[Federal Register Volume 87, Number 181 (Tuesday, September 20, 2022)]
[Notices]
[Pages 57534-57539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20268]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95768; File No. SR-NASDAQ-2022-051]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 4, Rules 4120, 4702 and 4703 in Light of Planned Changes 
to the System

September 14, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 9, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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 Equity 4, Rules 4120, 4702 and 4703 
\3\ in light of planned changes to the System.
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    \3\ References herein to Nasdaq Rules in the 4000 Series shall 
mean Rules in Nasdaq Equity 4.
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    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/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 parts of such 
statements.

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

1. Purpose
    The Exchange is preparing to introduce a new upgraded version of 
the OUCH Order entry protocol \4\ that will enable the Exchange to make 
functional enhancements and improvements to specific Order Types \5\ 
and Order Attributes.\6\ Specifically, enhancements to OUCH will enable 
the Exchange to upgrade the logic and implementation of these Order 
Types and Order Attributes so that the features are more robust, 
streamlined, and harmonized across the Exchange's Systems and Order 
entry protocols. The Exchange developed OUCH with simplicity in mind, 
and therefore, it presently lacks certain complex order handling 
capabilities. By contrast, the Exchange specifically designed its RASH 
Order Entry Protocol \7\ to support advanced functionality, including 
discretion, random reserve, pegging and routing. The introduction of 
OUCH upgrades will enable participants to utilize OUCH, in addition to 
RASH, to enter Order Types that require advanced functionality. Thus, 
the proposal does not seek to introduce new functionality, but rather, 
it offers to OUCH users advanced functionality that already exists for 
RASH users.
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    \4\ 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.
    \5\ 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 Nasdaq. See Equity 1, Section 1(a)(7).
    \6\ 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.
    \7\ 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.
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    The Exchange plans to implement its enhancement of the OUCH 
protocol

[[Page 57535]]

