[Federal Register Volume 84, Number 143 (Thursday, July 25, 2019)]
[Notices]
[Page 35918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15773]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86416; File No. SR-NASDAQ-2019-044]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving a Proposed Rule Change To Allow an Odd Lot-Sized Order To Be 
Eligible for the Midpoint Extended Life Order

July 19, 2019.

I. Introduction

    On May 20, 2019, 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 allow an odd lot-sized order to be eligible for 
the Midpoint Extended Life Order (``MELO''). The proposed rule change 
was published for comment in the Federal Register on June 4, 2019.\3\ 
The Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change.
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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. 85954 (May 29, 
2019), 84 FR 25844 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to allow an odd lot-sized order \4\ to be 
eligible for MELO.\5\ MELO is an order type with a non-display order 
attribute that is priced at the midpoint between the National Best Bid 
and National Best Offer (``NBBO'') and that will not be eligible to 
execute until a holding period of one-half second has passed after 
acceptance of the order by the system. Once a MELO becomes eligible to 
execute, the order may only execute against other eligible MELOs.
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    \4\ The terms ``normal unit of trading'' or ``round lot'' mean 
the size generally employed by traders when trading a particular 
security, which is 100 shares in most instances. The term ``odd 
lot'' means a size of less than one normal unit of trading. See 
Nasdaq Rule 4703(b).
    \5\ See Nasdaq Rule 4702(b)(14).
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    Currently, a MELO 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 a round lot will be cancelled by the system.\6\ According to the 
Exchange, the number of high-priced securities has increased over the 
last several years and there is a notably large percentage of odd lot 
trades in relatively high-priced securities.\7\ The Exchange proposes 
to allow odd lot-sized MELOs in order to provide additional trading 
opportunities for the order type, particularly in high-priced 
securities.
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    \6\ See Nasdaq Rule 4702(b)(14)(B).
    \7\ See Notice, supra note 3, at 25845-46. See also id. at 
25845-47, for more specific data provided by the Exchange to support 
its assertions.
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    The Exchange notes that any participants using MELOs that do not 
wish to execute in odd lots may elect to use the minimum quantity order 
attribute with their MELOs to avoid such transactions, as they may 
currently do for other executions on the Nasdaq book.\8\ The Exchange 
further notes that, because use of the minimum quantity order attribute 
is limited to orders of at least one round lot upon entry,\9\ members 
entering odd lot-sized MELOs would not be able to use this order 
attribute to limit their interaction with other odd lot-sized MELOs 
based on size.\10\ Moreover, the Exchange notes that most of the other 
order types under Nasdaq Rule 4702 allow the entry of odd lot-sized 
orders.\11\
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    \8\ See id. at 25847.
    \9\ See Nasdaq Rule 4703(e).
    \10\ See Notice, supra note 3, at 25847.
    \11\ See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\12\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\13\ 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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    \12\ 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).
    \13\ 15 U.S.C. 78f(b)(5).
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    In its original order approving MELO on the Exchange, the 
Commission noted its belief that the MELO order type could create 
additional and more efficient trading opportunities on the Exchange for 
investors with longer investment time horizons, including institutional 
investors, and could provide these investors with an ability to limit 
the information leakage and the market impact that could result from 
their orders.\14\ While MELO use on the Exchange is currently limited 
to orders entered with a size of at least one round lot and any shares 
of a MELO remaining after an execution that are less than a round lot 
are cancelled by the system, the Commission believes the Exchange's 
proposal to allow odd lot-sized orders to be eligible for MELO could 
create additional opportunities for investors to utilize the order type 
consistent with the intended purpose of the order type and could create 
greater opportunities for interactions in MELOs, particularly in high-
priced securities. The Commission also believes that the ability to use 
the minimum quantity order attribute would provide Nasdaq members 
entering round lot-sized MELOs with additional control over the 
execution of their MELOs, including allowing members to avoid trading 
with odd lot-sized MELOs.\15\
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    \14\ See Securities Exchange Act Release No. 82825 (March 7, 
2018), 83 FR 10937, 10938-39 (March 13, 2018) (order approving SR-
NASDAQ-2017-074).
    \15\ As noted above, members who choose to enter odd lot-sized 
MELOs would be unable to use the minimum quantity order attribute 
with such orders because the minimum quantity order attribute is 
limited to orders with a size of at least one round lot upon entry. 
See supra notes 9-10 and accompanying text.
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    Based on the foregoing, the Commission finds that the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-NASDAQ-2019-044) be, and 
hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15773 Filed 7-24-19; 8:45 am]
 BILLING CODE 8011-01-P