[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Notices]
[Pages 80842-80848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27397]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90607; File No. SR-BX-2020-034]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rules 
4613, 4702, and 4703

December 8, 2020.
    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 November 25, 2020, Nasdaq BX, Inc. (``BX'' 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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[[Page 80843]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rules 4613, 4702, and 4703 in light 
of planned changes to the System, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, 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
    Presently, the Exchange is making functional enhancements and 
improvements to specific Order Types \3\ and Order Attributes \4\ that 
are currently only available via the RASH Order entry protocol.\5\ 
Specifically, the Exchange will be upgrading the logic and 
implementation of these Order Types and Order Attributes so that the 
features are more streamlined across the Exchange's Systems and order 
entry protocols, and will enable the Exchange to process these Orders 
more quickly and efficiently. Additionally, this System upgrade will 
pave the way for the Exchange to enhance the OUCH Order entry protocol 
\6\ so that Participants may enter such Order Types and Order 
Attributes via OUCH, in addition to the RASH Order entry protocols.\7\ 
The Exchange plans to implement its enhancement of the OUCH protocol 
sequentially, by Order Type and Order Attribute.
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    \3\ 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 Exchange Book when 
submitted to the Exchange. See Rule 4701(e).
    \4\ 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 Exchange Book when submitted to the Exchange. See id.
    \5\ The RASH (Routing and Special Handling) Order entry protocol 
is a proprietary protocol that allows members to enter Orders, 
cancel existing Orders and receive executions. RASH allows 
participants to use advanced functionality, including discretion, 
random reserve, pegging and routing. See http://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf.
    \6\ The OUCH Order entry protocol is a proprietary protocol that 
allows subscribers to quickly enter orders into the System and 
receive executions. OUCH accepts limit Orders from members, and if 
there are matching Orders, they will execute. Non-matching Orders 
are added to the Limit Order Book, a database of available limit 
Orders, where they are matched in price-time priority. OUCH only 
provides a method for members to send Orders and receive status 
updates on those Orders. See https://www.nasdaqtrader.com/Trader.aspx?id=OUCH.
    \7\ The Exchange designed the OUCH protocol to enable members to 
enter Orders quickly into the System. As such, the Exchange 
developed OUCH with simplicity in mind, and it therefore lacks more 
complex order handling capabilities. By contrast, the Exchange 
specifically designed RASH to support advanced functionality, 
including discretion, random reserve, pegging and routing. Once the 
System upgrades occur, then the Exchange intends to propose further 
changes to its Rules to permit participants to utilize OUCH, in 
addition to RASH, to enter order types that require advanced 
functionality.
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    To support and prepare for these upgrades and enhancements, the 
Exchange now proposes to amend its Rules governing Order Types and 
Order Attributes, at Rules 4702 and 4703, respectively. In particular, 
the Exchange proposes to adjust the current functionality of the Market 
Maker Peg Order \8\ and Reserve Size Order Attribute,\9\ as described 
below, so that they align with how the System, once upgraded, will 
handle these Orders going forward. The Exchange also proposes to make 
several associated clarifications and corrections to these Rules, and 
to Rule 4613, as it prepares to enhance its order handling processes.
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    \8\ See Rule 4702(b)(7).
    \9\ See Rule 4703(h).
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    The Exchange notes that the Exchange's affiliate, the Nasdaq Stock 
Market, LLC, recently filed a proposal for immediate effectiveness to 
make changes that are materially identical to those proposed 
herein.\10\
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    \10\ See Securities Exchange Act Release No. 34-90389 (November 
10, 2020), 85 FR 73304 (November 17, 2020) (SR-NASDAQ-2020-71).
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Changes to Market Maker Peg Order
    A Market Maker Peg Order is an Order Type that exists to help a 
Market Maker to meet its obligation to maintain continuous two-sided 
quotations (the ``Two-Sided Obligation''), as set forth in Rule 
4613(a)(2).\11\ The Exchange proposes to make four changes related to 
the Market Maker Peg Order.
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    \11\ See Rule 4613(a)(2).
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    First, the Exchange proposes to amend Rule 4702(b)(7) to correct 
the conditions under which a Market Maker Peg Order will be sent back 
to a Participant. Rule 4702(b)(7) currently states that a Market Maker 
Peg Order will be sent back to the Participant if: (1) Upon entry of 
the Order, the limit price of the Order is not within the Designated 
Percentage;\12\ or (2) after the Order has been posted to the Exchange 
Book, the Reference Price \13\ shifts to reach the Defined Limit,\14\ 
such that the Order is subject to re-pricing at the Designated 
Percentage away from the shifted Reference Price, but the limit price 
of the Order would then fall