sequentially, by Order Type and Order Attribute.\8\
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    \8\ The Exchange notes that its sister exchange, Nasdaq BX, 
Inc., filed a similar proposed rule changes with the Commission, see 
SR-BX-2022-012 (filed August 12, 2012), and Nasdaq PSX plans to do 
so concurrently with this filing.
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    To support and prepare for the introduction of OUCH upgrades, the 
Exchange proposes to amend Rule 4702 pertaining to Order Types to 
specify that, going forward, OUCH may be used to enter certain Order 
Types together with certain Order Attributes, whereas now, Rule 4702 
specifies that RASH, FIX, and QIX, but not OUCH, may be used to enter 
such combinations of Order Types and Attributes. The Exchange also 
proposes to adjust the current functionality of the Pegging,\9\ 
Reserve,\10\ and Trade Now Order Attributes,\11\ as described below, so 
that they align with how OUCH, once upgraded, will handle these Order 
Attributes going forward.
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    \9\ See Rule 4703(d).
    \10\ See Rule 4703(h).
    \11\ See Rule 4703(m)-(n).
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Changes To Use of Certain Order Types With Certain Order Attributes
    Pursuant to Rule 4702(b), the availability of certain Order 
Attributes for use with certain Order Types presently depends upon the 
particular Order entry protocol a participant uses to enter its Order. 
For Price to Comply and Price to Display Orders entered though OUCH, 
the Reserve Size, Primary Pegging and Market Pegging, and Discretion 
Attributes are not available to participants presently. For Non-
Displayed Orders entered through OUCH, the Primary Pegging, Market 
Pegging, and Discretion Attributes are not available presently. The 
Exchange proposes to amend Rule 4702(b) so that for each of the Order 
Types listed above, participants may utilize the corresponding Order 
Attributes when participants enter their Orders using the upgraded 
version of OUCH.
    Meanwhile, for Non-Displayed Orders with the Midpoint Pegging 
Attribute, the behavior of such Orders presently varies, as set forth 
in Rule 4703(d), based upon whether a participant uses OUCH/FLITE or 
RASH/FIX/QIX to enter them into the System. Going forward, the Exchange 
proposes to amend the Rule to reference the amended version Rule 
4703(d) (discussed below), which will describe variances in behavior 
involving Non-Displayed Orders with Midpoint Pegging which will no 
longer depend strictly upon the Order entry protocol associated with 
the Orders.
Changes to Midpoint Peg Post-Only Orders
    Presently, the behavior of Midpoint Peg Post-Only Orders also 
varies depending upon whether a participant uses OUCH/FLITE or RASH/
FIX/QIX to enter them into the System. Amendments to the Rule are 
needed because upgrades to OUCH will allow for OUCH to perform 
functions that are currently available only using RASH, FIX, or QIX. 
The Exchange proposes to amend Rule 4702(b)(5) so that variances in 
Midpoint Peg Post-Only Order behavior will occur going forward, not 
based upon use of any particular Order entry protocol, but instead 
based upon whether the Midpoint Peg Post-Only Order is ``Fixed,'' i.e., 
the Order is pegged at the midpoint of the NBBO upon entry, and does 
not adjust with subsequent changes to the midpoint of the NBBO, or 
``Managed,'' i.e., the System adjusts the price of the Order after 
entry in accordance with changes to the midpoint of the NBBO.
    Thus, whereas now, Rule 4702(b)(5)(B) prescribes certain behavior 
for Midpoint Peg Post-Only Orders entered through RASH, QIX, or FIX 
where the System will adjust the price after entry in accordance with 
shifts in the midpoint of the NBBO, the Exchange proposes to state that 
such behavior will apply to ``Managed Midpoint Peg Post-Only Orders,'' 
regardless of the Order entry protocol used to enter it. This proposed 
amendment reflects the fact that going forward, OUCH may be used to 
enter Managed Midpoint Peg Post-Only Orders.
    Likewise, whereas now, Rule 4702(b)(5)(B) prescribes different 
behavior for Midpoint Peg Post-Only Orders entered through OUCH or 
FLITE where the System does not adjust the price of the Order after 
entry in accordance with shifts in the midpoint of the NBBO, the 
Exchange proposes to state that such behavior will apply to ``Fixed 
Midpoint Peg Post-Only Orders,'' regardless of the Order entry protocol 
used to enter it. Similarly, the Exchange proposes to amend text 
describing the conditions under which the System will cancel these 
Orders back to participants as applying to Fixed Midpoint Peg Post 
Post-Only Orders, rather than Midpoint Peg Post-Only Orders entered 
through OUCH or FLITE.
Changes to Market Maker Peg Orders
    Rule 4702(b)(7)(A) presently provides that Market Maker Peg Orders 
may be entered through RASH, FIX, or QIX only. The Exchange proposes to 
amend this provision to state that the upgraded version of OUCH may be 
used to enter such Orders going forward.
Changes to Pegging Order Attribute
    In addition to the above, the Exchange proposes to amend Rule 
4703(d), which governs the Pegging Order Attribute, to account for the 
new capabilities of the upgraded version of OUCH.
    As described in Rule 4703(d), Pegging is an Order Attribute that 
allows an Order to have its price automatically set with reference to 
the NBBO. The Exchange offers three types of Pegging: Primary Pegging, 
Market Pegging, and Midpoint Pegging.\12\ The behavior of each of these 
types of Pegged Orders currently varies based upon the particular Order 
entry protocol associated with their use. With the introduction of the 
upgraded version of OUCH, these variances will narrow, as OUCH will be 
capable of handling Pegged Orders similar to how RASH, FIX, and QIX 
handle them. However, variances will not disappear entirely, as the 
upgraded version of OUCH will continue to handle Orders with Midpoint 
Pegging that the System cancels in response to changes to the Midpoint 
(``Fixed Midpoint Orders'') the same way that the current iteration of 
OUCH and FLITE handles them.
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    \12\ See Rule 4703(d) (defining ``Primary Pegging as pegging 
with reference to the inside quotation on the same side of the 
market, ``Market Pegging'' as pegging with reference to the inside 
quotation on the opposite side of the market, and ``Midpoint 
Pegging'' as pegging with reference to the midpoint between the 
inside bid and the inside offer).
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    Indeed, pursuant to the proposed rule filing, the behavior of 
Pegged Orders will no longer vary strictly by the Order entry protocol 
that a participant uses; instead, variance will occur based upon 
whether the Pegged Orders are subject to management during their 
lifetimes, i.e., the Exchange may adjust the prices of those Orders 
during their lifetimes. Managed Pegged Orders (``Peg Managed Orders'') 
will include Primary Pegged and Market Pegged Orders entered using 
OUCH, RASH, FIX, and QIX, as well as Midpoint Pegged Orders, entered 
using the same protocols, which the System may update in response to 
changes to the Midpoint (``Managed Midpoint Orders''). The Exchange 
will handle Managed Midpoint Orders differently from non-managed 
Orders, i.e., Fixed Midpoint Orders, in like circumstances.
    The specific proposed amendments that effectuate the above are as 
follows.
    Existing Rule 4703(d) states that if, at the time of entry, there 
is no price to which a Pegged Order, that has not been assigned a 
Routing Order Attribute, can be pegged, or pegging would lead to a 
price at which the Order cannot be

