Notice2022-22661
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4, Rule 4757
Primary source
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Published
October 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 201 (Wednesday, October 19, 2022)</title>
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[Federal Register Volume 87, Number 201 (Wednesday, October 19, 2022)]
[Notices]
[Pages 63558-63560]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22661]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96069; File No. SR-NASDAQ-2022-056]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 4, Rule 4757
October 13, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 6, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Equity 4, Rule 4757, as described
further below. The text of the proposed rule change is available on the
Exchange's website at <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
[[Page 63559]]
any comments it received on the proposed rule change. The text of these
statements may be examined at the places specified in Item IV below.
The Exchange has prepared summaries, set forth in sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to enhance the anti-
internalization functionality available on the Exchange by giving
market participants the flexibility to choose to have this protection
apply to market participants under Common Ownership.\3\ Anti-
internalization, also known as self-match prevention, is an optional
feature available on the Exchange that (1) prevents two orders with the
same Market Participant Identifier (MPID) from executing against each
other, or (2) prevents two orders entered through a specific order
entry port from executing against each other (in the case of market
participants using the OUCH order entry protocol). The proposed rule
change would permit market participants to direct that quotes/orders
entered into the System not execute against quotes/orders entered
across MPIDs that are under Common Ownership. The Exchange believes
that this enhancement will provide helpful flexibility for market
participants that wish to prevent trading against all quotes and orders
entered by market participants under Common Ownership, instead of just
quotes and orders that are entered under the same MPID or under a
particular order entry port.
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\3\ The proposed rule change would define ``Common Ownership''
under Equity 4, Rule 4757 to mean participants under 75% common
ownership or control.
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Currently, under Equity 4, Rule 4757, the Exchange provides
optional anti-internalization functionality whereby quotes and orders
entered by market participants using the same MPID are not executed
against quotes and orders by market participants using the same MPID.
In addition, under Equity 4, Rule 4757, market participants using the
OUCH order entry protocol may assign to orders entered through a
specific order entry port a unique group identification modifier that
will prevent quotes/orders with such modifier from executing against
each other.\4\ Self-match prevention functionality assists participants
in reducing trading costs from unwanted executions potentially
resulting from the interaction of executable buy and sell trading
interest from the same firm.
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\4\ The group identification modifier allows firms to apply
self-match prevention on a more granular level (i.e., per a specific
order entry port).
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The Exchange currently provides three versions of self-match
prevention functionality to allow participants to choose how orders are
handled in the event of a self-match situation: (1) decrement, (2)
cancel oldest, and (3) cancel newest. Under the first version
(``decrement''), if the self-match orders have the same share size,
both orders will cancel back to the customer. If the orders are not
equivalent in size, the smaller order will cancel back to the
originating customer and the larger order will decrement by the size of
the smaller order. The remaining shares of the larger order will remain
on the book. Under the second version (``cancel oldest''), the full
size of the order residing on the book will cancel back to the customer
if the incoming order would execute against it. The incoming order will
remain intact with no changes. Under the third version (``cancel
newest''), the full size of the order coming into the book will cancel
back to the customer. The resting order will remain intact with no
changes. Currently, firms may opt-in to any version of the self-match
prevention functionality on a per MPID basis or per port basis.
Today, the anti-internalization protection prevents market
participants from trading against their own quotes and orders at the
MPID or port level. The proposed enhancement to this functionality
would allow participants to choose to have this protection applied at
the MPID or port level as implemented today, or across MPIDs under
Common Ownership. If participants choose to have this protection
applied across MPIDs under Common Ownership, the anti-internalization
functionality would prohibit quotes and orders from different MPIDs
associated with the same Organization ID (``OrgId'') \5\ from trading
against one another. Under the proposed rule change, the anti-
internalization functionality would continue to be an optional feature.
If a firm chooses to take advantage of self-match prevention, the firm
would need to opt-in to the self-match prevention functionality, as is
the case today. If participants opt-in to the self-match prevention
functionality, under the proposed rule change, participants would have
the option to choose whether to apply the protection at the OrgId,
MPID, or port level. In addition, participants may opt-in to any
version of the self-match prevention strategy that exists today (i.e.,
decrement, cancel oldest, or cancel newest).\6\
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\5\ The OrgId is a field that indicates Common Ownership across
multiple MPIDs.
\6\ If the self-match prevention strategy differs between two
orders, the strategy of the order removing liquidity applies.
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The Exchange believes that the proposed anti-internalization
enhancement would provide participants with more tailored self-trade
functionality that allows them to manage their trading as appropriate
based on the participant's business needs. While the Exchange believes
that some firms will want to restrict self-match prevention to trading
against interest from the same MPID or same port--i.e., as implemented
today--the Exchange believes that other firms will find it helpful to
be able to configure self-match prevention to apply at the OrgId level
so that they are protected regardless of which MPID the order or quote
originated from.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general to protect investors and the public interest.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is consistent
with the protection of investors and the public interest as it is
designed to provide market participants with additional flexibility
with respect to how to implement self-trade protections provided by
anti-internalization functionality. Currently, market participants are
provided optional functionality that (1) prevents quotes and orders
from one MPID from trading with quotes and orders from the same MPID,
or (2) prevents quotes and orders entered through a specific order
entry port from trading with quotes and orders entered though the same
order entry port (in the case of market participants using the OUCH
order entry protocol). This functionality allows participants to better
manage their order flow and prevent undesirable
[[Page 63560]]
executions where the participant, using the same MPID or same port,
would be on both sides of the trade. While this functionality is
helpful, the Exchange proposes to expand the protections to provide
participants with the option not to trade with quotes and orders
entered by different MPIDs under Common Ownership. The Exchange would
continue to provide the option to opt out of the self-match prevention.
In addition, the Exchange would continue to provide the option to use
the current functionality to prevent self-trades on a per MPID or per
port basis. The proposed rule change would offer a new option for
participants opting-in to the self-match prevention to prevent
undesirable executions across different MPIDs under the same Common
Ownership. The Exchange believes that flexibility to apply anti-
internalization functionality at the OrgId level would be useful to
participants. The Exchange believes that the proposed rule change is
designed to promote just and equitable principles of trade and will
remove impediments to and perfect the mechanisms of a free and open
market as it will further enhance self-trade protections provided to
market participants. This functionality does not relieve or otherwise
modify the duty of best execution owed to orders received from public
customers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change is
designed to enhance self-match prevention functionality provided to the
Exchange's participants and will benefit participants that wish to
protect their quotes and orders against trading with other quotes and
orders within the same OrgId, rather than the more limited MPID or port
standard applied today. The new functionality is also completely
voluntary, and members that wish to use the current functionality (or
opt out altogether) can also continue to do so. The Exchange does not
believe that providing more flexibility to participants will have any
significant impact on competition. In fact, the Exchange believes that
the proposed rule change is evidence of the competitive environment
where exchanges must continually improve their offerings to maintain
competitive standing.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \9\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#7103041d145c121e1c1c141f0502310214125f161e07"><span class="__cf_email__" data-cfemail="e89a9d848dc58b8785858d869c9ba89b8d8bc68f879e">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-056 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-2022-056. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<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-2022-056 and should be submitted
on or before November 9, 2022.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22661 Filed 10-18-22; 8:45 am]
BILLING CODE 8011-01-P
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