[[Page 80844]]

outside of the Defined Limit (which would now be measured by the 
difference between the re-priced Order and the shifted Reference 
Price).\15\
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    \12\ See Rule 4702(b)(7). The ``Designated Percentage'' is 8% 
for securities subject to Rule 4120(a)(11) and are securities 
included in the S&P 500[supreg] Index, Russell 1000[supreg] Index, 
and a pilot list of Exchange Traded Products, 28% for securities 
subject to Rule 4120(a)(11) and that are all NMS stocks not included 
in the S&P 500[supreg] Index, Russell 1000[supreg] Index, and a 
pilot list of Exchange Traded Products with a price equal to or 
greater than $1, and 30% for securities subject to Rule 4120(a)(11) 
and that are all NMS stocks not included in the S&P 500[supreg] 
Index, Russell 1000[supreg] Index, and a pilot list of Exchange 
Traded Products with a price less than $1, except that between 9:30 
a.m. and 9:45 a.m. and between 3:35 p.m. and the close of trading, 
when Rule 4120(a)(11) is not in effect, the Designated Percentage 
shall be 20% for securities included in the S&P 500[supreg] Index, 
Russell 1000[supreg] Index, and a pilot list of Exchange Traded 
Products, 28% for all NMS stocks not included in the S&P 500[supreg] 
Index, Russell 1000[supreg] Index, and a pilot list of Exchange 
Traded Products with a price equal to or greater than $1, and 30% 
for securities subject to Rule 4120(a)(11) and that are all NMS 
stocks not included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products 
with a price less than $1. See Rule 4613(a)(2)(D). As discussed 
below, the Exchange proposes to amend this definition.
    \13\ The ``Reference Price'' for a Market Maker Peg Order to buy 
(sell) is the then-current National Best Bid (National Best Offer) 
(including the Exchange), or if no such National Best Bid or 
National Best Offer, the most recent reported last-sale eligible 
trade from the responsible single plan processor for that day, or if 
none, the previous closing price of the security as adjusted to 
reflect any corporate actions (e.g., dividends or stock splits) in 
the security. See Rule 4702(b)(7).
    \14\ The term ``Defined Limit'' means 9.5% for securities 
subject to Rule 4120(a)(11) and are securities included in the S&P 
500[supreg] Index, Russell 1000[supreg] Index, and a pilot list of 
Exchange Traded Products, 29.5% for securities subject to Rule 
4120(a)(11) and that are all NMS stocks not included in the S&P 
500[supreg] Index, Russell 1000[supreg] Index, and a pilot list of 
Exchange Traded Products with a price equal to or greater than $1, 
and 31.5% for securities subject to Rule 4120(a)(11) and that are 
all NMS stocks not included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products 
with a price less than $1, except that between 9:30 a.m. and 9:45 
a.m. and between 3:35 p.m. and the close of trading, when Rule 
4120(a)(11) is not in effect, the Defined Limit shall be 21.5% for 
securities included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products, 
29.5% for all NMS stocks not included in the S&P 500[supreg] Index, 
Russell 1000[supreg] Index, and a pilot list of Exchange Traded 
Products with a price equal to or greater than $1, and 31.5% for 
securities subject to Rule 4120(a)(11) and that are all NMS stocks 
not included in the S&P 500[supreg] Index, Russell 1000[supreg] 
Index, and a pilot list of Exchange Traded Products with a price 
less than $1. See Rule 4613(a)(2)(E).
    \15\ See Rule 4702(b)(7).
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    The Exchange proposes to correct the second of these two conditions 
because it inadvertently allows for a circumstance in which a Market 
Maker Peg Order will be automatically re-priced by the System to a 
limit price that is outside of the Designated Percentage but inside of 
the Defined Limit. Such an outcome is inconsistent with a Market 
Maker's obligations to price or reprice its bid (offer) quotations not 
more than the Designated Percentage away from the then National Best 
Bid (Offer), as set forth in Rule 4613(a)(2).\16\ In order for Rule 
4702(b)(7) to be consistent with Rule 4613(a)(2), Rule 4702(b)(7) 
cannot permit the System to re-price a Market Maker Peg Order to a 
limit price that is outside of the Designated Percentage. In any 
circumstance in which the Order would be re-priced to a limit that is 
outside of the Designated Percentage, the Rule must require the System 
to return the Order to the Participant. The Exchange proposes to amend 
Rule 4702(b)(7) accordingly.\17\
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    \16\ Rule 4613(a)(2) states that for a Market Maker to satisfy 
its Two-Sided Obligation, the Market Maker must price bid (offer) 
interest not more than the Designated Percentage away from the then 
current National Best Bid (Offer) (or if there is no National Best 
Bid (Offer), not more than the Designated Percentage away from the 
last reported sale from the responsible single plan processor). 
Moreover, Rule 4613(a)(2) states that if the National Best Bid 
(Offer) or reported sale increases (decreases) to a level that would 
cause the bid (offer) interest of the Two-Sided Obligation to be 
more than the Defined Limit away from the National Best Bid (offer) 
or last reported sale, or if the bid (offer) is executed or 
cancelled, then the Market Maker must enter new bid (offer) interest 