[[Page 57536]]

posted, then the Order will not be immediately available on the 
Exchange Book and will be entered once there is a permissible price, 
provided, however, that the System will cancel the Pegged Order if no 
permissible pegging price becomes available within one second after 
Order entry.\13\ This existing language applies to Primary, Market, and 
Midpoint Pegging Orders entered through RASH/QIX/FIX, but not Orders 
entered through OUCH/FLITE. The Exchange proposes to amend this 
provision of the Rule so that it applies to ``Peg Managed Orders,'' 
rather than ``Pegged Orders,'' which in practice will mean that the 
behavior it currently describes for Primary Pegged and Market Pegged 
Orders entered through RASH/FIX will also now apply to such Orders 
entered through the upgraded version of OUCH,\14\ as well as to Managed 
Midpoint Orders entered through RASH/FIX/upgraded OUCH. Moreover, the 
proposed amended provision would provide for Managed Midpoint Orders 
that are not assigned a Routing Order Attribute (or a Time in Force of 
IOC) to behave similarly if the Inside Bid and Inside Offer are crossed 
(i.e., the Managed Midpoint Order will not be immediately available on 
the Exchange Book unless and until a permissible price emerges within 
one second of entry (or other such time that the Exchange designates, 
at its discretion)).
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    \13\ The Exchange may, in the exercise of its discretion, modify 
the length of this one second time period by posting advance notice 
of the applicable time period on its website.
    \14\ The Exchange also proposes to clarify that this provision 
applies to a Peg Managed Order that has not been assigned a Routing 
Order Attribute or a Time-in-Force of Immediate-Or-Cancel (``IOC''). 
This additional amendment makes it clear that IOC orders in this 
scenario will cancel immediately if no permissible pegging price is 
available upon Order entry, rather than waiting up to one second 
after Order entry to do so.
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    Existing Rule 4703(d) also states that if a Pegged has been 
assigned a Routing Order Attribute, but there is no permissible price 
to which the Order can be pegged at the time of entry, then the 
Exchange will reject it, except that the Exchange will accept a 
Displayed Order with Market Pegging and a Market or a Primary Pegged 
Order with a Non-Display Attribute at their respective limit prices in 
this circumstance. The Exchange again proposes to amend this provision 
so that it applies to Peg Managed Orders, rather than Pegged Orders. It 
also proposes to apply this provision to Managed Midpoint Orders that 
are assigned a Routing Order Attribute, if the Inside Bid and Inside 
Offer are crossed. Finally, as is explained further below, the Exchange 
proposes to delete the last two sentences of this paragraph, which 
describe the behavior of Orders with Midpoint Pegging, and move them to 
the end of the next paragraph, which also pertains to Orders with 
Midpoint Pegging. The Exchange proposes this organizational change for 
ease of readability.
    As to the next paragraph of Rule 4703(d), the Exchange proposes 
several changes. First, the Exchange proposes to delete the first 
sentence of this paragraph, which lists the Order entry protocols for 
which Primary Pegging and Market Pegging are presently available (RASH, 
QIX, and FIX). This sentence is no longer needed because, as discussed 
above, the Exchange proposes to add a new sentence that specifies that 
all Peg Managed Orders will be available, not only through RASH, QIX, 
and FIX, but also through OUCH, going forward. Second, the Exchange 
proposes to modify the second sentence of the paragraph, which 
presently states that for an Order entered through OUCH or FLITE with 
Midpoint Pegging, the Order will have its price set upon initial entry 
to the Midpoint, unless the Order has a limit price, and that limit 
price is lower than the Midpoint for an Order to buy (higher than the 
Midpoint for an Order to sell), in which case the Order will be ranked 
on the Exchange Book at its limit price. The Exchange proposes to apply 
this language to Midpoint Pegging Orders generally, rather than only 
Midpoint Pegging Orders entered through OUCH or FLITE, as it will apply 
to both Fixed Midpoint Orders and Managed Midpoint Orders. Third, the 
Exchange proposes to add and partially restate the following language 
from the preceding paragraph:

