Notice2021-13285
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4, Rules 4702 and 4703 in Light of Planned Changes to the System
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 24, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 119 (Thursday, June 24, 2021)</title>
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[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33420-33425]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-13285]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92180; File No. SR-NASDAQ-2021-044]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 4, Rules 4702 and 4703 in Light of Planned Changes to the
System
June 15, 2021.
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 June 4, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 33421]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Equity 4, Rules 4702 and 4703 \3\ in
light of planned changes to the System, 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 <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Presently, the Exchange is making functional enhancements and
improvements to specific Order Types \4\ and Order Attributes \5\ that
are currently only available via the RASH Order entry protocol.\6\
Specifically, the Exchange will be upgrading the logic and
implementation of these Order Types and Order Attributes so that the
features are more streamlined across the Nasdaq Systems and order entry
protocols, and will enable the Exchange to process these Orders more
quickly and efficiently. Additionally, this System upgrade will pave
the way for the Exchange to enhance the OUCH Order entry protocol \7\
so that Participants may enter such Order Types and Order Attributes
via OUCH, in addition to the RASH Order entry protocols.\8\ The
Exchange plans to implement its enhancement of the OUCH protocol
sequentially, by Order Type and Order Attribute.\9\
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\4\ 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 Nasdaq Book when
submitted to Nasdaq. See Equity 1, Section 1(a)(7).
\5\ 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 Nasdaq Book when submitted to Nasdaq. See id.
\6\ 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 <a href="http://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf">http://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf</a>.
\7\ The OUCH Order entry protocol is a Nasdaq 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 <a href="https://www.nasdaqtrader.com/Trader.aspx?id=OUCH">https://www.nasdaqtrader.com/Trader.aspx?id=OUCH</a>.
\8\ The Exchange designed the OUCH protocol to enable members to
enter Orders quickly into the System. As such, the Exchange
developed OUCH with simplicity in mind, and it therefore lacks more
complex order handling capabilities. By contrast, the Exchange
specifically designed RASH to support advanced functionality,
including discretion, random reserve, pegging and routing. Once the
System upgrades occur, then the Exchange intends to propose further
changes to its Rules to permit participants to utilize OUCH, in
addition to RASH, to enter order types that require advanced
functionality.
\9\ The Exchange notes that its sister exchanges, Nasdaq BX and
Nasdaq PSX, plan to file similar proposed rule changes with the
Commission shortly.
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To support and prepare for these upgrades and enhancements, the
Exchange recently submitted two rule filings to the Commission that
amended its rules pertaining to, among other things, Market Maker Peg
Orders and Orders with Reserve Size.\10\ The Exchange now proposes to
further amend its Rules governing Order Attributes, at Rule 4703. In
particular, the Exchange proposes to adjust the current functionality
of the Pegging \11\ and Trade Now and Midpoint Trade Now Order
Attributes,\12\ as described below, so that they align with how the
System, once upgraded, will handle these Order Attributes going
forward. The Exchange also proposes to make several associated
clarifications, corrections, and other changes to Rule 4702 as it
prepares to enhance its order handling processes, including changes to
Market on Open and Limit on Open Orders.
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\10\ See Securities Exchange Act Release No. 34-90389 (November
10, 2020), 85 FR 73304 (November 17, 2020) (SR-NASDAQ-2020-071);
Securities Exchange Act Release No. 34-91109 (February 11, 2021), 86
FR 10141 (February 18, 2021) (SR-NASDAQ-2020-090).
\11\ See Rule 4703(d).
\12\ See Rule 4703(m)-(n).
