[Federal Register Volume 84, Number 57 (Monday, March 25, 2019)]
[Notices]
[Pages 11143-11146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05567]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85356; File No. SR-NASDAQ-2019-014]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 4703 To Make Clarifying Changes
March 19, 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 March 6, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 amend Rule 4703 (Order Attributes) to make
clarifying changes to the Midpoint Trade Now and Trade Now Order
Attributes.
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
[[Page 11144]]
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 proposes to amend Rule 4703 (Order Attributes) to make
clarifying changes to the Midpoint Trade Now and Trade Now Order
Attributes.
Midpoint Trade Now
On November 9, 2018, the Exchanged filed an immediately effective
filing to adopt Midpoint Trade Now,\3\ which has not yet been
implemented.\4\ Midpoint Trade Now will be an Order Attribute \5\ that
allows a resting Order that becomes locked at its non-displayed price
by an incoming Midpoint Peg Post-Only Order \6\ to automatically
execute against crossing or locking interest, including potentially
against the Midpoint Peg Post-Only Order that locked the resting Order,
as a liquidity taker. The new Order Attribute was designed to primarily
address execution with Midpoint Peg Post-Only Order locking interest
and the rule was drafted as such; however, executions may occur
following the Exchange's priority rules \7\ whereby a Midpoint Peg
Post-Only Order may trigger Midpoint Trade Now, yet not receive a full
or partial execution with the resting Order with Midpoint Trade Now.
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\3\ See Securities Exchange Act Release No. 84621 (November 19,
2018), 83 FR 60514 (November 26, 2018) (SR-NASDAQ-2018-090).
\4\ The Exchange plans on implementing Midpoint Trade Now in the
first quarter of 2019. Id.
\5\ The term ``Order'' means an instruction to trade a specified
number of shares in a specified System Security submitted to the
Nasdaq Market Center by a Participant. An ``Order Type'' is a
standardized set of instructions associated with an Order that
define how it will behave with respect to pricing, execution, and/or
posting to the Nasdaq Book when submitted to Nasdaq. An ``Order
Attribute'' is a further set of variable instructions that may be
associated with an Order to further define how it will behave with
respect to pricing, execution, and/or posting to the Nasdaq Book
when submitted to Nasdaq. The available Order Types and Order
Attributes, and the Order Attributes that may be associated with
particular Order Types, are described in Rules 4702 and 4703. One or
more Order Attributes may be assigned to a single Order; provided,
however, that if the use of multiple Order Attributes would provide
contradictory instructions to an Order, the System will reject the
Order or remove non-conforming Order Attributes. See Rule 4701(e).
\6\ A Midpoint Peg Post-Only Order is an Order Type with a Non-
Display Order Attribute that is priced at the midpoint between the
NBBO and that will execute upon entry only in circumstances where
economically beneficial to the party entering the Order. The
Midpoint Peg Post-Only Order is available during Market Hours only.
See Rule 4702(b)(5).
\7\ The Exchange follows a Price/Display/Time Execution
Algorithm, whereby better priced Orders are presented for execution
first, equally priced Orders with a Display Attribute will be ranked
in time priority, and Orders with a Non-Display Attribute, including
the Non-Displayed portion of an Order with Reserve Size, are ranked
in time priority. See Rule 4757.
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In certain scenarios, the System \8\ will allow the resting Order
with Midpoint Trade Now to resolve both the locked condition against
the Midpoint Peg Post-Only Order triggering Midpoint Trade Now, as well
as other locking or crossing Orders that have execution priority over
the Midpoint Peg Post-Only Order.\9\ For example, assuming that the
National Best Bid and Offer (``NBBO'') is $10.00 x $10.01, Order #1 to
buy 300 shares at the midpoint with Midpoint Trade Now posts at $10.005
and Order #2 is a Post-Only Order to sell 200 shares with a limit
$10.00 that posts to the Nasdaq Book at $10.00 and is displayed at
$10.01, if Order #3 is a Midpoint Peg Post-Only Order to sell 200
shares posts to the Nasdaq Book at $10.005, Midpoint Trade Now would be
triggered. Under the Midpoint Trade Now, Order #3 would not be the
first Order that resting Order #1 would execute against. Instead, Order
#1 would execute 200 shares against Order #2 at $10.00, and then
execute 100 shares against Order #3. In another example, assuming that
the NBBO is $10.00 x $10.02, Order #1 to buy 200 shares at the midpoint
with Midpoint Trade Now posts at $10.01, and Order #2 is a Non-
Displayed Order to sell 500 shares with a Minimum Quantity Order
Attribute of 300 shares that posts at $10.01. Both resting Orders will
not execute because the size of Order #1 does not satisfy the Minimum
Quantity requirement of Order #2. If Order #3 arrives as an Order to
buy 400 shares, it would execute against Order #2 leaving 100 shares of
Order #2.\10\ If Order #4 then arrives as a Midpoint Peg Post-Only
Order to sell 300 shares, it would trigger Midpoint Trade Now for Order
#1 and Order #1 would first execute against the remaining 100 shares of
Order #2, and then execute 100 shares against Order #4.
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\8\ The term ``Nasdaq Market Center,'' or ``System'' means the
automated system for order execution and trade reporting owned and
operated by The Nasdaq Stock Market LLC. See Rule 4701(a).
\9\ Thus, the System treats the Order similar to any new
incoming Orders by executing against resting Orders in Price/
Display/Time priority.
\10\ The minimum quantity value of Order #2 is reduced to equal
the number of shares remaining following its partial execution
against Order #3, since its size has become less than the minimum
quantity originally specified. See Rule 4703(m).