    In the case of an Order with Midpoint Pegging, if the Inside Bid 
and Inside Offer are locked, the Order will be priced at the locking 
price; and for Orders with Midpoint Pegging entered through OUCH or 
FLITE, if the Inside Bid and Inside Offer are crossed or if there is 
no Inside Bid and/or Inside Offer, the Order will not be accepted. 
However, even if the Inside Bid and Inside Offer are locked, an 
Order with Midpoint Pegging that locked an Order on the Nasdaq Book 
would execute (provided, however, that a Midpoint Peg Post-Only 
Order would execute or post as described in Rule 4702(b)(5)(A)).

    Specifically, the Exchange proposes to replace the phrase ``and for 
Orders with Midpoint Pegging entered through OUCH or FLITE'' with ``and 
for Fixed Midpoint Orders,'' because going forward, some Midpoint 
Pegging Orders entered through the upgraded version of OUCH will not 
behave in this manner; only Fixed Midpoint Orders will do so.\15\
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    \15\ The Exchange also proposes to make a stylistic, non-
substantive change to this text by deleting the phrase ``In the case 
of an Order with Midpoint Pegging.'' The Exchange believes this 
phrase is no longer needed due to the fact that the new paragraph to 
which it proposes to move the text clearly applies to Orders with 
Midpoint Pegging.
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    The Exchange proposes to amend the next paragraph, which describes 
how the Exchange handles Orders with Midpoint Pegging entered through 
OUCH or FLITE where the Exchange does not adjust the prices of the 
Orders based on changes to the Inside Bid or Offer that occur after the 
Orders post to the Exchange Book. The Exchange proposes to amend this 
paragraph to state that it applies to Fixed Midpoint Orders (rather 
than Orders with Midpoint Pegging entered through OUCH or FLITE) and to 
state expressly that it applies to such Orders after they post to the 
Exchange Book.
    The subsequent paragraph of Rule 4703(d) describes how the Exchange 
handles Pegged Orders entered through RASH, QIX, or FIX where the 
Exchange does adjust the prices of the Orders based on changes to the 
relevant Inside Quotation that occur after the Orders Post to the 
Exchange Book. Like the preceding paragraph, the Exchange proposes to 
amend this paragraph to state that it applies to Peg Managed Orders 
(rather than Orders entered through RASH, QIX, or FIX with Pegging). 
The Exchange also proposes to amend text in this paragraph which states 
that the Exchange will reject such an Order, if it assigned a Routing 
Order Attribute, and if the price to which it is pegged becomes 
unavailable or pegging would lead to a price at which it cannot be 
posted. The proposed amended language states that the Exchange will 
cancel such an Order back to the participant in these circumstances, 
rather than ``reject'' it; the use of the term ``cancel'' is more 
appropriate than ``reject'' in this provision insofar as the Exchange 
only rejects Orders upon entry, but thereafter, it cancels them. 
Consistent with amendments elsewhere in the proposal, the Exchange also 
proposes to state that Managed Midpoint Orders assigned a Routing Order 
Attribute will cancel back to the participant if the Inside Bid and 
Inside Offer become crossed. The Exchange also proposes to qualify the 
foregoing by noting that an Order with Market Pegging, or an Order with 
Primary Pegging and a Non-Display Attribute, will be re-entered at its 
limit price. Finally, the Exchange proposes to amend the subsequent 
text, which presently reads as follows:


[[Page 57537]]


    ``. . . if the Order is not assigned a Routing Order Attribute, 
the Order will be removed from the Nasdaq Book and will be re-
entered once there is a permissible price, provided however, that 
the System will cancel the Pegged Order if no permissible pegging 
price becomes available within one second after the Order was 
removed and no longer available on the Nasdaq Book (the Exchange 
may, in the exercise of its discretion modify the length of this one 
second time period by posting advance notice of the applicable time 
period on its website).''

