[Federal Register Volume 89, Number 59 (Tuesday, March 26, 2024)]
[Notices]
[Pages 21065-21068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06328]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99792; File No. SR-NASDAQ-2024-014]
Self-Regulatory Organizations; The Nasdaq Stock Market, LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Trade Now Order Attribute, at Equity 4, Rules 4702 and 4703
March 20, 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 March 18, 2024, 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 the Trade Now Order Attribute, at
Equity 4, Rule 4703,\3\ as well as to make conforming changes to Rule
4702, as described further below.
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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 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 Exchange proposes to amend Rule 4703(m), which governs the
Trade Now Order Attribute.\4\ Under the Exchange's rules, as amended by
SR-NASDAQ-2022-051,\5\ Trade Now is an Attribute that allows a resting
Order ``that becomes locked or crossed, as applicable, at its non-
displayed price by the posted price of an incoming Displayed Order or a
Midpoint Peg Post-Only Order to execute against the locking or crossing
Order(s) as a liquidity taker automatically.'' The Exchange proposes to
amend this rule text to state instead that Trade Now allows ``a resting
Order that is locked or crossed, as applicable, at its non-displayed
price by the posted price of
[[Page 21066]]
an incoming Displayed Order or a Midpoint Peg Post-Only Order or
another Order or Orders (where such locking or crossing Order(s) or the
order with Trade Now satisfies a Minimum Quantity condition) to execute
as a liquidity taker automatically, when such Orders become
marketable.'' These proposed amendments serve several purposes.
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\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\ See Securities Exchange Act Release No. 34-95768 (September
14, 2022); 87 FR 57534 (September 20, 2022) (SR-Nasdaq-2022-051).
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First, the proposed amended text broadens the scope of the Rule so
that it provides for Trade Now to also activate in circumstances where
Orders possessing the Trade Now Order Attribute cannot execute at the
point of initial interaction due to a Minimum Quantity condition \6\ on
the resting Order. The existing rule text suggests that Trade Now will
activate only where it can do so immediately upon interaction with an
incoming Displayed Order or a Midpoint Peg Post-Only Order, rather than
after waiting for any conditions that preclude immediate execution from
occurring. Under the proposed amendment, Trade Now would activate and
execute against the locking or crossing Orders when the Minimum
Quantity condition that prevented the immediate execution is satisfied,
provided that the other requirements for activation of Trade Now
functionality remain satisfied at that time.\7\
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\6\ Pursuant to Rule 4703(e), ``Minimum Quantity'' is an Order
Attribute that allows a Participant to provide that an Order will
not execute unless a specified minimum quantity of shares can be
obtained. The Rule provides for two types of Minimum Quantity
Attributes: one in which a participant specifies that the condition
may be satisfied by execution against one or more orders with an
aggregate size of at least the minimum quantity; and another in
which the condition must be satisfied by execution against one or
more Orders, each of which must have a size of at least the minimum
quantity. Id. This proposed rule change concerns the first of these
two alternatives.
\7\ The Proposal also replaces the word ``becomes'' with ``is''
in the existing phrase ``resting Order that becomes locked or
crossed, as applicable, at its non-displayed price'' to accommodate
the fact that, with the proposed amendment, Trade Now could activate
after an Order with Trade Now becomes locked if it is not marketable
at that initial point in time.
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This proposed amendment enables Trade Now to better achieve its
underlying purpose--which is to help clear the Exchange Book of locking
or crossing orders. The Exchange perceives no logical basis to preclude
activation of Trade Now when two (or more) Orders meet the conditions
for activation, but for the fact that one of them has a Minimum
Quantity condition that precluded it from executing (immediately upon
entry and/or against subsequent incoming contra-side orders). Provided
that the conditions for Trade Now to activate remain satisfied as of
the time when the Orders become marketable, the Exchange believes that
it is logical and consistent with the purpose of Trade Now for these
Orders to execute such locking or crossing orders when the Minimum
Quantity condition can be satisfied because doing so will help clear
the Order Book of locked and crossed orders.
An example of a scenario in which the proposed amendment would
apply is when an Order with Trade Now has a Minimum Quantity condition
that a locking or crossing Order cannot initially satisfy. By way of
illustration, assume that Participant A enters Order 1, which is a
Displayed Order to sell 100 shares of XYZ at $10.00. Participant B then
enters Order 2, which is a Non-Displayed Trade Now order to buy 200
shares of XYZ at $10.00, with a Minimum Quantity requirement of 200
shares. Order 2 will not automatically remove Order 1 due to the
Minimum Quantity requirement. Participant C thereafter enters Order 3,
which is a Non-Displayed Order to sell 100 shares of XYZ at $10.00.