at a price not more than the Designated Percentage away from the 
then current National Best Bid (Offer) or last reported sale.
    \17\ The Exchange also proposes to amend this condition to state 
that repricing will occur when the difference between the displayed 
price of a Market Maker Peg Order and the Reference Price exceeds, 
rather than merely reaches, the Defined Limit. Currently, the Rule 
uses the term ``reaches,'' but this is inconsistent with the example 
that follows it (``In the foregoing example, if the Defined Limit is 
9.5% and the National Best Bid increases to $10.17, such that the 
displayed price of the Market Maker Peg Order would be more than 
9.5% away, the Order will be repriced to $9.36, or 8% away from the 
National Best Bid.'') (emphasis added). The Exchange proposes to 
reconcile this inconsistency in a manner that reflects the stated 
example as well as the manner in which the Exchange's System 
presently applies the Rule. It would also render the Rule consistent 
with Market Maker obligations under Rule 4613.
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    Second, the Exchange proposes to amend Rule 4702(b)(7) to no longer 
allow entry of a Market Maker Peg Order entered with an offset. The 
Rule presently permits a Market Maker to enter a Market Maker Peg Order 
with a more aggressive offset than the Designated Percentage, but not a 
less aggressive offset. The Exchange has reviewed usage of offsets with 
Market Maker Peg Orders and found that no Market Maker assigned an 
offset to their Market Maker Peg Orders since January 2019. The 
Exchange does not believe that there is value in keeping offsets as an 
option for Market Maker Peg Orders. Accordingly, the Exchange proposes 
to delete text from Rule 4702(b)(7)(A) that discusses offsets and 
replace it with text stating that Market Maker Peg Orders entered with 
pegging offsets will not be accepted. The Exchange also makes 
conforming changes to Rule 4702(b)(7) where the text refers to offsets.
    Third, the Exchange proposes to delete ``Trade Now'' \18\ from the 
list of Order Attributes that may be associated with Market Maker Peg 
Orders under Rule 4702(b)(7). As noted above, Market Maker Peg Orders 
allow Market Makers to maintain continuous two-sided quotations at 
displayed prices that are compliant with the Market Makers' obligations 
under Rule 4613. By their nature, Market Maker Peg Orders are always 
Displayed Orders, while Orders with Trade Now are Non-Displayed 
Orders.\19\ Consequently, there are no circumstances in which a Market 
Maker Peg Order could have Trade Now associated with it; the Exchange 
proposes to delete text from Rule 4702(b)(7)(B) that incorrectly 
suggests otherwise. For the same reason, the Exchange also proposes to 
delete Trade Now from the list of Order Attributes that may be 
associated with Price to Display Orders;\20\ again, Price to Display 
Orders are Displayed Orders, whereas Trade Now is applicable to Non-
Displayed Orders.\21\
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    \18\ ``Trade Now'' is an Order Attribute that 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 BX Book with the same priority. See Rule 
4703(l).
    \19\ ``Display'' is an Order Attribute that allows the price and 
size of an Order to be displayed to market participants via market 
data feeds. All Orders that are Attributable are also displayed, but 
an Order may be displayed without being Attributable. As discussed 
in Rule 4702, a Non-Displayed Order is a specific Order Type, but 
other Order Types may also be non-displayed if they are not assigned 
a Display Order Attribute; however, depending on context, all Orders 
that are not displayed may be referred to as ``Non-Displayed 
Orders.'' An Order with a Display Order Attribute may be referred to 
as a ``Displayed Order.'' See Rule 4703(k).
    \20\ ``Price to Display'' is an Order Type designed to comply 
with Rule 610(d) under Regulation NMS by avoiding the display of 
quotations that lock or cross any Protected Quotation in a System 
Security during Market Hours. See Rule 4702(b)(2).
    \21\ The Exchange also proposes to amend its discussion of Price 
to Display Orders, in Rule 4702(b)(2), to correct an erroneous 
reference to a ``Price to Comply Order'' that should read ``Price to 
Display Order.''
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    Fourth, the Exchange proposes to amend Rule 4702(b)(7) to account 
for a scenario where, after entry of a Market Maker Peg Order whose 
initial displayed price was set with reference to the National Best Bid 
or Offer, the National Best Bid or Offer shifts such that the displayed 
price of the Order to buy (sell) is equal to or greater (less) than the 
National Best Bid (Offer). The Exchange proposes to state that the 
Exchange will not reprice the Market Maker Peg Order in this scenario 
until a new Reference Price is established that is more aggressive than 
the displayed price of the Order. By specifying that the Exchange will 
not reprice Market Maker Peg Orders in this scenario until a new, more 
aggressive Reference Price is established, the Exchange will ensure 
that it does not engage in a potential cycle of pegging against a 
Reference Price established by the Order itself.
Change to Rule 4613
    Next, the Exchange proposes to clarify the definitions of 
``Designated Percentage'' in Rule 4613(a)(2)(D) and ``Defined Limit'' 
in Rule 4613(a)(2)(E), which presently are as follows:

    (D) For purposes of this Rule, the ``Designated Percentage'' 
shall be 8% for securities subject to Rule 4120(a)(11) and are 
securities included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products, 
28% for securities subject to Rule 4120(a)(11) and that are all NMS 
stocks not included in the S&P 500[supreg] Index, Russell 
1000[supreg] Index, and a pilot list of Exchange Traded Products 
with a price equal to or greater than $1, and 30% for securities 
subject to Rule 4120(a)(11) and that are all NMS stocks not included 
in the S&P 500[supreg] Index, Russell 1000[supreg] Index, and a 
pilot list of Exchange Traded Products with a price less than $1, 
except that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. 
and the close of trading, when Rule 4120(a)(11) is not in effect, 
the Designated Percentage shall be 20% for securities included in 
the S&P 500[supreg] Index, Russell 1000[supreg] Index, and a pilot 
list of Exchange Traded Products, 28% for all NMS stocks not 
included in the S&P 500[supreg] Index, Russell 1000[supreg] Index, 
and a pilot list of Exchange Traded Products with a price equal to 
or greater than $1, and 30% for securities subject to Rule 
4120(a)(11) and that are all NMS stocks not included in the S&P 
500[supreg] Index, Russell 1000[supreg] Index, and a pilot list of 
Exchange Traded Products with a price less than $1.
    (E) For purposes of this Rule, the ``Defined Limit'' shall be 
9.5% for securities subject to Rule 4120(a)(11) and are securities 
included in the S&P 500[supreg] Index, Russell 1000[supreg] Index, 
and a pilot list of Exchange Traded Products, 29.5% for securities 
subject to Rule 4120(a)(11) and that are all NMS stocks not included 
in the S&P 500[supreg] Index, Russell

[[Page 80845]]