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Changes to Pegging Order Attribute
First, the Exchange proposes to amend Rule 4703(d), which governs
the Pegging Order Attribute. The Exchange offers three types of
Pegging: Primary Pegging, Market Pegging, and Midpoint Pegging.\13\ The
Rule presently provides that if, at the time of entry, there is no
price to which a Pegged Order can be pegged, the Order will be
rejected, provided, however, that a Displayed Order that has Market
Pegging, or an Order with a Non-Display Attribute that has Primary
Pegging or Market Pegging, will be accepted at its limit price. The
Exchange proposes to replace this text by stating 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 posted, then the Order will not
be immediately available on the Nasdaq Book and will be entered once
there is a permissible price.\14\ The Exchange proposes this change so
as to enhance the manner in which the Exchange presently handles Pegged
Orders in this scenario. Rather than reject such Orders outright, and
require customers to continuously reenter the Orders thereafter until a
pegging price emerges, which may cost them queue priority, the Exchange
believes that it would be more efficient and customer-friendly to
simply hold a Pegged Order until a permissible pegging price
emerges.\15\
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\13\ 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).
\14\ This change is applicable to Primary, Market and Midpoint
Pegging Orders entered via RASH/QIX/FIX; OUCH/FLITE Midpoint Pegging
behavior is not affected by this change. The Exchange also proposes
to amend existing language in this provision which states that ``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.'' The
proposed amendment would specify that this language applies only to
Orders with Midpoint Pegging entered through OUCH or FLITE. The
proposed changes to pegged orders entered through RASH, QIX, or FIX
will allow the Exchange to handle the Order more consistent with the
customer intended instruction, and are necessary to facilitate
forthcoming System enhancements.
\15\ Meanwhile, the Exchange proposes to amend the Rule to state
that if a Pegged Order is assigned a Routing Order Attribute, and a
permissible pegging price is not available upon entry, then the
Order will continue to be rejected. The Exchange proposes to retain
existing practice for Pegged Orders with Routing Order Attributes
because the Exchange is not yet prepared to make similar changes to
such Orders, although it contemplates doing so in the near future.
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A similar rationale applies to the Exchange's proposal to cease
accepting certain Market or Primary Pegged Orders at their limit prices
if no pegging price is available. Because participants presumably
prefer for their orders to
[[Page 33422]]
post at the pegging price, the Exchange believes that participants
would prefer for the Exchange to hold such orders until a permissible
pegging price emerges, rather than post the orders at their limit
prices.<SUP>16 17</SUP>
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\16\ When a Pegged Order lacks a pegging price or a permissible
pegging price, the System will not wait indefinitely for a pegging
price or a permissible pegging price to become available. Instead,
the System will cancel the Order if no permissible pegging price
becomes available within one second after Order entry or after the
Order was removed due to the lack of a permissible pegging price and
no longer available on the Book. The Exchange may, in the exercise
of its discretion, modify the length of this maximum time period by
posting advance notice of the applicable new time period on its
website.
\17\ In this paragraph of Rule 4703(d), the Exchange again
proposes to state that it will continue to reject a Pegged Order
entered through RASH, QIX, or FIX when a permissible pegging price
is unavailable, if the Pegged Order is assigned a Routing Order
Attribute. The Exchange will continue to accept certain Market and
Primary Pegged Orders at their limit price where they have Routing
Order Attributes. The Exchange proposes to retain existing practice
for Pegged Orders with Routing Order Attributes because the Exchange
is not yet prepared to make similar changes to such Orders, although
it contemplates doing so in the near future. See n. 15, supra.
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The Exchange proposes similar changes to the paragraph of Rule
4703(d) that applies to Pegged Orders entered through RASH, QIX, or FIX
that posted to the Nasdaq Book. The text presently provides that if the
price to which an Order is pegged is not available, the Order will be
rejected. The Exchange proposes instead to state that if the price to
which an Order is pegged becomes unavailable or pegging would lead to a
price at which the Order cannot be posted,\18\ then the Exchange will
remove the Order from the Nasdaq Book and re-enter it once there is a
permissible price. Again, the Exchange proposes this change to enhance
and make the System more efficient by providing for the Exchange to re-
post the Pegged Orders rather than rejecting them when there is no
permissible pegging price and requiring participants to re-enter them
once a valid price becomes available.\19\ The Exchange notes that the
proposed change will not apply to Pegged Orders with Routing Attributes
assigned to them; the existing Rule functionality will continue to
apply to those Orders.