Under the existing Rule, Order 2 would not remove Order 3 using Trade
Now due to the Minimum Quantity requirement of Order 2. Under the
proposed amended Rule text, however, Trade Now would be activated for
Order 2, and it would remove both Orders 1 and 3.
Similarly, the amendment would apply when it is an incoming locking
Order, or a resting locking Order, that has a Minimum Quantity
condition which the Order with Trade Now cannot satisfy immediately. In
this scenario, assume that Participant A enters Order 1, which is a
Non-Displayed Order to sell 300 shares of XYZ at $10.00, with a Minimum
Quantity requirement of 200 shares. Participant B then enters Order 2,
which is a Non-Displayed Order with Trade Now to buy 100 shares of XYZ
at $10.00. Under the existing Rule, Order 2 will lock Order 1 but not
execute due to the Minimum Quantity requirement associated with Order
1. If Participant C thereafter enters Order 3, which is another
Displayed Order to buy 200 shares of XYZ at $10.00, then under the
existing Rule, Order 3 will execute against Order 1 upon receipt, but
Order 2 will not use Trade Now to trade against the remaining shares of
Order 1. Under the proposal, however, once Order 3 is entered, it will
execute against Order 1, satisfying the Minimum Quantity requirement of
Order 1 and reducing the remaining size of Order 1 to 100 shares. At
this point, Order 2 is capable of executing against the reduced size of
Order 1. Order 2 will activate Trade Now, execute against Order 1, and
clear the locked book.
In addition to the above, the proposed amendments to Rule 4703(m),
along with corresponding amendments to Rule 4702(b)(4) and (5), would
discontinue the applicability of Trade Now to Midpoint Peg Post-Only
Orders and Post-Only Orders.\8\ The Exchange proposes to eliminate the
applicability of Trade Now to these two Order Types because Trade Now
is incompatible with the designs of these Order Types. In other words,
Midpoint Peg Post-Only Orders and Post-Only Orders are liquidity-adding
Order Types, whereas Orders with Trade Now are designed to be liquidity
taking Orders. Because of this incompatibility, the Exchange finds that
market participants rarely, as a practical matter, select Trade Now for
their Midpoint Peg Post-Only Orders or their Post Only Orders. Insofar
as Trade Now serves no apparent utility as an Attribute of these Order
Types, the Exchange proposes to eliminate its applicability thereto.\9\
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\8\ The existing rule text of Rule 4703(m) expressly applies
Trade Now to Midpoint Peg Post-Only Orders, and implicitly applies
Trade Now to Post-Only Orders by virtue of Trade Now's applicability
to Displayed Orders (Post-Only Orders are Displayed).
\9\ Another proposed conforming change would amend Rule
4702(b)(15), which governs Midpoint Extended Life Orders Plus
Continuous Book (``M-ELO+CB''), to address the fact that Trade Now
would no longer be available as an Attribute of Midpoint Peg Post
Only Orders, which in turn are one of the Order Types with which M-
ELO+CB may interact. The existing Rule text states that ``Non-
Displayed Midpoint Pegging and Midpoint Peg Post-Only Orders
(collectively, ``Midpoint Orders'') resting on the Exchange's
Continuous Book'' are eligible to execute against M-ELO+CB if, among
other things, ``the Midpoint Order has the Midpoint Trade Now
Attribute enabled.'' The Exchange proposes to amend this language to
delete reference to Midpoint Peg Post Only Orders, such that the
pertinent text will refer instead only to Midpoint Pegging Orders
having such eligibility. Moreover, the Exchange proposes to correct
an erroneous reference to ``Midpoint'' Trade Now, which is a
functionality that the Exchange previously folded into Trade Now in
a prior rule filing. See Securities Exchange Act Release No. 34-
92180 (June 15, 2021), 86 FR 33420 (June 24, 2021) (SR-NASDAQ-2021-
044).
