Notice2021-21987
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Discretion Attribute, at Equity 4, Rule 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
October 8, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 193 (Friday, October 8, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 193 (Friday, October 8, 2021)]
[Notices]
[Pages 56302-56307]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-21987]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93245; File No. SR-NASDAQ-2021-075]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Discretion Attribute, at Equity 4, Rule 4703, in Light of
Planned Changes to the System
October 4, 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 September 23, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Discretion Attribute, at Equity
4, Rule 4703 \3\ in light of planned changes to the System, as
described further below.
---------------------------------------------------------------------------
\3\ References herein to Nasdaq Rules in the 4000 Series shall
mean Rules in Nasdaq Equity 4.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
[[Page 56303]]
To support and prepare for these upgrades and enhancements, the
Exchange recently submitted three rule filings to the Commission that
amended its rules pertaining to, among other things, Market Maker Peg
Orders, Orders with Reserve Size, and Orders with Pegging and Trade Now
Attributes.\10\ The Exchange now proposes to further amend its Rules
governing the Discretion Order Attribute, at Rule 4703(g), so that it
aligns with how the System, once upgraded, will handle these Orders
with Discretion going forward.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 34-92180 (June 15,
2021), 86 FR 33420 (June 24, 2021) (SR-NASDAQ-2021-044); Securities
Exchange Act Release No. 34-91109 (February 11, 2021), 86 FR 10141
(February 18, 2021) (SR-NASDAQ-2020-090); Securities Exchange Act
Release No. 34-90389 (November 10, 2020), 85 FR 73304 (November 17,
2020) (SR-NASDAQ-2020-071).
---------------------------------------------------------------------------
As set forth in Rule 4703(g), Discretion is an Order Attribute
under which an Order has a non-displayed discretionary price range
within which the entering Participant is willing to trade. Presently,
the Rule provides that the System will process Discretionary Orders,
upon entry, by generating a Non-Displayed Order with a Time-in-Force of
Immediate-or-Cancel (a ``Discretionary IOC'') that will attempt to
access liquidity available within the discretionary price range. The
System will not permit the Discretionary IOC to execute, however, if
the price of the execution would trade through a Protected Quotation.
If more than one Order with Discretion satisfies conditions that would
cause the generation of a Discretionary IOC simultaneously, the order
in which such Discretionary IOCs will be presented for execution is
random, based on the respective processing time for each such Order.
Whenever a Discretionary IOC is generated, the underlying Order with
Discretion will be withheld or removed from the Exchange's Book and
will then be routed and/or placed on the Exchange's Book if the
Discretionary IOC does not exhaust the full size of the underlying
Order with Discretion, with its price determined by the underlying
Order Type and Order Attributes selected by the Participant. In
addition to prescribing a procedure for handling Discretionary Orders
generally, the existing Rule also describes special procedures for
handling Discretionary Orders with various types of Routing Attributes
and with pegged discretionary price ranges.
The Exchange proposes to amend the process by which it processes
Discretionary Orders in several respects. First, the Exchange proposes
to clarify existing text which states that ``[a] Participant may also
specify a limit price beyond which the discretionary price range does
not extend.'' The Exchange intended for this clause to address the
specific scenario where a Participant enters a Discretionary Order with
a Discretionary Pegging Attribute, but the existing text is not
explicit in this regard and thus is amenable to confusion. The Exchange
proposes to restate this provision as follows to make its intention
explicit: ``[a] Participant may also specify a limit on the
discretionary price range of an Order that is entered with a
Discretionary Pegging Attribute,'' and then further clarify the outcome
of setting such a limit by stating ``beyond which the discretionary
pegged price may not extend.'' \11\ The Exchange notes that it uses the
word ``may'' in this provision rather than ``shall'' because for
Discretionary Orders with Pegging Attributes, the Rules specify the
discretionary range applicable to those Orders; setting a limit on how
far that range is allowed to extend is optional.