    The Exchange proposes to amend this text to specify that it applies 
to a ``Peg Managed Order,'' rather than simply an ``Order.'' 
Additionally in this clause, the Exchange proposes to add, after the 
phrase, ``if [a Peg Managed Order] is not assigned a Routing Order 
Attribute,'' the following text, for clarity: ``and the price to which 
it is pegged becomes unavailable, pegging would lead to a price at 
which the Order cannot be posted, or, in the case of a Managed Midpoint 
Order, if the Inside Bid and Inside Offer become crossed, . . . .'' The 
Exchange believes that these conditions are implicit in the existing 
Rule text and should be made explicit to avoid confusion. Insofar as 
this proposed amended text will now account for Managed Midpoint 
Orders, then the Exchange proposes to delete the following existing 
text, which will otherwise be duplicative:

    ``For an Order with Midpoint Pegging, if the Inside Bid and 
Inside Offer become crossed or if there is no Inside Bid and/or 
Inside Offer, the Order will be removed from the Exchange Book and 
will be re-entered at the new midpoint once there is a valid Inside 
Bid and Inside Offer that is not crossed; provided, however, that 
the System will cancel the Order with Midpoint Pegging if no 
permissible price becomes available within one second after the 
Order was removed and no longer available on the Exchange Book (the 
Exchange may, in the exercise of its discretion modify the length of 
this one second time period by posting advance notice of the 
applicable time period on its website).''

    Finally, the Exchange proposes to restate the paragraph of Rule 
4703(d) that describes Pegging Order collars. In pertinent part, this 
paragraph presently states that ``any portion of a Pegging Order that 
could execute, either on the Exchange or when routed to another market 
center, at a price of more than $0.25 or 5 percent worse than the NBBO 
at the time when the order reaches the System, whichever is greater, 
will be cancelled.'' The Exchange proposes to restate this text to 
account for the fact that under certain conditions, the System will 
cancel Pegging Orders before clearing liquidity inside the collar. For 
non-routable Pegged Orders, the System cancels these Orders prior to 
polling the Exchange Book for liquidity (even inside of the collar) 
when the combination of limit price, pegging, offset, discretionary 
price, discretionary pegging, and discretionary offset attributes would 
result in the Order attempting to post to the book or clear resting 
Orders beyond the collar price (even if such liquidity does not 
exist).\16\ For routable Primary or Market Peg Orders, by contrast, the 
System will clear any liquidity inside of the collar before 
cancelling.\17\ The Exchange proposes to more precisely describe this 
behavior with the following restated text:
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    \16\ For example, if NYSE is quoting $10.00 x $11.00 and a 
Displayed Sell Order of 100 shares is setting the NBO by resting on 
the Book at $10.05, then an incoming Primary Peg Buy order with a 
Limit Price of $10.75 and an Offset Value of $0.56 will be cancelled 
back without executing against the resting order at $10.05. The 
Primary Peg attribute initially sets the price of the Order at 
$10.00, then the offset amends the price to $10.56; the collar price 
is set to $10.05 + ($10.05 x 5%) = $10.5525, which is less than the 
price the incoming Order would attempt to book at.
    \17\ For example, if NYSE is quoting $10.00 x $11.00 and a 
Displayed Sell Order of 100 shares is setting the NBO by resting on 
the Book at $10.05, then an incoming Primary Peg Buy order of 200 
shares with a Limit Price of $10.75, an Offset Value of $0.56, and 
the SCAN routing strategy will execute against the resting order 
before the remainder is cancelled before booking outside the collar 
price.