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\18\ An example of a scenario where pegging would lead to a
price at which an Order cannot be posted is as follows. Assume that
the NBBO is $0.0002 x $0.0003. A Primary Pegged Order to buy is
entered with a passive offset amount of $0.0003. This would result
in the Order being made unavailable by the Exchange as -$0.0001 is
not a permissible price. Currently, the Exchange accepts such Orders
at its limit price, and will post the Orders to the Nasdaq Book in
accordance with the parameters that apply to the underlying Order
Type.
\19\ The Exchange proposes to apply a similar time limitation to
the holding period prescribed above. See supra, n.16. Similarly, for
an Order with Midpoint Pegging, if the Inside Bid or Inside Offer
become crossed, or there is no Inside Bid or Inside Offer, the
System will cancel the Order if no permissible 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). For an Order with Midpoint Pegging with a Routing
Attribute, the new one second time period will be applicable.
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Rule 4703(d) also subjects Pegging Orders to collars, meaning that
any portion of a Pegging Order that would \20\ 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. Although
the Rule states that it applies this collar to Orders with Primary and
Market Pegging, the Exchange has always intended for the collar to also
apply to Orders with Midpoint Pegging, and in practice, it does so. The
failure of the Rule to reflect the application of the collar to
Midpoint Pegged Orders was an unintended omission. The Exchange now
proposes to revise Rule 4703(d) to correct this omission.
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\20\ Additionally, the Exchange proposes to replace the word
``would'' with ``could'' in this provision, so as to clarify that
collars apply in circumstances in which Pegged Orders might execute,
but do not necessarily do so. An example of a circumstance in which
such Orders do not execute is as follows. Assume that the NBBO is
$10.00 x $10.01. A Market Pegged Order to buy posts at $10.01. The
NBBO then updates to $10.00 x $11.00. Because re-pricing and posting
the Market Pegged Order would result in the Order being available on
the Book and executable at $11.00 (outside of the collars), the
Order will be canceled.
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Changes to Trade Now and Midpoint Trade Now Order Attributes
Additionally, the Exchange proposes to amend its rules governing
the Trade Now and Midpoint Trade Now Order Attributes, at Rule 4703(m)
and (n), respectively. Pursuant to Rule 4703(m), Trade Now is an Order
Attribute that allows a resting Order that becomes locked by an
incoming Displayed Order to execute against a locking or crossing Order
as a liquidity taker. Pursuant to Rule 4703(n), Midpoint Trade Now is
an Order Attribute that allows: (i) A resting Order that becomes locked
at its non-displayed price by an incoming Midpoint Peg Post-Only Order
to execute against a locking or crossing Order as a liquidity taker;
and (ii) a Non-Displayed Order with Midpoint Pegging or a Midpoint Peg
Post-Only Order (collectively, ``Midpoint Orders'') to execute against
a M-ELO+CB Order Type, subject to certain eligibility requirements.
The Exchange proposes to combine Rule 4703(m) and (n) under the
general header of ``Trade Now.'' The Exchange proposes to combine these
two related Order Attributes to streamline and simplify the
instructions that participants must enter to address the handling of
their orders in various locking or crossing scenarios.\21\ Rather than
having to enable both Trade Now and Midpoint Trade Now separately,
participants will only have to enable one Order Attribute to address
both functionalities.\22\ Additionally, rather than require a
participant to manually send a Trade Now instruction whenever an Order
entered through OUCH or FLITE becomes locked, the proposed amended Rule
will allow for a participant to enable Trade Now functionality on a
port-level basis for all Order entry protocols and for all Order Types
that support Trade Now, as well as on an order-by-order basis, for the
Non-Displayed Order Type, when entered through OUCH or FLITE.\23\ For
Orders entered through RASH or FIX, Trade Now will be available on an
order-by-order basis for all Order Types that support Trade Now. The
proposal will not extend Trade Now (or Midpoint Trade Now)
functionality to new Order Types.\24\
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\21\ An example of a crossing scenario is as follows. A non-
displayed Order to buy rests on the Book at $0.0015. Thereafter, a
Post Only Order to sell is entered at $0.0014, which would post on
the Book and display at $0.0014, thereby crossing the non-displayed
Order as the price improvement requirements were not met.