---------------------------------------------------------------------------
\11\ For example, a displayed Order to buy might have a limit
price of $11.00 and a discretionary price range pegged to the Best
Bid with a discretionary limit of $11.05. If the NBB is $11.02 at
the time of entry, the order will be displayed at $11.00 with a
discretionary price range up to $11.02. If the NBB later become
$11.06, the Order will still be displayed at $11.00 and its
discretionary price range will be capped at $11.05.
---------------------------------------------------------------------------
As a further organizational matter, the Exchange proposes to
consolidate the portion of the Rule that describes the general
procedure for handling Discretionary Orders with the portion that
described the process for handling Discretionary Orders without a
Routing Attribute assigned to them. Because non-routed orders conform
to the general procedure, it is redundant to restate the process.
Second, as to the substance of the general Discretionary Order
handling procedures, the Exchange proposes the following changes.
Rather than generate a Discretionary IOC immediately upon Order entry
(regardless of available liquidity within the discretionary price
range) and then post the unexecuted portion of the Discretionary Order
on the Exchange's Book, the Exchange proposes instead to first, upon
entry, execute the Discretionary Order against any previously posted
Orders on the Exchange Book that are priced equal to or better than the
limit price of the Discretionary Order. If no such Order exists with
which the Discretionary Order may fully execute upon entry, then the
Exchange will post the Discretionary Order to the Exchange's Book in
accordance with the parameters that apply to the underlying Order Type.
In such case, the Exchange will generate a Discretionary IOC, with a
price equal to the highest price for an Order to buy (lowest price for
an Order to sell) within the discretionary price range and a size equal
to the order available for execution, if and when the System determines
that liquidity within the discretionary price range is available for
execution. The Exchange will then execute the Discretionary IOC
(provided that doing so would not trade-through a Protected Quotation).
The Exchange proposes this change to increase the efficiency with which
the Exchange processes Discretionary Orders. The Exchange intended for
the existing process to enable Discretionary Orders to execute
immediately within the discretionary price range upon entry, but in
practice, the Exchange observes that they rarely do so. Attempts to
locate available liquidity within the discretionary range immediately
upon entry delay Discretionary Orders from entering the priority queue
on the Nasdaq Book, resulting in an opportunity cost when no such
liquidity is located. The proposed rule change will reorient the order
handling process for Discretionary Orders so that it no longer
sacrifices potential queue priority for attempts at possible immediate
executions within the discretionary price range. Given that immediate
executions of Discretionary Orders within the discretionary price range
rarely occur, the Exchange does not believe that this change will have
any material adverse impact on the performance of such Orders.
Moreover, the Exchange will still allow for Discretionary Orders to
attempt to execute against available liquidity immediately upon entry
if contra-side liquidity, priced equal to or better than the limit
price of the Discretionary Order, is resting on the Book at that time.
And, if participants select a Time-in-Force of Immediate-or-Cancel for
such Orders, then the orders will attempt to execute against available
liquidity within the discretionary price range, which is unchanged from
current functionality.
As noted above, whereas now, the Exchange generates a Discretionary
IOC that is equal to the size of the Discretionary Order, and then
posts shares to the Book that remain unexecuted after the Exchange
executes the Discretionary IOC against available liquidity in the
discretionary price range, the Exchange instead proposes to generate a
Discretionary IOC that will be
[[Page 56304]]
equal to the size of the available liquidity within the discretionary
range, with any residual shares of the Discretionary Order remaining on
the Book and retaining their existing priority. If the Discretionary
IOC is not fully executed,\12\ the posted portion of the Discretionary
Order will be reentered on the Nasdaq Book as a new Discretionary Order
with a new timestamp and with an increased size to include the
unexecuted portions of the Discretionary IOC. The Exchange believes
that the proposed rule change will benefit participants by enabling
their Discretionary Orders to remain executable against new incoming
liquidity when available liquidity within the discretionary price range
is smaller than the full size of the Discretionary Order (provided that
Participants have not specified a minimum quantity for execution).