    Any portion of a Pegging Order with a Routing attribute to buy 
(sell) that could execute, either on the Exchange or when routed to 
another market center, at a price of more than the greater of $0.25 
or 5 percent higher (lower) than the NBO (NBB) at the time when the 
order reaches the System (the ``Collar Price''), will be cancelled. 
An Order entered without a Routing attribute will be cancelled, if 
it would, as a result of the price determined by a Pegging or 
Discretionary Pegging attribute, execute or post to the Exchange 
Book at a price through the Collar Price.
Change to Reserve Attribute
    The Exchange proposes to amend its rules governing the Reserve 
Order Attribute, at Rule 4703(h) to state that when a Reserve Order is 
entered using OUCH with a displayed size of an odd lot, the System will 
reject the Order, whereas if such an order is entered using RASH or 
FIX, then as is the case now under the existing Rule, the System will 
accept the Order but with the full size of the Order Displayed. The 
Exchange believes that this new proposed behavior will benefit 
participants insofar as Reserve Orders entered with odd lot displayed 
sizes are often the product of errors. Rather than expose erroneous 
displayed sizes, OUCH will cancel the Orders and thus provide 
participants with an opportunity to correct their errors, or to 
validate their original choices, by re-entering the Reserve Order.
Change to Trade Now Attribute
    The Exchange proposes to amend its rules governing the Trade Now 
Order Attribute, at Rule 4703(m) to state that when the Trade Now 
Attribute is entered through RASH or FIX, and going forward, also 
through OUCH, the Trade Now Order Attribute may be enabled on an order-
by-order or a port-level basis. In the next sentence in the paragraph, 
the existing text will continue to apply, but as to FLITE only, and not 
to OUCH. Thus, when entered through FLITE (but not OUCH), the Trade Now 
Order Attribute may be enabled on a port-level basis for all Order 
Types that support it, and for the Non-Displayed Order Type, also on an 
order-by-order basis.
    The Exchange intends to implement the foregoing changes during the 
end of the Third Quarter or early in the Fourth Quarter of 2022. 
However, certain new functionality that will involve management of OUCH 
by the System may not be available until the Exchange completes 
upgrades to System, which the Exchange currently expects will occur in 
mid-2023. The Exchange will issue an Equity Trader Alert at least 7 
days in advance of implementing the changes set forth in the proposal. 
The Alert will specify which functionalities will not be available 
initially, pending the System upgrade. The Exchange will issue another 
Equity Trader Alert at least 7 days in advance of implementing the 
remaining changes, once the requisite System upgrade is complete.
Change to Limit Up-Limit Down Mechanism
    The Exchange proposed to amend its rules governing Limit Up-Limit 
Down (``LULD'') functionality, at Rule 4120(a)(13)(E)(2)(a) to state 
that limit priced orders entered via the OUCH protocol, which are not 
assigned a Managed Pegging, Discretionary, or Reserve Attribute, shall 
be repriced upon entry only if the Price Bands are such that the price 
of the limit-priced interest to buy (sell) would be above (below) the 
upper (lower) Price Band. Additionally, the Exchange is proposing to 
amend Rule 4120(a)(13)(E)(2)(b) to state that limit-priced orders 
entered via RASH or FIX protocols, or via the OUCH protocol if assigned 
a Managed Pegging, Discretionary, or Reserve Attribute, the order shall 
be eligible to be repriced by the system multiple times if the Price 
Bands move such that the price of resting limit-priced interest to buy 
(sell) would be above (below) the upper (lower) Price Band.

[[Page 57538]]