\22\ The Exchange believes that the proposal to combine the
Trade Now and Midpoint Trade Now Order Attributes will not adversely
impact participants because those that choose to utilize these Order
Attributes are seeking opportunities to remove liquidity, and they
are less fee sensitive in their choices. Participants will still be
able to deactivate Trade Now on an order-by-order basis for RASH and
FIX.
\23\ This proposed change in functionality for OUCH and FLITE is
enabled by the migration of Trade Now and Midpoint Trade Now to the
Exchange's matching System.
\24\ The Exchange proposes to add language to Rule 4703(m) to
state that Trade Now 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 a locking or crossing Order(s)
automatically. The Exchange proposes to add the phrase ``or crossed,
as applicable,'' for completeness. It also proposes to add the
phrase ``posted price'' for purposes of clarity. It merely
communicates that the incoming Displayed Order or Midpoint Peg Post-
Only Order first posts to the Nasdaq Book, thereby locking or
crossing the resting Order at its non-displayed price.
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The Exchange proposes other non-substantive changes to Rule 4703(m)
to incorporate the inclusion of the text of the Midpoint Trade Now
Order Attribute, including a reorganization of its bulleted provisions.
Furthermore, it
[[Page 33423]]
proposes to delete Rule 4703(n) in its entirety as well as references
to Midpoint Trade Now in Rule 4702.
Changes to Market on Open and Limit on Open Order Types
Finally, the Exchange proposes to amend Rule 4702(b)(8) and (9),
which describe the Market on Open (``MOO'') \25\ and Limit on Open
(``LOO'') \26\ Order Types, to account for a change in functionality
that will occur when the Exchange upgrades the logic and implementation
for processing certain aspects of LOO and MOO Orders as part of the
forthcoming System enhancements. When these Order Types are assigned
Pegging Attributes and submitted just prior to the onset of the Nasdaq
Opening Cross, the proposed changes will limit the circumstances in
which the System will hold these Order Types until after the Nasdaq
Opening Cross occurs. The Exchange proposes these changes to streamline
the handling of LOO and MOO orders, thereby reducing the potential for
confusion about the Exchange's practice for holding these Order Types
in these circumstances. Additionally, the proposed changes will allow
these Order Types, where applicable, to participate and contribute to
offsetting any order imbalance in the Nasdaq Opening Cross. The
Exchange notes that only a very small number of LOO and MOO orders will
be affected by these changes, such that the overall impact of the
changes should be minor.
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\25\ As set forth in Rule 4702(b)(8)(A), a MOO is an Order Type
entered without a price that may be executed only during the Nasdaq
Opening Cross. Subject to the qualifications provided below, MOO
Orders may be entered between 4 a.m. ET and immediately prior to
9:28 a.m. ET. An MOO Order may be cancelled or modified until
immediately prior to 9:25 a.m. ET. An MOO Order shall execute only
at the price determined by the Nasdaq Opening Cross.
\26\ As set forth in Rule 4702(b)(9)(A), a LOO is an Order Type
entered with a price that may be executed only in the Nasdaq Opening
Cross, and only if the price determined by the Nasdaq Opening Cross
is equal to or better than the price at which the LOO Order was
entered. Subject to the qualifications provided below, LOO Orders
may be entered between 4 a.m. ET and immediately prior to 9:28 a.m.
ET but may not be cancelled or modified at or after 9:25 a.m. ET.