---------------------------------------------------------------------------
\12\ A Discretionary IOC may not execute fully in a race
condition where an incoming order executes against all or a portion
of the available liquidity within the discretionary price range
before the Discretionary IOC is able to do so.
---------------------------------------------------------------------------
The Exchange proposes to move existing rule text that governs the
situations where more than one Order with Discretion satisfies
conditions that would cause the generation of a Discretionary IOC
simultaneously. Whereas now, in all such situations, the order in which
such Discretionary IOCs are presented for execution is random, based on
the respective processing time for each such Order; going forward, the
system will present Discretionary IOCs associated with Discretionary
Orders without Routing differently as it gains responsibility for
handling such Orders from RASH. That is, the system will present
multiple Discretionary IOCs associated with such Orders for execution
in price-time priority, as is specified in Rule 4757(a). The price by
which the Orders will be prioritized for execution refers to the price
of the Discretionary IOCs that are generated, meaning the highest price
for the Order with Discretion to buy (lowest price for the Order with
Discretion to sell) within the discretionary price range. This change
will not affect Discretionary Orders with Routing, when Discretionary
IOCs are generated for routing, which will continue to be handled by
RASH under the existing random presentment procedures.
The Exchange proposes to add to the Rule the following example to
illustrate the new procedures. If a Participant enters a Price to
Display Order to buy 500 shares at $11 with a discretionary price range
of up to $11.03, then upon entry, the Nasdaq Market Center will first
execute the Order against any orders resting on the Nasdaq Book that
are priced equal to or better than the limit price of the Discretionary
Order. Assuming that no such resting order exists, the Nasdaq Market
Center will post the full size of the Price to Display Order to the
Nasdaq Book in accordance with its parameters. If there is an Order on
the Nasdaq Book to sell 200 shares priced at $11.03, the Nasdaq Market
Center will generate a Discretionary IOC to buy priced at $11.03 to
execute against the Order on the Nasdaq Book, if an execution at $11.03
would not trade through a Protected Quotation; the remaining 300 shares
of the original Order with Discretion will remain posted on the Nasdaq
Book.\13\
---------------------------------------------------------------------------
\13\ The Exchange also proposes to move and reorganize, but not
substantively modify, certain text within Rule 4703(g) to eliminate
duplication and improve its readability.
---------------------------------------------------------------------------
With respect to procedures for processing Discretionary Orders with
Routing Attributes assigned to them, the Exchange proposes to
reorganize and consolidate the procedures, as well as to eliminate
obsolete and duplicative text, and to improve readability.
Specifically, the Exchange proposes to largely delete bulleted text
that presently describes distinct procedures for handling Discretionary
Orders with passive and reactive routing strategies, as well as for
handling Discretionary Orders with Routing Attributes depending upon
whether the discretionary price range of the Order is pegged. The
Exchange proposes to eliminate certain existing text that describes
order handling procedures for Discretionary Orders with passive and
reactive routing strategies after being posted because such procedures
do not differ from the general procedures for handling Discretionary
Orders with respect to available liquidity on the Nasdaq Book within
the discretionary price range.\14\ As to Discretionary Orders with
reactive routing strategies, the Exchange believes that it is
sufficient to state, going forward, that if a Discretionary IOC
associated with such an Order does not exhaust the full size of the
Discretionary Order, then the Exchange will generate and route
additional Discretionary IOCs in response to new quotations within the
discretionary price range according to the routing strategy assigned to
the Order. Moreover, the Exchange proposes to retain language in the
existing rule which states that, if a Discretionary Order uses a
passive routing strategy, the System will not generate additional
Discretionary IOC orders in response to new away market quotations
within the discretionary price range unless the Order is updated in a
manner that causes it to receive a new timestamp, in which case the
Order will behave in the same manner as a newly entered Discretionary
Order.
