Notice2024-00504
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Add the User Specific Routing Option
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Published
January 12, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 9 (Friday, January 12, 2024)</title>
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[Federal Register Volume 89, Number 9 (Friday, January 12, 2024)]
[Notices]
[Pages 2278-2281]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-00504]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99297; File No. SR-NASDAQ-2023-057]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Add the User Specific Routing Option
January 8, 2024.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 26, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and
[[Page 2279]]
II, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Nasdaq Rule 4758(a)(1)(A) regarding
Nasdaq's routing options to add a user specific routing option that can
be applied to the RFTY routing strategy, as well as to correct
typographical errors in Equity 4, Rules 4703 and 4758.
The text of the proposed rule change is available on the Exchange's
website at <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
The purpose of the proposed rule change is to amend Equity 4, Rule
4758(a)(1)(A) to add a user specific routing option, as well as to
correct several typographical errors in Nasdaq Rules 4703 and 4758.\3\
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\3\ See Nasdaq Rule 4703 and Rule 4758.
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Specifically, the Exchange proposes to amend Rule 4758 by adding
subsection (a)(1)(A)(xvii) to add a new routing option called ``User
Specific''. The User Specific routing option can be applied to the RFTY
\4\ routing strategy, where the routing process will be based on the
RFTY routing strategy, and allows for the User to elect to designate or
exclude \5\ one or more destinations in the Nasdaq Market Center's (the
``System'') routing table and elect the sequence in which destinations
are accessed, including the option to not post to the book. The User
may also elect the price and peg instructions with which to route on a
per venue basis. The User may not elect to route the order to locking
or crossing market centers once an order is on the book.
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\4\ See Nasdaq Rule 4758(a)(1)(A)(v)b..
\5\ While the destinations included in the proprietary System
routing table are not disclosed, a User may elect to exclude a
destination and the System routing table for the User Specific
option will be amended, if necessary.
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The routing destinations are listed on the System's routing
table.\6\ If the User Specific routing option is applied, the User may
elect to route to additional destinations and may elect to not route to
destinations that would otherwise be accessed by the strategy, subject
to Reg NMS and trade through protections. The User may also elect the
price and peg instructions with which to route on a per venue basis.
The User may not elect to route the order to locking or crossing market
centers once an order is on the book. When electing the User Specific
routing option, Users will continue to use the RFTY routing strategy,
but will provide a Nasdaq defined unique custom routing value on an
order by order basis to denote that the User Specific option has been
invoked and will be used based on the User's specifications.
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\6\ See Equity 1, Section 1(a). The Nasdaq Market Center, or
System, means the automated system for order execution and trade
reporting owned and operated by The Nasdaq Stock Market LLC.
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The RFTY strategy is a is a routing option available for an order
that qualifies as a Designated Retail Order,\7\ under which orders
check the System for available shares only if so instructed by the
entering firm and are thereafter routed to destinations on the System
routing table. If shares remain unexecuted after routing, they are
posted to the book. Once on the book, should the order subsequently be
locked or crossed by another market center, the System will not route
the order to the locking or crossing market center. RTFY is designed to
allow orders to participate in the opening, reopening and closing
process of the primary listing market for a security. One example of
the application of the User Specific routing option is a User electing
to route to designated destinations with mid-point peg instructions to
seek price improvement opportunities before cancelling back any
remaining shares without posting to the book. A User may also elect the
User Specific routing option to exclude one or more non-NMS
destinations that the strategy would otherwise route to because they
already access them using other means.
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\7\ A ``Designated Retail Order'' is an agency or riskless
principal order that meets the criteria of FINRA Rule 5320.03 and
that originates from a natural person and is submitted to Nasdaq by
a member that designates it pursuant to this rule, provided that no
change is made to the terms of the order with respect to price or
side of market and the order does not originate from a trading
algorithm or any other computerized methodology.
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Although they are not currently offered on the Exchange, all
customization options offered by Nasdaq's proposed rule change to add a
User Specific routing option are not novel and already exist within the
national market system and are non-controversial. The concept is
similar to the routing option included in an EDGX Exchange, Inc.
(``EDGX'') \8\ filing (the ``EDGX Filing'') \9\ that, in turn, was
based on a BATS routing strategy.\10\ The routing option added by the
EDGX Filing (since renumbered as EDGX Rule 11.11(g)(10)) is the
destination specific (``Destination Specific'') routing option.\11\ As
with Nasdaq's proposed User Specific routing option, the EDGX
Destination Specific routing option is one in which an order checks the
System for available shares and then is sent to an away trading center
or centers specified by the user.\12\
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\8\ The former EDGX Exchange, Inc. is now known as the Cboe EDGX
Exchange, Inc.
\9\ EDGX filed its proposal to amend certain of its rules to
adopt or align system functionality with what was offered by BATS
Exchange, Inc. and BATS Y Exchange, Inc. (collectively, ``BATS'') so
as to provide a consistent technology offering amongst EDGX and its
affiliates.
\10\ See e.g., Cboe BZX Exchange, Inc. Rule 11.13(b)(3)(E)
(formerly, BATS Rule 11.13(a)(3)(E).
\11\ See Securities Exchange Act Release No. 73468 (Oct. 29,
2014), 79 FR 65450 (Nov. 4, 2014) (SR-EDGX-2014-18).
\12\ See EDGX Rule 11.11(g)(10) states that Destination Specific
is ``a routing option under which an order checks the System for
available shares and then is sent to an away trading center or
centers specified by the User.''
