[Federal Register Volume 84, Number 33 (Tuesday, February 19, 2019)]
[Notices]
[Pages 4885-4887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02610]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85113; File No. SR-NASDAQ-2019-004]


Self-Regulatory Organizations; the Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Adopt a New MIDP Routing 
Option Under Rule 4758 and Make a Conforming Change to Rule 4703(e)

February 12, 2019.
    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 January 31, 2019, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a new MIDP routing option under Rule 
4758 and make a conforming change to Rule 4703(e).
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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
    The Exchange is proposing to adopt MIDP, a new order routing \3\ 
option under Rule 4758(a)(1)(A). The Exchange provides a variety of 
routing options under Rule 4758(a)(1). Routing options may be combined 
with all available Order Types and Times-in-Force, with the exception 
of Order Types and Times-in-Force whose terms are inconsistent with the 
terms of a particular routing option. The MIDP routing option would 
allow members to seek midpoint liquidity on Nasdaq and other markets on 
the System routing table.\4\ Specifically, the MIDP routing option may 
be assigned only to a Non-Displayed Order Type \5\ with a Midpoint 
Pegging Order Attribute.\6\ An Order with MIDP will check the System 
for available shares and then the remaining shares are routed to 
destinations on the System routing table \7\ that support midpoint 
eligible orders with a limit price that is at the lesser (greater) of: 
(1) The current NBO (NBB); or (2) the Order's entered limit price (if 
applicable).\8\ If shares remain unexecuted after routing, the Order 
returns to Nasdaq and will check the System for available shares, with 
remaining shares posted on the Nasdaq Book \9\ as a Non-Displayed Order 
with a Midpoint Pegging Order Attribute.\10\
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    \3\ Routing is an Order Attribute that allows a Participant to 
designate an Order to employ one of several Routing Strategies (also 
called ``routing options'') offered by Nasdaq, as described in Rule 
4758; such an Order may be referred to as a ``Routable Order.'' Upon 
receipt of an Order with the Routing Order Attribute, the System 
will process the Order in accordance with the applicable Routing 
Strategy. In the case of a limited number of Routing Strategies, the 
Order will be sent directly to other market centers for potential 
execution. For most other Routing Strategies, including MIDP, the 
Order will attempt to access liquidity available on Nasdaq in the 
manner specified for the underlying Order Type and will then be 
routed in accordance with the applicable Routing Strategy. Shares of 
the Order that cannot be executed are then returned to Nasdaq, where 
they will (i) again attempt to access liquidity available on Nasdaq 
and (ii) post to the Nasdaq Book or be cancelled, depending on the 
Time-in- Force of the Order. See Rule 4703(f).
    \4\ The term ``System routing table'' refers to the proprietary 
process for determining the specific trading venues to which the 
System routes orders and the order in which it routes them. Nasdaq 
reserves the right to maintain a different System routing table for 
different routing options and to modify the System routing table at 
any time without notice. See Rule 4758(a)(1)(A).
    \5\ See Rule 4702(b)(3).
    \6\ Midpoint Pegging means Pegging with reference to the 
midpoint between the Inside Bid and the Inside Offer (the 
``Midpoint''). See Rule 4703(d).
    \7\ The Order is routed sequentially to the various venues on 
the System routing table in the full amount. An Order with MIDP and 
a Minimum Quantity Order Attribute will similarly route to the 
venues sequentially.
    \8\ If the entered limit price of a buy (sell) Order entered 
with MIDP is less (greater) than the current Midpoint price, the 
Order will not be routed but will instead be posted on the Nasdaq 
Book as a Midpoint Peg Order (if not an IOC). Once on the Nasdaq 
Book, if the NBBO moves and the Order's limit price is equal to or 
greater (less) than the NBO (NBB), the Order would not subsequently 
route.
    \9\ See Rule 4701(a).
    \10\ An Order with the MIDP routing option will only be accepted 
with a Time-in-Force of Market Hours DAY or IOC and may not be 
flagged to participate in any of the Nasdaq Crosses. Unexecuted 
shares of an order with the MIDP routing option will be cancelled 
after routing if the order has a Time-in-Force of IOC.
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    A member may specify a Minimum Quantity Order Attribute upon 
entry.\11\ Minimum Quantity is an Order Attribute that allows a 
Participant to provide that an Order will not execute unless a 
specified minimum quantity of shares can be obtained.\12\ If at any 
point during the routing process, but prior to returning to post on the 
Nasdaq Book (unless an IOC), the remaining size of the Order becomes 
less than the specified minimum quantity, the Order will be cancelled 
back to the member. This will avoid an execution of a member's Order 
that is inconsistent with its minimum quantity instructions. If shares 
remain unexecuted after routing, they return to Nasdaq and check the 
System for available shares with remaining shares posted on the Nasdaq 
Book as a Non-Displayed Order with a Midpoint Pegging Order Attribute 
and the minimum quantity condition specified by the member upon entry 
of the Order. For example, if the National Best Bid and Offer 
(``NBBO'') is $5.00 x $5.01 and a member enters a Non-Displayed Order 
with a Midpoint Pegging Order Attribute to buy 500