---------------------------------------------------------------------------
\14\ The Exchange proposes to retain the concept in the existing
rule that whenever it generates a Discretionary IOC, the underlying
Order with Discretion will be withheld or removed from the
Exchange's Book and will then be routed and/or placed on the
Exchange's Book if the Discretionary IOC does not exhaust the full
size of the underlying Order with Discretion, with its price
determined by the underlying Order Type and Order Attributes
selected by the Participant. However, rather than applying this
concept to all Discretionary Orders going forward, the proposal will
apply it only to Discretionary Orders with Routing Attributes, as
this is the context in which the concept applies, in practice.
---------------------------------------------------------------------------
Moreover, the Exchange proposes to delete existing Rule text that
describes how the Exchange handles Discretionary Orders with Routing
Attributes in scenarios where such Orders do and do not have pegged
discretionary price ranges associated with them. The text presently
states that where a Discretionary IOC associated with such an Order
does not exhaust the full size of the Order, the Exchange will post the
remaining size of the Order to the Nasdaq Book in accordance with the
parameters that apply to the underlying Order Type. With respect to
Discretionary Orders with reactive routing strategies, the Exchange
will examine whether there is an order on the Nasdaq Book or an
accessible quotation at another trading venue that is within the
discretionary price range and against which the Discretionary Order
could execute. When the Exchange currently examines the Nasdaq Book in
the scenario where the Discretionary Order with reactive routing has a
pegged discretionary price range, it examines only displayed orders on
the Nasdaq Book for this purpose, whereas if the Discretionary Order
with Routing has no pegged discretionary price range, the Exchange
examines all orders on its Book, including non-displayed orders. This
distinction in order handling procedures is a legacy of the existing
limitations of the RASH protocol that will no longer be applicable
after the Exchange migrates responsibility from RASH to the System for
handling Discretionary Orders. That is, going forward, the System will
be capable of and will examine the Nasdaq Book for both displayed and
non-displayed orders in the discretionary price range against which to
execute Discretionary Orders with Routing, regardless of whether the
discretionary price range of such Orders is pegged.
In the new proposed paragraph that governs Discretionary Orders
with Routing, the Exchange also proposes to amend existing text
concerning the
[[Page 56305]]
price and size at which the Exchange will generate a Discretionary IOC
when, before routing, it determines that there is liquidity available
on the Nasdaq Book within the discretionary price range with which the
Discretionary Orders may interact.\15\ Whereas existing rule text
states that the Exchange will generate a Discretionary IOC in this
instance that matches the price and size of the Order on the Nasdaq
Book, the proposed rule text states that the Exchange will generate a
Discretionary IOC equal to the highest price for the Order with
Discretion to buy (lowest price for the Order with Discretion to sell)
within the discretionary price range and a size equal to the applicable
size of the available liquidity on the Nasdaq Book.
---------------------------------------------------------------------------
\15\ The Exchange notes that certain routing strategies, such as
Directed Orders, do not check the Nasdaq system first before routing
to other market centers.
---------------------------------------------------------------------------
Additionally in that same paragraph, the Exchange proposes to
change existing language that governs the generation of a Discretionary
IOC in response to accessible quotations within the discretionary price
range at away market centers. The existing rule text states that the
Exchange will generate a Discretionary IOC in this instance that
matches the price and size of the away market quotation within the
discretionary price range. The proposed rule, by contrast, states that
the Exchange will generate one or more Discretionary IOCs that will
match the price of the away market quotation. The size of the
Discretionary IOC(s) generated in this instance will be determined by
the router to maximize execution opportunities, consistent with
existing routing strategies.
Last, as explained above, the Exchange proposes to move the
following existing text to the new consolidated paragraph governing
procedures for handling Discretionary Orders with Routing. The text
clarifies that for these Orders (as opposed to Discretionary Orders
without Routing), the existing practice of randomly presenting for
execution simultaneously generated Discretionary IOCs for routing is
still applicable; because responsibility for this functionality is
still being managed by RASH, it will not be affected by the present
system changes:
Furthermore, if a new quotation satisfies conditions that would
cause the simultaneous generation of a Discretionary IOC for more
than one Order with Discretion that have been assigned a Routing
Order Attribute, the order in which such Discretionary IOCs are
presented for execution is random, based on the respective
processing time for each such Order.