    The Exchange intends to implement the foregoing changes on November 
14, 2022.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\19\ 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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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    Generally speaking, it is consistent with the Act to amend the 
Rulebook to reflect upgrades to the Exchange's OUCH Order entry 
protocols. The planned upgrades will enable members to utilize OUCH in 
additional circumstances, including for the entry of: (1) Price to 
Comply and Price to Display Orders with the Reserve Size, Primary and 
Market Pegging, and Discretion Order Attributes; (2) Non-Displayed 
Orders with the Primary and Market Pegging, Midpoint Pegging (in 
scenarios described in amended Rule 4703(d)), and Discretion Order 
Attributes; and (3) Market Maker Peg Orders.
    Similarly, it is consistent with the Act to amend Rule 4702(b)(5), 
which describes the behavior of Midpoint Peg Post-Only Orders, to 
reflect the fact that the planned upgrades to OUCH will enable its use 
for the entry of ``Managed'' Midpoint Peg Post-Only Orders--i.e., those 
for which the System updates price after entry along with movements to 
the midpoint of the NBBO. Presently, members may enter Managed Midpoint 
Peg Post-Only Orders only through RASH, QIX, or FIX. It is also 
consistent with the Act to refer to such Orders as ``Managed'' while 
referring to Midpoint Peg Post-Only Orders, whose prices do not change 
after entry, even if the NBBO midpoint shifts, as ``Fixed'' Midpoint 
Peg Post-Only Orders. This terminology will avoid confusion that would 
otherwise arise from the fact that OUCH may be used, going forward, to 
enter both types of Orders.
    Likewise, the Exchange believes that its proposed amendments to the 
Pegging Order Attribute, at Rule 4703(d), are consistent with the Act. 
The proposed amendments account for the fact that OUCH will become 
capable of use for the entry of Peg Managed Orders, including Managed 
Midpoint Orders, in addition to Fixed Midpoint Orders. The Exchange 
believes that it will be clearer and more coherent to describe the 
behavior of Pegged Orders and Orders with Midpoint Pegging in the Rule 
with regard to whether these Orders are ``Managed'' or ``Fixed,'' 
rather than with regard to the protocol used to enter them, especially 
as OUCH will be available for use in entering both Managed and Fixed 
Pegging Orders going forward. Additionally, proposed amendments to Rule 
4703(d) would reorganize the description of the behavior of various 
types of Pegged Orders so that it flows more logically and is more 
readily comprehensible. Finally, proposed changes would describe the 
behavior of Pegged Orders more comprehensively, by adding language that 
was mistakenly omitted from the Rule.
    Meanwhile, the Exchange's proposal to restate the Rule's 
description of the price collar applicable to Pegged Orders is 
consistent with the Act because it accounts for the fact that under 
certain conditions, the System will cancel Pegging Orders before 
clearing liquidity inside the collar.
    The Exchange's proposal is consistent with the Act to amend its 
Rule governing the Reserve Order Attribute, at Rule 4703(h) to state 
that when a Reserve Order is entered using OUCH with a displayed size 
of an odd lot, the System will reject the Order. The Exchange believes 
that this new proposed behavior will benefit participants insofar as 
Reserve Orders entered with odd lot displayed sizes are often the 
product of errors. Rather than expose erroneous displayed sizes, OUCH 
will cancel the Orders and thus provide participants with an 
opportunity to correct their errors, or to validate their original 
choices, by re-entering the Reserve Order.
    Additionally, the Exchange's proposal to amend its Rule governing 
the Trade Now Order Attribute, at Rule 4703(m), is consistent with the 
Act, because it accounts for the fact that when entered through the 
upgraded version of OUCH, the Trade Now Order Attribute may be enabled 
on an order-by-order or a port-level basis.
    Finally, the Exchange's proposal to amend its Rule governing the 
Limit Up-Limit Down Mechanism, at Rules 4120(a)(12)(E)(2)(a) and 
4120(a)(12)(E)(2)(b) are consistent with the Act because the proposed 
amendments align with OUCH's capability going forward, once upgraded, 
to handle certain Order Types and Order Attributes similar to how RASH 
and FIX handle them. Additionally, as discussed above, variance will 
occur in certain Order Types based upon whether the orders are subject 
to management during their lifetimes.

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. 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 amend and clarify the 
Exchange's Rules regarding its Order Attributes, are pro-competitive 
because they bolster the efficiency, functionality, and overall 
attractiveness of the Exchange in an absolute sense and relative to its 
peers.
    Moreover, none of the proposed changes will unduly burden intra-
market competition among various Exchange participants. Participants 
will experience no competitive impact from its proposals, as these 
proposals will restate and reorganize portions of the Rule to reflect 
the upgraded capabilities of OUCH, as well as to render the 
descriptions of OUCH's new capabilities easier to read and understand.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\ 
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 prior 
to 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)(iii) of the Act \22\ and Rule 19b-4(f)(6) 
thereunder.\23\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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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[[Page 57539]]

    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 under 
Section 19(b)(2)(B) \24\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \24\ 15 U.S.C. 78s(b)(2)(B).
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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-2022-051 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-2022-051. 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 a.m. and 3 
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-2022-051 and should be submitted 
on or before October 11, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20268 Filed 9-19-22; 8:45 am]
BILLING CODE 8011-01-P