[Federal Register Volume 89, Number 9 (Friday, January 12, 2024)]
[Notices]
[Pages 2278-2281]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00504]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99297; File No. SR-NASDAQ-2023-057]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Add the User Specific Routing Option

January 8, 2024.
    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 December 26, 2023, 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 and

[[Page 2279]]

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 Nasdaq Rule 4758(a)(1)(A) regarding 
Nasdaq's routing options to add a user specific routing option that can 
be applied to the RFTY routing strategy, as well as to correct 
typographical errors in Equity 4, Rules 4703 and 4758.
    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 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 amend Equity 4, Rule 
4758(a)(1)(A) to add a user specific routing option, as well as to 
correct several typographical errors in Nasdaq Rules 4703 and 4758.\3\
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    \3\ See Nasdaq Rule 4703 and Rule 4758.
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    Specifically, the Exchange proposes to amend Rule 4758 by adding 
subsection (a)(1)(A)(xvii) to add a new routing option called ``User 
Specific''. The User Specific routing option can be applied to the RFTY 
\4\ routing strategy, where the routing process will be based on the 
RFTY routing strategy, and allows for the User to elect to designate or 
exclude \5\ one or more destinations in the Nasdaq Market Center's (the 
``System'') routing table and elect the sequence in which destinations 
are accessed, including the option to not post to the book. The User 
may also elect the price and peg instructions with which to route on a 
per venue basis. The User may not elect to route the order to locking 
or crossing market centers once an order is on the book.
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    \4\ See Nasdaq Rule 4758(a)(1)(A)(v)b..
    \5\ While the destinations included in the proprietary System 
routing table are not disclosed, a User may elect to exclude a 
destination and the System routing table for the User Specific 
option will be amended, if necessary.
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    The routing destinations are listed on the System's routing 
table.\6\ If the User Specific routing option is applied, the User may 
elect to route to additional destinations and may elect to not route to 
destinations that would otherwise be accessed by the strategy, subject 
to Reg NMS and trade through protections. The User may also elect the 
price and peg instructions with which to route on a per venue basis. 
The User may not elect to route the order to locking or crossing market 
centers once an order is on the book. When electing the User Specific 
routing option, Users will continue to use the RFTY routing strategy, 
but will provide a Nasdaq defined unique custom routing value on an 
order by order basis to denote that the User Specific option has been 
invoked and will be used based on the User's specifications.
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    \6\ See Equity 1, Section 1(a). The Nasdaq Market Center, or 
System, means the automated system for order execution and trade 
reporting owned and operated by The Nasdaq Stock Market LLC.
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    The RFTY strategy is a is a routing option available for an order 
that qualifies as a Designated Retail Order,\7\ under which orders 
check the System for available shares only if so instructed by the 
entering firm and are thereafter routed to destinations on the System 
routing table. If shares remain unexecuted after routing, they are 
posted to the book. Once on the book, should the order subsequently be 
locked or crossed by another market center, the System will not route 
the order to the locking or crossing market center. RTFY is designed to 
allow orders to participate in the opening, reopening and closing 
process of the primary listing market for a security. One example of 
the application of the User Specific routing option is a User electing 
to route to designated destinations with mid-point peg instructions to 
seek price improvement opportunities before cancelling back any 
remaining shares without posting to the book. A User may also elect the 
User Specific routing option to exclude one or more non-NMS 
destinations that the strategy would otherwise route to because they 
already access them using other means.
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    \7\ A ``Designated Retail Order'' is an agency or riskless 
principal order that meets the criteria of FINRA Rule 5320.03 and 
that originates from a natural person and is submitted to Nasdaq by 
a member that designates it pursuant to this rule, provided that no 
change is made to the terms of the order with respect to price or 
side of market and the order does not originate from a trading 
algorithm or any other computerized methodology.
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    Although they are not currently offered on the Exchange, all 
customization options offered by Nasdaq's proposed rule change to add a 
User Specific routing option are not novel and already exist within the 
national market system and are non-controversial. The concept is 
similar to the routing option included in an EDGX Exchange, Inc. 
(``EDGX'') \8\ filing (the ``EDGX Filing'') \9\ that, in turn, was 
based on a BATS routing strategy.\10\ The routing option added by the 
EDGX Filing (since renumbered as EDGX Rule 11.11(g)(10)) is the 
destination specific (``Destination Specific'') routing option.\11\ As 
with Nasdaq's proposed User Specific routing option, the EDGX 
Destination Specific routing option is one in which an order checks the 
System for available shares and then is sent to an away trading center 
or centers specified by the user.\12\
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    \8\ The former EDGX Exchange, Inc. is now known as the Cboe EDGX 
Exchange, Inc.
    \9\ EDGX filed its proposal to amend certain of its rules to 
adopt or align system functionality with what was offered by BATS 
Exchange, Inc. and BATS Y Exchange, Inc. (collectively, ``BATS'') so 
as to provide a consistent technology offering amongst EDGX and its 
affiliates.
    \10\ See e.g., Cboe BZX Exchange, Inc. Rule 11.13(b)(3)(E) 
(formerly, BATS Rule 11.13(a)(3)(E).
    \11\ See Securities Exchange Act Release No. 73468 (Oct. 29, 
2014), 79 FR 65450 (Nov. 4, 2014) (SR-EDGX-2014-18).
    \12\ See EDGX Rule 11.11(g)(10) states that Destination Specific 
is ``a routing option under which an order checks the System for 
available shares and then is sent to an away trading center or 
centers specified by the User.''
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    Nasdaq's proposed User Specific routing option also incorporates 
EDGX's Destination Specified order instruction, set forth in EDGX Rule 
11.6(n)(5),\13\ in that both allow the user to select the destination 
to where the order will be routed. The only differences are that under 
EDGX's Destination Specific order instruction the order is first 
exposed to the EDGX Book before routing, and if the order is not 
executed in full after routing away, it will be processed by EDGX as 
described in EDGX Rule 11.10(a)(4),\14\ unless the user has provided 
instructions that the order reside on the book of the relevant away 
trading center. Also, Nasdaq's proposed User Specific routing option 
permits the User not only to elect to route to additional destinations, 
but also allows a User to elect to not route to destinations that would 
otherwise be