1000[supreg] Index, and a pilot list of Exchange Traded Products 
with a price equal to or greater than $1, and 31.5% for securities 
subject to Rule 4120(a)(11) and that are all NMS stocks not included 
in the S&P 500[supreg] Index, Russell 1000[supreg] Index, and a 
pilot list of Exchange Traded Products with a price less than $1, 
except that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. 
and the close of trading, when Rule 4120(a)(11) is not in effect, 
the Defined Limit shall be 21.5% for securities included in the S&P 
500[supreg] Index, Russell 1000[supreg] Index, and a pilot list of 
Exchange Traded Products, 29.5% for all NMS stocks not included in 
the S&P 500[supreg] Index, Russell 1000[supreg] Index, and a pilot 
list of Exchange Traded Products with a price equal to or greater 
than $1, and 31.5% for securities subject to Rule 4120(a)(11) and 
that are all NMS stocks not included in the S&P 500[supreg] Index, 
Russell 1000[supreg] Index, and a pilot list of Exchange Traded 
Products with a price less than $1.

The Exchange is concerned that these two provisions could be 
misinterpreted to suggest that prior to 9:30 a.m., when Rule 
4120(a)(11) is not in effect, the Exchange applies a narrower 
Designated Percentage and Defined Limit than it does between 9:30 and 
9:45 a.m., under the same conditions. In fact, the Exchange applies the 
same wider Designated Percentage and Defined Limit prior to 9:30 a.m. 
as it does between 9:30 and 9:45 a.m. To avoid confusion (and without 
changing existing market maker obligations), the Exchange therefore 
proposes to clarify both of these provisions of Rule 4613(a)(2) to read 
that ``prior to 9:45 a.m.'' and between 3:35 p.m. and the close of 
trading, the Designated Percentage and Defined Limit (including for 
Market Maker Peg Orders) shall be as stated. Furthermore, throughout 
Rule 4613(a)(2)(D), in defining the term ``Designated Percentage,'' the 
Exchange proposes to replace references to securities subject to Rule 
4120(a)(11) with the following: (i) The Designated Percentage shall be 
8% for all Tier 1 NMS Stocks under the LULD Plan,\22\ (ii) 28% for all 
Tier 2 NMS Stocks under the LULD Plan with a price equal to or greater 
than $1, and (iii) 30% for all Tier 2 NMS Stocks under the LULD Plan 
with a price less than $1, except that prior to 9:45 a.m. and between 
3:35 p.m. and the close of trading, the Designated Percentage shall be: 
(i) 20% for Tier 1 NMS Stocks under the LULD Plan; (ii) 28% for all 
Tier 2 NMS Stocks under the LULD Plan with a price equal to or greater 
than $1; and (iii) 30% for all Tier 2 NMS Stocks under the LULD Plan 
with a price less than $1. Similarly, in Rule 4613(a)(2)(E), in 
defining the term ``Defined Limit,'' the Exchange proposes to replace 
references to securities subject to Rule 4120(a)(11)(A), (B), and (C) 
[sic] with the following: (i) 9.5% for all Tier 1 NMS Stocks under the 
LULD Plan; (ii) 29.5% for all Tier 2 NMS Stocks under the LULD Plan 
with a price equal to or greater than $1; and (iii) 31.5% for all Tier 
2 NMS Stocks under the LULD Plan with a price less than $1, except that 
prior to 9:45 a.m. and between 3:35 p.m. and the close of trading, the 
Defined Limit shall be: (i) 21.5% all Tier 1 NMS Stocks under the LULD 
Plan; (ii) 29.5% for all Tier 2 NMS Stocks under the LULD Plan with a 
price equal to or greater than $1; and (iii) 31.5% for all Tier 2 NMS 
Stocks under the LULD Plan with a price less than $1. The Exchange 
proposes this change because references to Rule 4120(a)(11) are 
obsolete.
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    \22\ Tier 1 NMS Stocks under the LULD Plan comprise all NMS 
Stocks included in the S&P 500[supreg] Index, Russell 1000[supreg] 
Index, and a list of Exchange Traded Products identified as Schedule 
1 to the Plan to Address Extraordinary Market Volatility Submitted 
to the Securities and Exchange Commission Pursuant to Rule 608 of 
Regulation NMS Under the Securities Exchange Act of 1934 (the ``LULD 
Plan'').
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    The Exchange also proposes to add to Rule 4613(a)(2)(D) that the 
Designated Percentage for rights and warrants shall be 30% and to Rule 
4613(a)(2)(E) that the Defined Limit for rights and warrants shall be 
31.5%. The Exchange mistakenly omitted the Designated Percentage and 
Defined Limit for such securities from prior filings.
Changes to Reserve Size
    As set forth in Rule 4703(h), ``Reserve Size'' is an Order 
Attribute that permits a Participant to stipulate that an Order Type 
that is Displayed may have its displayed size replenished from 
additional non-displayed size.\23\ The Exchange proposes three changes 
to the rule text describing the Reserve Size Order Attribute.
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    \23\ An Order with Reserve Size may be referred to as a 
``Reserve Order.''
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    First, the Exchange proposes to amend a paragraph of Rule 4703(h) 
which begins as follows: ``Whenever a Participant enters an Order with 
Reserve Size, the System will process the Order as two Orders: A 
Displayed Order (with the characteristics of its selected Order Type) 
and a Non-Displayed Order. Upon entry, the full size of each such Order 
will be processed for potential execution in accordance with the 
parameters applicable to the Order Type.'' The Exchange proposes to 
amend this language because it does not describe precisely how the 
Exchange processes Orders with Reserve Size. The Exchange proposes to 
state instead that whenever a Participant enters an Order with Reserve 
Size, the full size of the Order will be presented for potential 
execution in compliance with Regulation NMS and that thereafter, 
unexecuted portions of the Order will be processed as two Orders: A 
Displayed Order (with the characteristics of its selected Order Type) 
and a Non-Displayed Order. The Exchange also proposes to delete the 
following sentence: ``Upon entry, the full size of each such Order will 
be processed for potential execution in accordance with the parameters 
applicable to the Order Type.'' The proposed re-formulation reflects 
that it is possible that the Order with Reserve Size will be executed 
immediately in full and without needing to place unexecuted portions of 
the Order in reserve. Furthermore, it clarifies that the System will 
present the Order for immediate execution (provided that it does not 
trade through a protected quotation, in accordance with Regulation NMS) 
without complying with underlying characteristics of the Order Type 
that might otherwise require an adjustment to the price of the Order 
before the System attempts to execute it.\24\ The proposed language is 
consistent with the following example set forth in the existing rule 
text:
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    \24\ This clarification is needed due to the fact that pursuant 
to Rule 4702(b)(2)(A), a Price to Display Order would automatically 
reprice upon entry if its entered limit price would lock or cross a 
protected quotation.