[[Page 4886]]

shares with a TIF of Day, a limit of $5.01 and no minimum quantity, the 
System will first attempt to execute the Order on Nasdaq at the 
midpoint of the NBBO and if no shares are executed, the Order will be 
routed as a midpoint order to destinations on the System routing table 
that support midpoint eligible orders. If the Order does not receive an 
execution at the venues to which it was routed, the Order would return 
to Nasdaq and check the System for available shares, with remaining 
shares posted to the Nasdaq Book at the midpoint price of $5.005. If, 
however, the Order also had a minimum quantity of 300 shares and 
received an execution of 300 shares at a venue on the System routing 
table, instead of continuing to route or post to the Nasdaq Book, the 
Order will instead be cancelled back to the member, consistent with the 
minimum quantity instruction.
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    \11\ If upon entry the Order size is less than the minimum 
quantity designated by the member the Order will be rejected.
    \12\ See Rule 4703(e).
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    The Exchange does not currently allow an Order with Minimum 
Quantity to also have a Routing Order Attribute.\13\ Historically, the 
Exchange System has been unable to support Minimum Quantity and Routing 
due to limitations in the System. The Exchange has made technical 
changes to the System to allow for Minimum Quantity and MIDP, and 
Minimum Quantity would only be available for MIDP. Thus, the Exchange 
is making a conforming change to Rule 4703(e) to allow Minimum Quantity 
with MIDP. Should Participants request Minimum Quantity for other 
Routing strategies, the Exchange would consider making the technical 
changes to allow for such Routing and submit a rule change proposal to 
the Commission.
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    \13\ Id.
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    The Exchange will implement the proposal in the second quarter of 
2019, subject to approval by the Commission. The Exchange will provide 
notice of the implementation date at least 30 days prior to 
implementation via an Equity Trader Alert.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ 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 providing members additional control over the execution of 
their Orders so that they may source Midpoint liquidity from venues 
other than Nasdaq. Midpoint Orders allow participants to receive price 
improvement by executing against other non-displayed liquidity at the 
midpoint of the NBBO. An entirely optional routing option, MIDP will 
help maximize the potential that members will receive Midpoint 
executions for their Orders. In addition, the proposed functionality is 
currently offered by competitor exchanges.\16\ The Exchange believes 
that allowing Minimum Quantity to be an Order Attribute to an Order 
with MIDP is consistent with the Act because it provides market 
participants with greater flexibility and control over their Orders. As 
noted above, the Exchange has not allowed Orders with both Minimum 
Quantity and Routing for technical reasons. The Exchange has made 
technical changes that will allow Minimum Quantity with Routing solely 
for MIDP, although it may make the change for other Routing strategies 
based on market participant interest.\17\ For these reasons, the 
Exchange believes that the proposed rule change is consistent with the 
Act.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ BYX Rule 11.13(b)(3)(Q) and EDGA Rule 11.11(g)(13). These 
rules provide that RMPT and RMPL routing strategies may be used with 
a Mid-Point Peg Order to check the exchanges' respective Systems for 
available shares and any remaining shares are then sent to 
destinations on their routing tables that support midpoint eligible 
orders. Any shares remaining unexecuted after routing are posted on 
the exchanges' respective books as a Mid-Point Peg Order, unless 
otherwise instructed by the exchange participant. It is unclear to 
the Exchange if market participants may associate a minimum quantity 
attribute with RMPT or RMPL. As a consequence, MIDP may differ from 
RMPT and/or RMPL in this way.
    \17\ Subject to submission of a rule change filing with the 
Commission.
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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. To the contrary, the proposed 
change is pro-competitive because it may make the Exchange a more 
attractive venue to market participants, which may incent other 
exchanges and trading venues to adopt similar routing functionality. In 
this regard, the proposed change does not create any competitive 
barriers or in any way preclude competitor exchanges and other trading 
venues from implementing similar functionality. As noted above, the 
proposed functionality copies, in part, existing functionality 
available on competitor exchanges. In addition, to the extent other 
exchanges and other trading venues do not support minimum quantity and 
routing, they are free to make the changes to their systems to allow 
for such. Thus, the proposed change is reflective of competition among 
trading venues, and does not impose any burden thereon.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2019-004 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-NASDAQ-2019-004. 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 website (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

[[Page 4887]]

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 website 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 Number SR-
NASDAQ-2019-004, and should be submitted on or before March 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02610 Filed 2-15-19; 8:45 am]
 BILLING CODE 8011-01-P