[[Page 2280]]

accessed by the strategy, subject to Reg NMS and trade through 
protections.
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    \13\ See EDGX Rule 11.6(n)(5).
    \14\ See EDGX Rule 11.10(a)(4).
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    Additionally, the Exchange proposes to correct two typographical 
errors in Rule 4703(a), one typographical error in Rule 4703(a)(7), and 
two typographical errors in Rule 4758(a)(1)(A)(v)b., in each instance 
the text mistakenly refers to ``RFTY'' as ``RTFY'' and this amendment 
will rectify these typographical errors.
Implementation Date
    The Exchange will issue an Equities Trader Alert to provide 
notification of the change and intends to implement the proposed change 
in the fourth quarter of 2023.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\15\ in general, and furthers the objectives of section 
6(b)(5) of the Act,\16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule change will satisfy the 
objectives of section 6(b)(5) of the Act, in particular, to perfect the 
mechanism of a free and open market through supporting fair and orderly 
markets that protects investors and the public interest. Specifically, 
the proposed rule change achieves this through providing market 
participants with a voluntary routing option that is applicable to the 
RFTY routing strategy that will provide them with additional control 
over the execution of their orders, as well as support price 
improvement, to the benefit of retail market participants.
    Additionally, the Exchange believes that while the level of 
customization by the User for a routing option does not exist 
explicitly within any single routing choice on the Exchange, or the 
BATS' Destination Specific order type, the options embedded in the User 
Specific routing option are available throughout the national market 
system.
    For example, it is consistent with section 6(b) of the Act,\17\ in 
general, and furthers the objectives of section 6(b)(5) of the Act by 
providing retail market participants with a voluntary routing option 
that is similar in concept to one offered by EDGX that, in turn, was 
based on a BATS routing strategy, that benefits retail market 
participants through increased optionality and helps to support fair 
and orderly markets that protects investors and the public interest.
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    \17\ 15 U.S.C. 78f(b).
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    The Exchange notes that the level of customization by the User goes 
beyond the Destination Specific or other Exchange routing options, but 
the choices that the User may employ, and the outcomes of having 
greater control over the order handling of the orders are not novel. 
Although the optionality may not currently exist explicitly on the 
Exchange, it does exist within the national market system and is non-
controversial and allows for a similar degree of optionality (e.g., 
ability to opt in/opt out of routing an order, electing the price level 
to access) and is already available to broker/dealers and has proven to 
be non-disruptive. The Exchange believes that the proposed rule change 
thus serves 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 because it benefits retail 
market participants through increased optionality and supporting price 
improvement.
    The correction to two typographical errors in Rule 4703(a), one 
typographical error in Rule 4703(a)(7), and two typographical errors in 
Rule 4758(a)(1)(A)(v)b., in each instance the text mistakenly refers to 
``RFTY'' as ``RTFY'', is consistent with section 6(b)(5) of the Act 
because the clarification will reduce potential confusion and removes 
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.
    For the foregoing reasons, the Exchange believes that the proposed 
rule change is consistent with the Act.

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 discussed above, while the 
level of customization by the User for a routing option does not exist 
explicitly within any single routing choice on the Exchange, or the 
BATS' Destination Specific order type, the options embedded in the User 
Specific routing option are available throughout the national market 
system. The proposed functionality is based on existing functionality 
available on competitor exchanges \18\ and the additional allowance for 
customization by the User is non-controversial and consistent with 
section 6(b) of the Act.
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    \18\ See EDGX Rules 11.6(n)(5) and11.11(g)(10) as described 
above that, in turn, was based on a BATS routing option (based on 
Cboe BZX Exchange, Inc. Rule 11.13(b)(3)(E) (formerly, BATS Rule 
11.13(a)(3)(E)).
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    Furthermore, the Exchange provides routing services in a highly 
competitive market in which participants may avail themselves of a wide 
variety of routing options offered by other exchanges, alternative 
trading systems, other broker-dealers, market participants' own 
proprietary routing systems, and service bureaus. In such an 
environment, system enhancements such as the changes proposed in this 
rule filing do not burden competition, because they can succeed in 
attracting order flow to the Exchange only if they offer investors 
higher quality and better value than services offered by others. 
Encouraging competitors to provide higher quality and better value is 
the essence of a well-functioning competitive marketplace.
    For the foregoing reasons, the Exchange does not believe the 
proposed rule change will result in any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the Act.

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 \19\ and Rule 19b-4(f)(6) thereunder.\20\ 
Because the 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, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6)(iii) thereunder.\22\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 2281]]

    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\24\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
it wants to implement the RFTY during the first quarter of 2024 and 
granting the waiver would allow market participants and their customers 
to benefit more immediately from the increased order handling 
flexibility provided by the RFTY routing option. In addition, the 
Exchange stated that the proposed rule change presents no unique or 
novel issues that have not already been addressed by the Commission. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the proposal operative upon filing.\25\
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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) \26\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \26\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2023-057 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-2023-057. 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 (https://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. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2023-057 and should 
be submitted on or before February 2, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00504 Filed 1-11-24; 8:45 am]
BILLING CODE 8011-01-P