    For example, a Participant might enter a Price to Display Order 
with 200 shares displayed and an additional 3,000 shares non-
displayed. Upon entry, the Order would attempt to execute against 
available liquidity on the Exchange Book, up to 3,200 shares. 
Thereafter, unexecuted portions of the Order would post to the 
Exchange Book as a Displayed Price to Display Order and a Non-
Displayed Order; provided, however, that if the remaining total size 
is less than the display size stipulated by the Participant, the 
Displayed Order will post without Reserve Size. Thus, if 3,050 
shares executed upon entry, the Price to Display Order would post 
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with a size of 150 shares and no Reserve Size.

The proposed language eliminates confusion that might otherwise arise 
from perceived inconsistencies between the above example and existing 
rule text. Again, the existing rule text states that whenever a 
participant enters an Order with Reserve Size, the System will process 
the Reserve Order as two orders upon entry and also, upon entry, the 
full size of an Order with Reserve will be presented for potential 
execution in accordance with the parameters applicable to the Order 
Type.
    When there is, in fact, an unexecuted portion of the Order, then 
the Exchange will continue to process the unexecuted

[[Page 80846]]

portion as two Orders: A Displayed Order and a Non-Displayed Order.
    Second, the Exchange proposes to delete text from Rule 4703(h) 
which states that ``[a] Participant may stipulate that the Displayed 
Order should be replenished to its original size.'' The Exchange 
proposes to delete this text because it is redundant of text elsewhere 
in the Rule that describes how a Displayed Order with Reserve Size 
replenishes.\25\
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    \25\ The Exchange proposes to clarify a portion of Rule 4703(h) 
which states that if an execution against a Displayed Order causes 
its size to decrease below a normal unit of trading, another 
Displayed Order will be entered at the ``level'' stipulated by the 
Participant while the size of the Non-Displayed Order will be 
reduced by the same amount. In describing the entry of the new 
Displayed Order in this instance, the Exchange proposes to replace 
the word ``level'' with ``limit price and size,'' which is a more 
precise phrase.
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    Third, the Exchange proposes to amend text from Rule 4703(h) that 
allows participants to designate that the original and subsequent 
displayed sizes of the Displayed Order are amounts randomly determined 
based upon factors they select (``Random Reserve''). The amendments 
also state that when Participants stipulate use of a Random Reserve, 
they would select a nominal (rather than a ``theoretical'') displayed 
size, which is a more precise term. Furthermore, the amendment adds a 
reminder that the actual displayed size will be randomly determined by 
the System from a range of ``normal trading units.'' Lastly, the 
amendments include other changes that do not change the substantive 
meaning of the text, but simply improve its readability.
    The Exchange intends to implement the foregoing changes during the 
First Quarter of 2021. The Exchange will issue an Equity Trader Alert 
at least 30 days in advance of implementing the changes.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\26\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\27\ 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.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that it is consistent with the Act to amend 
Rule 4702(b)(7), which describes the Market Maker Peg Order Type, to 
correct one of the stated conditions under which a Market Maker Peg 
Order will be sent back to a Participant. As presently stated, this 
condition provides for Market Maker Peg Orders to be repriced 
automatically at limit prices that are within the Defined Limit, but 
outside of the Designated Percentage, which places them in conflict 
with Rule 4613(a)(2), which requires Market Makers to price and re-
price bid and offer interest at the Designated Percentage. It is just 
and in the interests of the investors and the public for the Exchange 
to correct Rule 4702(b)(7) to ensure that Market Maker Peg Orders 
operate in a manner that helps rather than hinders Market Makers from 
complying with Rule 4613.
    It is also consistent with the Act for the Exchange to amend Rule 