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There is also the possibility that the Midpoint Peg Post-Only Order
will not receive an execution at all, notwithstanding that it initiated
the Midpoint Trade Now functionality. Using the first example above, if
Order #2 was entered, as a Post-Only Order to sell for 300 shares,
under the Midpoint Trade Now, Order #1 would execute in full against
Order #2 at $10.00. Thus, although the Midpoint Peg Post-Only Order
triggered Midpoint Trade Now, it would not receive an execution with
the Midpoint Trade Now Order.
As noted above, the rule text adopted by the Exchange does not
account for executions against locking or crossing interest other than
Midpoint Peg Post-Only Orders when Midpoint Trade Now is triggered.
Specifically, the rule states that the resting Order that becomes
locked at its non-displayed price by an incoming Midpoint Peg Post-Only
Order would execute against ``that Midpoint Peg Post-Only Order.''
Thus, the rule as currently drafted does not address the executions
described above. To account for how the functionality will operate, the
Exchange is proposing to eliminate the text ``that Midpoint Peg Post-
Only Order'' from Rule 4703(n) and to replace it with ``a locking or
crossing Order(s),'' which will expressly allow the executions
described above to occur.
Trade Now
The Exchange is also proposing a related clarifying change to the
Trade Now Order Attribute.\11\ Trade Now allows a resting Order that
becomes locked by an incoming Displayed Order to execute against the
available size of the contra-side locking Order as a liquidity taker,
and any remaining shares of the resting Order will remain posted on the
Nasdaq Book with the same priority. Like an Order with Midpoint Trade
Now, an Order with Trade Now may execute against both locking and
crossing Orders; \12\ however, the current rule does not account for
crossing Orders. Consequently, the Exchange is proposing to amend Rule
4703(m) to note that a Trade Now execution may also occur against an
Order that crosses a resting Order with Trade Now.\13\ For example,
assuming
[[Page 11145]]
that the NBBO is $10.00 x $10.02, Order #1 is a Non-Displayed Order to
buy 500 shares with a Minimum Quantity Order Attribute of 300 shares
posts at $10.01, and Order #2 is a Non-Displayed Order to sell 200
shares that posts at $10.00. Both resting Orders will not execute
because the size of Order #2 does not satisfy the Minimum Quantity
requirement of Order #1. Order #3 arrives as a Post-Only Order to sell
300 shares at $10.01 and it posts at $10.01. A Trade Now instruction
for Order #1 would result in Order #1 executing 200 shares of Order #2
first, and then execute 300 shares against Order #3.
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\11\ Id.
\12\ See Supra note 9.
\13\ The Exchange is adding rule text that clarifies that an
Order with Trade Now may execute against locking or crossing
interest to both the introductory paragraph of the rule as well as
under the second bullet thereunder, which describes how Trade Now
functions under the OUCH and FLITE protocols. The Exchange is not
adding rule text to the first bullet thereunder, which describes how
Trade Now functions under the RASH and FIX protocols, because the
existing text describes what automatically triggers the
functionality (i.e., a locked Order) and does not address the nature
of the interest that may be executed against (i.e., locking and
crossing interest), as described by this proposal.
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Another example involves a security priced below $1. Assuming that
the NBBO is $0.9970 x $1.00, Order #1 is a Non-Displayed Order with
Trade Now to sell 500 shares at $0.9970 resting on the Nasdaq Book.
Order #2 is subsequently entered as a Post Only Order to buy 400 shares
at $0.9999, which posts to the book, crossing Order #1. If Order #3 is
thereafter entered as a Post Only Order to buy 500 shares at $0.9970
thereby locking Order #1, Order #3 would trigger Trade Now for Order #1
resulting in an execution between Order #1 and Order #2 for 400 shares,
and an execution between Order #1 and Order #3 for 100 shares.
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 clarifying the operation of new functionality, which is
effective but not yet implemented. The proposed change will allow the
Midpoint Trade Now functionality to operate consistent with the
Exchange's priority rules. Similarly, the proposed change to the Trade
Now rule will clarify that a resting Order with Trade Now may execute
against locking or crossing resting Orders. These clarifying changes
will ensure that the Trade Now and Midpoint Trade Now rules are
consistent with the rules governing priority of Orders on the Exchange
and more fully describe their operation, respectively. Accordingly, the
Exchange believes that the proposed changes are consistent with the
Section 6(b)(5) of the Act.
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\14\ 15 U.S.C. 78f(b).
\15\ 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. The proposed changes do not
impose any burden on competition because they clarify the operation of
rules so that they are consistent with the Exchange's rules concerning
priority. Thus, the changes are done for non-competitive reasons and
may promote competition to the extent that they better explain the
operation of the two Order Attributes, allowing competitor exchanges
and other market venues to make an informed decision on whether such
functionality is warranted on those venues.
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 \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and 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.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \18\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ 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 proposed changes may be made at the earliest time possible, thereby
minimizing any market participant confusion that may be caused by the
current rules.\20\ The Exchange further states that the proposal would
make its rules for Trade Now and Midpoint Trade Now consistent with its
rules governing priority. For these reasons, the Commission believes
that waiver of 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
proposal as operative upon filing.\21\
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\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii).
\20\ The Exchange states that Trade Now is currently available
and Midpoint Trade Now will be implemented soon.
\21\ For purposes only of waiving the 30-day operative delay,
the Commission also 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-NASDAQ-2019-014 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-2019-014. 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
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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 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-2019-014 and should be submitted on or before April 15, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05567 Filed 3-22-19; 8:45 am]
BILLING CODE 8011-01-P