[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63558-63560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22661]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96069; File No. SR-NASDAQ-2022-056]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 4, Rule 4757

October 13, 2022.
    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 October 6, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, 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, Rule 4757, as described 
further below. 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

[[Page 63559]]

any comments it received on the proposed rule change. The text of these 
statements may be examined at the places specified in Item IV below. 
The Exchange has prepared summaries, set forth in sections A, B, and C 
below, of the most significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to enhance the anti-
internalization functionality available on the Exchange by giving 
market participants the flexibility to choose to have this protection 
apply to market participants under Common Ownership.\3\ Anti-
internalization, also known as self-match prevention, is an optional 
feature available on the Exchange that (1) prevents two orders with the 
same Market Participant Identifier (MPID) from executing against each 
other, or (2) prevents two orders entered through a specific order 
entry port from executing against each other (in the case of market 
participants using the OUCH order entry protocol). The proposed rule 
change would permit market participants to direct that quotes/orders 
entered into the System not execute against quotes/orders entered 
across MPIDs that are under Common Ownership. The Exchange believes 
that this enhancement will provide helpful flexibility for market 
participants that wish to prevent trading against all quotes and orders 
entered by market participants under Common Ownership, instead of just 
quotes and orders that are entered under the same MPID or under a 
particular order entry port.
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    \3\ The proposed rule change would define ``Common Ownership'' 
under Equity 4, Rule 4757 to mean participants under 75% common 
ownership or control.
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    Currently, under Equity 4, Rule 4757, the Exchange provides 
optional anti-internalization functionality whereby quotes and orders 
entered by market participants using the same MPID are not executed 
against quotes and orders by market participants using the same MPID. 
In addition, under Equity 4, Rule 4757, market participants using the 
OUCH order entry protocol may assign to orders entered through a 
specific order entry port a unique group identification modifier that 
will prevent quotes/orders with such modifier from executing against 
each other.\4\ Self-match prevention functionality assists participants 
in reducing trading costs from unwanted executions potentially 
resulting from the interaction of executable buy and sell trading 
interest from the same firm.
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    \4\ The group identification modifier allows firms to apply 
self-match prevention on a more granular level (i.e., per a specific 
order entry port).
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    The Exchange currently provides three versions of self-match 
prevention functionality to allow participants to choose how orders are 
handled in the event of a self-match situation: (1) decrement, (2) 
cancel oldest, and (3) cancel newest. Under the first version 
(``decrement''), if the self-match orders have the same share size, 
both orders will cancel back to the customer. If the orders are not 
equivalent in size, the smaller order will cancel back to the 
originating customer and the larger order will decrement by the size of 
the smaller order. The remaining shares of the larger order will remain 
on the book. Under the second version (``cancel oldest''), the full 
size of the order residing on the book will cancel back to the customer 
if the incoming order would execute against it. The incoming order will 
remain intact with no changes. Under the third version (``cancel 
newest''), the full size of the order coming into the book will cancel 
back to the customer. The resting order will remain intact with no 
changes. Currently, firms may opt-in to any version of the self-match 
prevention functionality on a per MPID basis or per port basis.
    Today, the anti-internalization protection prevents market 
participants from trading against their own quotes and orders at the 
MPID or port level. The proposed enhancement to this functionality 
would allow participants to choose to have this protection applied at 
the MPID or port level as implemented today, or across MPIDs under 
Common Ownership. If participants choose to have this protection 
applied across MPIDs under Common Ownership, the anti-internalization 
functionality would prohibit quotes and orders from different MPIDs 
associated with the same Organization ID (``OrgId'') \5\ from trading 
against one another. Under the proposed rule change, the anti-
internalization functionality would continue to be an optional feature. 
If a firm chooses to take advantage of self-match prevention, the firm 
would need to opt-in to the self-match prevention functionality, as is 
the case today. If participants opt-in to the self-match prevention 
functionality, under the proposed rule change, participants would have 
the option to choose whether to apply the protection at the OrgId, 
MPID, or port level. In addition, participants may opt-in to any 
version of the self-match prevention strategy that exists today (i.e., 
decrement, cancel oldest, or cancel newest).\6\
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    \5\ The OrgId is a field that indicates Common Ownership across 
multiple MPIDs.
    \6\ If the self-match prevention strategy differs between two 
orders, the strategy of the order removing liquidity applies.
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    The Exchange believes that the proposed anti-internalization 
enhancement would provide participants with more tailored self-trade 
functionality that allows them to manage their trading as appropriate 
based on the participant's business needs. While the Exchange believes 
that some firms will want to restrict self-match prevention to trading 
against interest from the same MPID or same port--i.e., as implemented 
today--the Exchange believes that other firms will find it helpful to 
be able to configure self-match prevention to apply at the OrgId level 
so that they are protected regardless of which MPID the order or quote 
originated from.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is consistent 
with the protection of investors and the public interest as it is 
designed to provide market participants with additional flexibility 
with respect to how to implement self-trade protections provided by 
anti-internalization functionality. Currently, market participants are 
provided optional functionality that (1) prevents quotes and orders 
from one MPID from trading with quotes and orders from the same MPID, 
or (2) prevents quotes and orders entered through a specific order 
entry port from trading with quotes and orders entered though the same 
order entry port (in the case of market participants using the OUCH 
order entry protocol). This functionality allows participants to better 
manage their order flow and prevent undesirable

[[Page 63560]]

executions where the participant, using the same MPID or same port, 
would be on both sides of the trade. While this functionality is 
helpful, the Exchange proposes to expand the protections to provide 
participants with the option not to trade with quotes and orders 
entered by different MPIDs under Common Ownership. The Exchange would 
continue to provide the option to opt out of the self-match prevention. 
In addition, the Exchange would continue to provide the option to use 
the current functionality to prevent self-trades on a per MPID or per 
port basis. The proposed rule change would offer a new option for 
participants opting-in to the self-match prevention to prevent 
undesirable executions across different MPIDs under the same Common 
Ownership. The Exchange believes that flexibility to apply anti-
internalization functionality at the OrgId level would be useful to 
participants. The Exchange believes that the proposed rule change is 
designed to promote just and equitable principles of trade and will 
remove impediments to and perfect the mechanisms of a free and open 
market as it will further enhance self-trade protections provided to 
market participants. This functionality does not relieve or otherwise 
modify the duty of best execution owed to orders received from public 
customers.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is 
designed to enhance self-match prevention functionality provided to the 
Exchange's participants and will benefit participants that wish to 
protect their quotes and orders against trading with other quotes and 
orders within the same OrgId, rather than the more limited MPID or port 
standard applied today. The new functionality is also completely 
voluntary, and members that wish to use the current functionality (or 
opt out altogether) can also continue to do so. The Exchange does not 
believe that providing more flexibility to participants will have any 
significant impact on competition. In fact, the Exchange believes that 
the proposed rule change is evidence of the competitive environment 
where exchanges must continually improve their offerings to maintain 
competitive standing.

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)(iii) of the Act \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 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 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 should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2022-056 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-2022-056. 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-NASDAQ-2022-056 and should be submitted 
on or before November 9, 2022.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22661 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P