4702(b)(7) to clarify that repricing will occur when the difference 
between the displayed price of a Market Maker Peg Order and the 
Reference Price ``exceeds,'' rather than merely ``reaches,'' the 
Defined Limit, as the Rule states presently. The proposed change would 
ensure that the Rule text is internally consistent, as the example set 
forth in the text suggests that the Rule should be read to mean 
exceeds. It would also render the Rule consistent with Market Maker 
obligations under Rule 4613. The Exchange believes that it is in the 
interest of investors and the public to eliminate such inconsistencies.
    Meanwhile, the Exchange believes that it is consistent with the Act 
to eliminate the option for Participants to enter offsets from the 
Market Maker Peg Orders. The proposal is consistent with the Act 
because Market Makers do not actively employ such offsets. As noted 
above, the Exchange has reviewed usage of offsets with Market Maker Peg 
Orders and found that no Market Maker has assigned an offset with their 
Market Maker Peg Orders since January 2019. Moreover, elimination of 
the option to enter offsets would simplify the Exchange's efforts to 
improve processing.
    The Exchange's proposal to eliminate Trade Now as an Order 
Attribute that may be associated with the Market Maker Peg and Price to 
Display Order Types is consistent with the Act because there are no 
instances in which Trade Now actually may be associated with a Market 
Maker Peg Order or a Price to Display Order. Eliminating the reference 
to Trade Now in 4702(b)(2) and (7) will serve to avoid market 
Participant confusion that may otherwise arise from associating an 
incompatible Order Attribute with these Order Types.
    The Exchange believes that it is consistent with the Act to clarify 
Rule 4702(b)(7) so that it specifies how the System will react when, 
after entry of a Market Maker Peg Order whose initial displayed price 
was set with reference to the National Best Bid or Offer, the National 
Best Bid or Offer shifts such that the displayed price of the Order to 
buy (sell) is equal to or greater (less) than the National Best Bid 
(National Best Offer). Specifically, the Exchange believes that it is 
just and in the interests of investors to specify that the Exchange 
will not reprice Market Maker Peg Orders in this scenario until a new, 
more aggressive Reference Price is established, because doing so 
ensures that the Exchange will not engage in a potential cycle of 
pegging against a Reference Price established by the Order itself.
    The Exchange's proposal to amend the definitions of ``Designated 
Percentage'' and ``Defined Limit,'' as set forth in Rule 4613(a)(2)(D) 
and (E), is consistent with the Act because the amendment is necessary 
to correct obsolete cross-references and to avoid confusion about which 
particular percentage or limit will apply to orders prior to 9:30 a.m. 
The proposal clarifies the Rule by stating expressly that the same sets 
of bands that apply between 9:30-9:45 a.m. and between 3:35 p.m. and 
the close of trading also apply prior to 9:30 a.m. The proposal also 
specifies a Designated Percentage and a Defined Limit for rights and 
warrants, which were mistakenly omitted from prior filings.
    It is also consistent with the Act to amend Rule 4703(h) to clarify 
that when a Participant enters an Order with Reserve Size, the full 
size of the Order will first be presented for potential execution in 
compliance with Regulation NMS, and only if there is an unexecuted 
portion of the Order will it be processed as a Displayed Order and a 
Non-Displayed Order. This clarification describes the behavior of the 
System more precisely than the existing Rule language. It also reflects 
the possibility that the Order with Reserve Size will be executed 
immediately in full and without needing to place unexecuted portions of 
the Order in reserve. Furthermore, it eliminates inconsistency between 
rule text which presently suggests that the System will process the 
Order with Reserve Size for potential immediate execution consistent 
with the characteristics of its underlying Order Type, and an example 
in the rule text in which the Exchange provides that the System will 
process the Order for potential immediate execution regardless of the 
parameters applicable to the Order Type. The proposed amendment will 
resolve this inconsistency by making clear that the System will present 
an order for