Between 9:28 a.m. ET and 9:29:30 a.m. ET, an LOO Order may be
entered, provided that there is a First Opening Reference Price or a
Second Opening Reference Price. An LOO Order entered after 9:29:30
a.m. ET that is designated as an IOC will be rejected. An LOO Order
entered between 9:28 a.m. ET and 9:29:30 a.m. ET will be accepted at
its limit price, unless its limit price is higher (lower) than the
higher (lower) of the First Opening Reference Price and the Second
Opening Reference Price for an LOO Order to buy (sell), in which
case the LOO Order will be handled consistent with the Participant's
instruction that the LOO Order is to be: (1) Rejected; or (2) re-
priced to the higher (lower) of the First Opening Reference Price
and the Second Opening Reference Price, provided that if either the
First Opening Reference Price or the Second Opening Reference Price
is not at a permissible minimum increment, the First Opening
Reference Price or the Second Opening Reference Price, as
applicable, will be rounded (i) to the nearest permitted minimum
increment (with midpoint prices being rounded up) if there is no
imbalance, (ii) up if there is a buy imbalance, or (iii) down if
there is a sell imbalance. The default configuration for
Participants that do not specify otherwise will be to have such LOO
Orders re-priced rather than rejected.
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Specifically, Rule 4702(b)(8)(B) presently provides that a MOO with
a Market Pegging Order Attribute and with a Time-in-Force other than
Immediate-Or-Cancel that is flagged to participate in the Nasdaq
Opening Cross and which is entered at or after 9:28 a.m. will not
participate in the Opening Cross, but instead will be held and entered
into the System after the Opening Cross completes. The Exchange
proposes to amend this provision, such that, going forward, a MOO with
a Market Pegging Order Attribute and with a Time-in-Force other than
Immediate-Or-Cancel that is flagged to participate in the Nasdaq
Opening Cross and which is entered at or after 9:28 a.m. will be
rejected just as the Rule presently provides for all other MOOs that
are entered at or after 9:28 a.m. (and prior to the Nasdaq Opening
Cross). The rule text language, as amended, will specify, however, that
the existing holding practice will continue to apply to Orders with
Market Pegging and Routing Attributes and a Time-in-Force other than
Immediate-Or-Cancel as the Exchange is not yet ready to implement a
similar change to such Orders, although it contemplates doing so in a
future proposal. The Exchange also notes that this clarification will
provide for LOOs and MOOs with Routing Attributes to be handled
similarly when entered just prior to the time of the Nasdaq Opening
Cross.\27\
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\27\ See Rule 4702(b)(9)(B).
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Meanwhile, Rule 4702(b)(9)(B) presently provides that an Opening
Cross/Market Hours LOO Order that is entered between 9:29:30 a.m. and
the time of the Nasdaq Opening Cross will be: (i) Held and entered into
the System after the completion of the Nasdaq Opening Cross if it has
been assigned a Pegging or Routing Attribute, (ii) treated as an
Opening Imbalance Only Order and entered into the System after the
completion of the Nasdaq Opening Cross if entered through RASH, QIX, or
FIX but not assigned a Pegging or Routing Attribute, or (iii) treated
as an Opening Imbalance Only Order and cancelled after the Nasdaq
Opening Cross if entered through OUCH or FLITE. The Exchange proposes
to delete references to ``Pegging Attribute'' in this provision, such
that going forward, a LOO Order with Pegging (and no Routing Attribute)
entered between 9:29:30 a.m. and the time of the Opening Cross will no
longer be held and entered into the System after the completion of the
Opening Cross. Instead, if the LOO with Pegging is entered through
RASH, QIX, or FIX, it will be treated as an Opening Imbalance Only
Order and entered into the System after the Opening Cross occurs, and
if it is entered through OUCH or FLITE, it will be treated as an
Opening Imbalance Only Order and cancelled after the Opening Cross.\28\
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\28\ The Exchange notes that it plans future order handling
enhancements that may further reduce or eliminate the circumstances
in which it holds late submitted MOO and LOO Orders. The Exchange
will submit rule filing proposals to the Commission before
implementing such enhancements.