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Lastly, the Exchange proposes to modify existing language in the
Rule which states that only an incoming Displayed Order whose displayed
price locks or crosses a resting Order with Trade Now at its non-
displayed price, or an incoming Midpoint Peg Post-Only Order, will
trigger the Trade Now functionality. The proposed Rule amendment
broadens this text to also provide for another Order (including a
Displayed or a Non-Displayed Order) whose price locks or crosses a
resting Order with Trade Now to trigger Trade Now where the resting
Order with Trade Now has a Minimum Quantity
[[Page 21067]]
condition that the incoming Order (either itself, or in aggregate with
other resting Orders) satisfies. The purpose of this new language is to
account for the fact that a non-Displayed incoming Order, in addition
to a Displayed incoming Order, can lock or cross a resting Order with
Trade Now if it satisfies the Minimum Quantity condition of the resting
Trade Now Order. The proposed amended Rule text also accounts for
scenarios in which the Order with Trade Now does not possess a Minimum
Quantity condition, but instead, the incoming locking/crossing Order or
another resting locking/crossing Order possesses the Minimum Quantity
Attribute, and the Minimum Quantity condition is reduced such that the
Order with Trade Now becomes able to satisfy the condition. The
proposed amendments would provide for Trade Now to activate in these
scenarios as well.
The Exchange will publish an Equity Trader Alert at least seven
days prior to implementing the proposed amendments.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and further the objectives of Section
6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that it is consistent with the
Act to amend the Exchange's Trade Now Rule to allow for Trade Now to
activate, not only immediately upon receipt of a locking or crossing
contra Displayed or Midpoint Peg Post-Only Order, but also at such time
when the Order with Trade Now become marketable, if it was not
marketable initially due to a Minimum Quantity Condition. The Exchange
believes that the proposed behavior is consistent with the underlying
intent of Trade Now, which is to help to clear the Exchange's Order
Book of locking and crossing Orders. The Exchange perceives no logical
basis to preclude activation of Trade Now when two Orders meet the
conditions for activation, but for the fact that one of them is not
marketable, and thus cannot interact with the other one immediately
upon entry. Provided that the conditions for Trade Now to activate
remain satisfied as of the time when the Orders become marketable, the
Exchange believes that these Orders should execute automatically at
that time. Moreover, the Exchange believes that the proposed behavior
is consistent with the expectations of market participants for Trade
Now functionality.
In addition to the above, it is also consistent with the Act to
amend Rule 4703(m), along with Rule 4702(b)(4) and (5), to discontinue
the applicability of Trade Now to Midpoint Peg Post-Only Orders and
Post-Only Orders. As noted above, the Exchange proposes to eliminate
the applicability of Trade Now to these two Order Types because Trade
Now, which classifies an Order as a liquidity taker, is incompatible
with the designs of these Order Types as liquidity maker Orders.
Insofar as Trade Now serves no apparent utility as an Attribute of
these Order Types, it is reasonable and in the interests of the markets
and investors to eliminate its applicability thereto.
Lastly, the Exchange believes it is consistent with the Act to
modify existing language in the Rule which states that only an incoming
Displayed Order whose displayed price locks or crosses a resting Order
with Trade Now at its non-displayed price, or an incoming Midpoint Peg
Post-Only Order, will trigger the Trade Now functionality. As stated
above, the proposed Rule amendment broadens this text to also provide
for another Order (including a Displayed or a Non-Displayed Order)
whose price locks or crosses a resting Order with Trade Now to trigger
Trade Now where the resting Order with Trade Now has a Minimum Quantity
condition that the incoming Order satisfies. This new language would
account for the fact that a non-Displayed incoming Order, in addition
to a Displayed incoming Order, can lock or cross a resting Order with
Trade Now if it satisfies the Minimum Quantity condition. The proposed
amended Rule text also accounts for scenarios in which the Order with
Trade Now does not possess a Minimum Quantity condition, but instead,
the incoming locking/crossing Order or another resting locking/crossing
Order possesses the Minimum Quantity Attribute, and the Minimum
Quantity condition is reduced such that the Order with Trade Now
becomes able to satisfy the condition. The proposed amendments would
provide for Trade Now to activate in these scenarios as well. Again, no
purpose is served by excluding these scenarios from triggering Trade
Now. To the contrary, including them would further the purpose of Trade
Now, which is to aid in the clearing the Exchange's Order Book of
locked and crossing Orders.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Although the proposal will
broaden the applicability of Trade Now, the Exchange neither intends
nor perceives that this rule change will have any significant impact on
competition other than to make the Exchange's Trade Now Attribute more
useful for participants, and thus the Exchange a more attractive venue
in which to trade. Even as amended, Trade Now will remain an optional
functionality that the Exchange offers at no charge, and which may be
used equally by similarly-situated 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)(iii) of the Act \12\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 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.
[[Page 21068]]
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-2024-014 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-2024-014. 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
10:00 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. 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-2024-014, and
should be submitted on or before April 16, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06328 Filed 3-25-24; 8:45 am]
BILLING CODE 8011-01-P