The Exchange intends to implement the foregoing changes during the
Fourth 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,\16\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\17\ 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.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that its proposed amendments to the
Discretionary Order Attribute, at Rule 4703(g), are consistent with the
Act. The Exchange believes that its proposal to revise its process for
handling Discretionary Orders so that they post to the Exchange Book,
upon entry after checking for available interest at or better than
their limit price, rather than attempt to execute against available
liquidity within the discretionary price range immediately upon entry,
will benefit Participants and investors because such immediate attempts
at execution within the discretionary price range rarely succeed and
typically result only in Discretionary Orders posting to the Book later
than they would otherwise, and thus resulting in potentially lower
queue priority. The proposed amendments will provide Participants with
an opportunity to first secure queue priority by posting to the Book
upon entry (after checking for available interest at or better than
their limit price), and only generate a Discretionary IOC if and when
the System later determines that liquidity within the discretionary
price range is available for execution. The Exchange notes that it will
still allow for Discretionary Orders to attempt to execute against
available liquidity within the discretionary price range immediately
upon entry if Participants select a Time-in-Force of Immediate-or-
Cancel for such Orders.
Additionally, the proposal to generate Discretionary IOCs that
equal the size of available liquidity within the discretionary range,
rather than the full size of Discretionary Orders, will benefit
participants by enabling their Discretionary Orders to maintain their
queue priority on the Exchange Book when available liquidity within the
discretionary price range is smaller than the full size of the
Discretionary Order.
The Exchange believes that it is consistent with the Act to amend
the Rule to state that if the Discretionary IOC is not fully executed,
the posted portion of the Discretionary Order will be reentered on the
Nasdaq Book as a new Discretionary Order with a new timestamp and with
an increased size to include the unexecuted portions of the
Discretionary IOC. The Exchange believes that the proposed rule change
will benefit participants by enabling their Discretionary Orders to
remain executable against new incoming liquidity when available
liquidity within the discretionary price range is smaller than the full
size of the Discretionary Order (provided that Participants have not
specified a minimum quantity for execution).
Furthermore, it is consistent with the Act to reorganize,
consolidate, and otherwise amend the provisions of the existing Rule
that describe procedures for handling Discretionary Orders with Routing
Attributes, passive and reactive routing strategies, and pegged and
non-pegged discretionary price ranges. The proposed changes will
improve the clarity and readability of the Rule by eliminating
unnecessary and duplicative text. It will also reflect an upgrade in
the ability of the Exchange to examine its Book for both displayed and
non-displayed orders against which a Discretionary Order with Routing
and a pegged discretionary price range may execute (with such upgrade
occurring as a product of responsibility for Discretionary Order
handling migration from RASH to the Exchange's matching System). It
also is consistent with the Act to clarify that for Discretionary
Orders with Routing Attributes, the existing practice of randomly
presenting for execution simultaneously generated Discretionary IOCs
for routing still applies.
Likewise, it is consistent with the Act to modify the price at
which the Exchange will generate Discretionary IOCs when, before
routing a Discretionary Order with Routing, the Exchange determines
that there is liquidity available on the Nasdaq Book within the
discretionary price range with which the Discretionary Orders may
interact. The current practice of generating a Discretionary IOC with a
price equal to the price of the Order on the Nasdaq Book does not
maximize the potential for executions, whereas, generating a
Discretionary IOC with a price equal to the highest price for an Order
to buy (lowest price for an Order to sell) within the discretionary
price range allows the Discretionary IOC to
[[Page 56306]]
access additional liquidity at a more aggressive price in the event of
a race condition where the liquidity with which the Order with
Discretion is reacting is removed before the Discretionary IOC is able
to execute against it.