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The Exchange intends to implement the foregoing changes during the
Third Quarter of 2021. The Exchange will issue an Equity Trader Alert
at least 7 days in advance of implementing the changes.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\29\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\30\ 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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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposed amendments to the Pegging
Order Attribute, at Rule 4703(d), are consistent with the Act. The
proposals to eliminate rule text that provides for the System to reject
certain Pegged Orders that lack a permissible pegging price, or to post
the Orders at their limit price, are consistent with the Act because
they eliminate unwarranted inefficiencies that arise when participants
must repeatedly re-enter rejected Pegged Orders until a permissible
price becomes available.<SUP>31 32</SUP>
[[Page 33424]]
It is also consistent with the Act to maintain the existing practice in
the Rule of rejecting a Pegged Order without a permissible pegging
price where the Order has been assigned a Routing Attribute. The
Exchange is not yet prepared to hold such Orders in the same way that
it proposes to do so for Pegged Orders without Routing Attributes,
although it contemplates doing so in the near future.
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\31\ The Exchange notes that as part of this proposed change, if
there is no Pegging Price upon entry for a Displayed Order that has
Market Pegging, or an Order with a Non-Display Attribute that has
Primary Pegging or Market Pegging, then it will no longer accept
such Orders at their limit price. The Exchange believes that this
proposed change is consistent with the Act because it better aligns
with customer intentions for Pegged Orders to post at a Pegging
Price. That is, the Exchange believes that participants prefer for
Pegged Orders to be entered at a Pegging Price, rather than its
entered limit price, even if that means that the Order must wait for
a Pegging Price to become available. As discussed above, the
Exchange does not propose this change for Pegged Orders with Routing
Attributes.
\32\ It is also consistent with the Act to limit the time period
for which the Exchange will hold, without canceling, Pegged Orders
for which there is no pegging price or permissible pegging price
because the Exchange does not believe that customers would want the
Exchange to hold their orders indefinitely. Moreover, holding such
orders indefinitely would encumber the Exchange's System. The
Exchange believes that a one second holding period for such orders
is long enough to provide the above-stated efficiencies for
participants, but not too long as to encumber them. However, the
Exchange believes that it is reasonable to reserve discretion to
alter the holding period, from time to time, should it determine
that doing so better meets the needs of customers or its System
resources.
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Moreover, the proposal to amend Rule 4703(d) to state expressly
that Midpoint Pegging Orders are subject to price collars, like Orders
with Primary and Market Pegging, will correct an unintended omission
and ensure that the Rule is consistent with existing Exchange practice
and with customer expectations. The application of these collars will
prevent Pegged Orders from having prices that deviate too far away from
where the security was trading when the Order was first entered.\33\
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\33\ Additionally, the Exchange believes that it is consistent
with the Act to replace the word ``would'' with ``could'' in this
provision, because doing so would clarify that collars apply in
circumstances in which Pegged Orders might execute, but do not
necessarily do so. See supra, n.20.
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The Exchange's proposals to amend its rules governing the Trade Now
and Midpoint Trade Now Order Attributes, at Rule 4703(m) and (n),
respectively, are consistent with the Act. The proposal to combine
these two related Order Attributes will streamline and simplify the
instructions that participants must enter to address the handling of
their orders in various locking or crossing scenarios. Rather than
having to enable both Trade Now and Midpoint Trade Now separately,
participants will only have to enable one Order Attribute to address
both functionalities. Additionally, rather than require a participant
to manually send a Trade Now instruction whenever an Order entered
through OUCH or FLITE becomes locked, the proposed amended Rule will
allow for a participant to enable Trade Now functionality on a port-
level basis for all Order entry protocols and for all Order Types that
support Trade Now, as well as on an order-by-order basis, for the Non-
Displayed Order Type, when entered through OUCH and FLITE.\34\ The
proposal will also make conforming changes to Rule 4702 to delete
references to Midpoint Trade Now, which is consistent with the Act
because the changes will ensure that the Rules remain current and
accurate.
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\34\ As noted above, for Orders entered through RASH or FIX,
Trade Now will be available on an order-by-order basis for all Order
Types that support Trade Now.
