission is 
providing notice of the grounds for disapproval under consideration. As 
discussed above, the Exchange has proposed to offer a new MELO order 
type, which would be non-displayed, pegged to the NBBO midpoint, and 
eligible for execution only after a half-second Holding Period has 
completed following the acceptance of the MELO by the Exchange system 
(although MELOs could be cancelled at any time, including during the 
Holding Period). In addition, MELOs would be eligible to execute only 
against other MELOs and would not be eligible to execute against any 
other trading interest on the Nasdaq book, including resting contra-
side orders that are priced more aggressively than the NBBO midpoint.
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    \88\ Id.
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    The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the consistency 
of the proposal with Sections 6(b)(5) \89\ and 6(b)(8) \90\ of the Act. 
Section 6(b)(5) of the Act requires that the rules of a national 
securities exchange be designed, among other things, 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, and not 
be designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. Section 6(b)(8) of the Act requires that the rules 
of a national securities exchange not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
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    \89\ 15 U.S.C. 78f(b)(5).
    \90\ 15 U.S.C. 78f(b)(8).
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V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment Nos. 1 and 2, is consistent with 
Section 6(b)(5), 6(b)(8), or any other provision of the Act, or rules 
and regulations thereunder. Although there does not appear to be any 
issues relevant to approval or disapproval which would be facilitated 
by an oral presentation of data, views, and arguments, the Commission 
will consider, pursuant to Rule 19b-4 under the Act,\91\ any request 
for an

[[Page 52079]]

opportunity to make an oral presentation.\92\
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    \91\ 17 CFR 240.19b-4.
    \92\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment Nos. 1 and 2, should be approved or disapproved by November 
30, 2017. Any person who wishes to file a rebuttal to any other 
person's submission must file that rebuttal by December 14, 2017. 
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 No. SR-NASDAQ-2017-074 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 No. SR-NASDAQ-2017-074. The 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. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NASDAQ-2017-074 and should be 
submitted by November 30, 2017. Rebuttal comments should be submitted 
by December 14, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\93\
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    \93\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24371 Filed 11-8-17; 8:45 am]
BILLING CODE 8011-01-P