Finally, it is consistent with the Act to amend existing rule text
to state that when the Exchange generates a Discretionary IOC to
attempt to execute accessible liquidity within the discretionary price
range at another market center, the Exchange will generate a
Discretionary IOC that will match the price of the away market
quotation, but the size will be determined by the router to maximize
execution opportunities, consistent with existing routing strategies.
The current rule, as written, does not contemplate the scenario where
the remaining size of the Order with Routing is less than the size of
the away market quotation; in which case a smaller order must be routed
to the quoting market, comprising the full size of the Order with
Routing. The new rule text allows for this behavior, and so more
clearly communicates the operation of the System to Participants.
Furthermore, additional non-displayed liquidity may exist on the
quoting market in excess of the displayed size of the quote. It
benefits the Participant to maximize execution opportunities for their
orders, so the new rule text allows the router to send orders that are
larger than the size of the away market quotation. Because an Order
assigned both Discretion and Routing Order Attributes is withheld or
removed from the Nasdaq Book whenever a Discretionary IOC is generated,
thereby yielding priority on the Nasdaq Book, there are no opportunity
costs to routing additional shares in excess of the displayed quote.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that its proposed rule changes 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. The Exchange's
proposal to revise its processes for handling Discretionary Orders upon
entry does have the potential to improve the relative queue positions
of Discretionary Orders on the Exchange's Book, but these changes are
warranted because existing processes are inefficient and result in
opportunity costs to users of Discretionary Orders. Indeed,
participants potentially lose queue priority when the System delays
posting their Discretionary Orders to the Book only after making
attempts to execute those Orders against liquidity within its
discretionary price range immediately upon entry. Similarly,
participants potentially lose queue priority whenever available
liquidity within the discretionary price range is less than the size of
a Discretionary IOC, and the System processes residual shares by
posting them to the Book with new timestamps.
Furthermore, routing orders to away markets for only the displayed
size of their quotes unnecessarily limits the opportunity for execution
against non-displayed liquidity, while restricting the price of a
Discretionary IOC to the price of an available order on the Nasdaq Book
(as opposed to assigning the most aggressive price allowed within the
discretionary range) limits opportunities for execution when race
conditions cause the original order that the Discretionary IOC was
created to execute against to no longer be available by the time the
Discretionary IOC is received by the System. The proposed changes have
the potential to increase execution opportunities, but these changes
are warranted because they will equally benefit all Exchange
participants utilizing the Discretion Attribute by making the processes
more efficient.
Likewise, there will be no adverse competitive impact from the
Exchange's proposal to examine both displayed and non-displayed orders
in the Nasdaq Book (as opposed to only displayed orders, in current
practice) in the scenario where the Discretionary Order with reactive
routing has a pegged discretionary price range. As explained above,
existing handling procedures in in this scenario a legacy of the
limitations of the RASH protocol, which will no longer be applicable
after the Exchange migrates responsibility from RASH to the System for
handling Discretionary Orders.
For similar reasons, there will be no adverse competitive impact
associated with the Exchange's proposal to present Discretionary IOCs
associated with Discretionary Orders without Routing in price-time
priority, rather than in random order, as is currently the case and as
will remain the case for Discretionary IOCs associated with
Discretionary Orders with Routing. Whereas RASH is unable to present
Discretionary IOCs in time-price priority, the Exchange's system will
be capable of doing so, and thus it will do so when it assumes
responsibility for handling Discretionary Orders without routing.
Insofar as RASH will continue to handle Discretionary Orders with
Routing, existing randomized processes for presenting Discretionary
IOCs associated with those Orders will continue to apply.
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) of the Act \18\ and Rule 19b-
4(f)(6) thereunder.\19\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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.
---------------------------------------------------------------------------
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,
[[Page 56307]]
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#7e0c0b121b531d1113131b100a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="483a3d242d652b2725252d263c3b083b2d2b662f273e">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2021-075 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-2021-075. 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-2021-075 and should be submitted
on or before October 29, 2021.
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21987 Filed 10-7-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on October 8, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.