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Furthermore, it is consistent with the Act to add language to Rule
4703(m) to state that Trade Now 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 a locking or crossing Order(s)
automatically. The Exchange proposes to add the phrase ``or crossed, as
applicable,'' for completeness. The Exchange also proposes to add the
phrase ``posted price'' for purposes of clarity. It merely communicates
that the incoming Displayed Order or Midpoint Peg Post-Only Order first
posts to the Nasdaq Book, thereby locking or crossing the resting Order
at its non-displayed price.
Finally, it is consistent with the Act to amend Rule 4702(b)(8) and
(9) to limit the circumstances in which the Exchange will hold MOO and
LOO Orders with Pegging Attributes that are submitted just prior to the
Nasdaq Opening Cross. As discussed above, these changes will streamline
the handling of such Orders, by rejecting them in the case of MOO
Orders or allowing them to participate as Opening Imbalance Orders in
the case of LOO Orders, thereby reducing the potential for confusion
about the Exchange's practice for holding these Order Types in these
circumstances. Again, the Exchange proposes to maintain its existing
practice of holding Market Pegged MOO Orders with Routing Attributes
and LOO Orders with Routing Attributes entered near the time of the
Opening Cross because the Exchange is not yet prepared to handle such
Orders similarly to how it proposes to handle such Orders without
Routing Attributes, although it contemplates submitting a rule filing
proposal to do so in the near future.
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, integrity, 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 to hold (up to
one second), rather than reject (or accept at their limit price),
Pegging Orders (other than those with Routing Attributes) in
circumstances in which no permissible pegging price is available, as
these proposals will merely eliminate unwarranted inefficiencies that
ensue from the System requiring participants to repeatedly re-enter
Pegged Orders until a price becomes available, or the System posting
Pegged Orders at their limit prices, if there is no pegging price.
Moreover, the proposal to amend Rule 4703(d) to state expressly that
Midpoint Pegging Orders are subject to price collars, like Orders with
Primary and Market Pegging, will have no competitive impact as the
proposal is consistent with existing Exchange practice and with
customer expectations.
The Exchange's proposals to amend its rules governing the Trade Now
and Midpoint Trade Now Order Attributes will have no competitive impact
on participants other than by rendering these Order Attributes more
efficient and easier for participants to utilize.\35\
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\35\ The proposal to combine the Trade Now and Midpoint Trade
Now Order Attributes also will not burden competition because
participants that choose to utilize these Order Attributes are
seeking opportunities to remove liquidity, and they are less fee
sensitive in their choices. Allowing participants to remove
liquidity through one instruction will enhance the efficiency of
their activities.
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Lastly, the Exchange perceives no burden on competition arising
from its proposed changes to the circumstances in which it will hold
late-submitted LOO and MOO Orders with Pegging Attributes (other than
those Orders with
[[Page 33425]]
Routing Attributes assigned to them). The proposed changes will
streamline the handling of such Orders, thereby reducing the potential
for confusion about the Exchange's practice for holding these Order
Types in these circumstances. The Exchange proposes to maintain its
existing practice of holding Market Pegged MOO Orders with Routing
Attributes and LOO Orders with Routing Attributes \36\ entered near the
time of the Opening Cross because the Exchange is not yet prepared to
handle such Orders similarly to how it proposes to handle such Orders
without Routing Attributes, although it contemplates submitting a rule
filing proposal to do so in the near future. Moreover, any impact of
the proposed changes is expected to be minimal, as very few MOO and LOO
Orders have historically been subject to holding.
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\36\ The Exchange's proposal to add the word ``Routing'' to the
rule text will merely clarify that the existing holding practice
will continue for certain MOO and LOO Orders.
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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 proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \37\ and Rule 19b-4(f)(6) thereunder.\38\
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\37\ 15 U.S.C. 78s(b)(3)(A).
\38\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#f381869f96de909c9e9e969d8780b3809690dd949c85"><span class="__cf_email__" data-cfemail="cbb9bea7aee6a8a4a6a6aea5bfb88bb8aea8e5aca4bd">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2021-044 on the subject line.
Paper Comments
<bullet> 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-2021-044. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-044, and should be submitted
on or before July 15, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13285 Filed 6-23-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on June 24, 2021.
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