[[Page 80847]]

potential immediate execution regardless of the characteristics of the 
underlying Order Type, with the caveat that the Order will not trade-
through a protected quotation as required by Regulation NMS.
    It is consistent with the Act to amend Rule 4703(h) to state that 
when participants stipulate use of a Random Reserve, they would select 
a ``nominal''--rather than a ``theoretical'' displayed size. The 
proposed term ``nominal'' is more precise than the existing Rule text. 
Improving the precision of the Exchange's Rules improves the ability of 
the public and investors to comprehend them and account for and comply 
with them. For similar reasons, proposed non-substantive amendments to 
other text in Rule 4703(h) are consistent with the Act because they 
would improve the readability of the Rule.
    Finally, the Exchange believes that various proposed non-
substantive clarifications and corrections to the text of the Rule will 
improve its readability, which is in the interests of market 
participants and investors, and would promote a more orderly market.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that its proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. As a general principle, the 
proposed changes are reflective of the significant competition among 
exchanges and non-exchange venues for order flow. In this regard, 
proposed changes that facilitate enhancements to the Exchange's System 
and order entry protocols as well as those that clarify and correct the 
Exchange's Rules regarding its Order Types and Attributes, are pro-
competitive because they bolster the efficiency, integrity, and overall 
attractiveness of the Exchange in an absolute sense and relative to its 
peers.
    Moreover, none of the proposed changes will burden intra-market 
competition among various Exchange Participants. Proposed changes to 
the Market Maker Peg Order Type, at Rule 4702(b)(7), and to Rule 4613, 
will apply equally to all Market Makers. Market Makers will experience 
no competitive impact from proposals to eliminate their ability to use 
offsets with Market Maker Peg Orders or the Trade Now functionality for 
Market Maker Peg Orders and Price to Display Orders because Market 
Makers do not actually utilize offsets and cannot, by definition, apply 
Trade Now to Market Maker Peg Orders or Price to Display Orders. 
Likewise, Market Makers will feel no competitive effects from proposed 
corrections and clarifications to the manner in which the Exchange 
prices and re-prices their Market Maker Peg Orders, except that the 
changes will benefit Market Makers by ensuring that the Exchange always 
processes those Orders in a manner that complies with their Market 
Maker pricing obligations under Rule 4613. Proposed changes to Rule 
4613 are intended to update obsolete references and to correct 
inadvertent errors and should have no competitive impact on Market 
Makers. Proposed clarifications and amendments to the Reserve Order 
Attribute Rule, at Rule 4703(h), are intended to improve the precision 
and readability of the Rule text and will not have any competitive 
impact on participants.

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 \28\ and Rule 19b-
4(f)(6) thereunder.\29\
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    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 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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    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-BX-2020-034 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-BX-2020-034. 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 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-BX-2020-034 and should be submitted on 
or before January 4, 2021.


[[Page 80848]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27397 Filed 12-11-20; 8:45 am]
BILLING CODE 8011-01-P