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Nasdaq's proposed User Specific routing option also incorporates
EDGX's Destination Specified order instruction, set forth in EDGX Rule
11.6(n)(5),\13\ in that both allow the user to select the destination
to where the order will be routed. The only differences are that under
EDGX's Destination Specific order instruction the order is first
exposed to the EDGX Book before routing, and if the order is not
executed in full after routing away, it will be processed by EDGX as
described in EDGX Rule 11.10(a)(4),\14\ unless the user has provided
instructions that the order reside on the book of the relevant away
trading center. Also, Nasdaq's proposed User Specific routing option
permits the User not only to elect to route to additional destinations,
but also allows a User to elect to not route to destinations that would
otherwise be
[[Page 2280]]
accessed by the strategy, subject to Reg NMS and trade through
protections.
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\13\ See EDGX Rule 11.6(n)(5).
\14\ See EDGX Rule 11.10(a)(4).
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Additionally, the Exchange proposes to correct two typographical
errors in Rule 4703(a), one typographical error in Rule 4703(a)(7), and
two typographical errors in Rule 4758(a)(1)(A)(v)b., in each instance
the text mistakenly refers to ``RFTY'' as ``RTFY'' and this amendment
will rectify these typographical errors.
Implementation Date
The Exchange will issue an Equities Trader Alert to provide
notification of the change and intends to implement the proposed change
in the fourth quarter of 2023.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\15\ in general, and furthers the objectives of section
6(b)(5) of the Act,\16\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed rule change will satisfy the
objectives of section 6(b)(5) of the Act, in particular, to perfect the
mechanism of a free and open market through supporting fair and orderly
markets that protects investors and the public interest. Specifically,
the proposed rule change achieves this through providing market
participants with a voluntary routing option that is applicable to the
RFTY routing strategy that will provide them with additional control
over the execution of their orders, as well as support price
improvement, to the benefit of retail market participants.
Additionally, the Exchange believes that while the level of
customization by the User for a routing option does not exist
explicitly within any single routing choice on the Exchange, or the
BATS' Destination Specific order type, the options embedded in the User
Specific routing option are available throughout the national market
system.
For example, it is consistent with section 6(b) of the Act,\17\ in
general, and furthers the objectives of section 6(b)(5) of the Act by
providing retail market participants with a voluntary routing option
that is similar in concept to one offered by EDGX that, in turn, was
based on a BATS routing strategy, that benefits retail market
participants through increased optionality and helps to support fair
and orderly markets that protects investors and the public interest.
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\17\ 15 U.S.C. 78f(b).
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The Exchange notes that the level of customization by the User goes
beyond the Destination Specific or other Exchange routing options, but
the choices that the User may employ, and the outcomes of having
greater control over the order handling of the orders are not novel.
Although the optionality may not currently exist explicitly on the
Exchange, it does exist within the national market system and is non-
controversial and allows for a similar degree of optionality (e.g.,
ability to opt in/opt out of routing an order, electing the price level
to access) and is already available to broker/dealers and has proven to
be non-disruptive. The Exchange believes that the proposed rule change
thus serves to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general to
protect investors and the public interest because it benefits retail
market participants through increased optionality and supporting price
improvement.
The correction to two typographical errors in Rule 4703(a), one
typographical error in Rule 4703(a)(7), and two typographical errors in
Rule 4758(a)(1)(A)(v)b., in each instance the text mistakenly refers to
``RFTY'' as ``RTFY'', is consistent with section 6(b)(5) of the Act
because the clarification will reduce potential confusion and removes
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest.
For the foregoing reasons, the Exchange believes that the proposed
rule change is consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. As discussed above, while the
level of customization by the User for a routing option does not exist
explicitly within any single routing choice on the Exchange, or the
BATS' Destination Specific order type, the options embedded in the User
Specific routing option are available throughout the national market
system. The proposed functionality is based on existing functionality
available on competitor exchanges \18\ and the additional allowance for
customization by the User is non-controversial and consistent with
section 6(b) of the Act.
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\18\ See EDGX Rules 11.6(n)(5) and11.11(g)(10) as described
above that, in turn, was based on a BATS routing option (based on
Cboe BZX Exchange, Inc. Rule 11.13(b)(3)(E) (formerly, BATS Rule
11.13(a)(3)(E)).
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Furthermore, the Exchange provides routing services in a highly
competitive market in which participants may avail themselves of a wide
variety of routing options offered by other exchanges, alternative
trading systems, other broker-dealers, market participants' own
proprietary routing systems, and service bureaus. In such an
environment, system enhancements such as the changes proposed in this
rule filing do not burden competition, because they can succeed in
attracting order flow to the Exchange only if they offer investors
higher quality and better value than services offered by others.
Encouraging competitors to provide higher quality and better value is
the essence of a well-functioning competitive marketplace.
For the foregoing reasons, the Exchange does not believe the
proposed rule change will result in any burden on competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to section
19(b)(3)(A)(iii) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6)(iii) thereunder.\22\
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\19\ 15 U.S.C. 78s(b)(3)(A)(iii).
\20\ 17 CFR 240.19b-4(f)(6).
\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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[[Page 2281]]
A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\24\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange states that
it wants to implement the RFTY during the first quarter of 2024 and
granting the waiver would allow market participants and their customers
to benefit more immediately from the increased order handling
flexibility provided by the RFTY routing option. In addition, the
Exchange stated that the proposed rule change presents no unique or
novel issues that have not already been addressed by the Commission.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposal operative upon filing.\25\
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\23\ 17 CFR 240.19b-4(f)(6).
\24\ 17 CFR 240.19b-4(f)(6)(iii).
\25\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
section 19(b)(2)(B) \26\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\26\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2250574e470f414d4f4f474c5651625147410c454d54"><span class="__cf_email__" data-cfemail="0f7d7a636a226c6062626a617b7c4f7c6a6c21686079">[email protected]</span></a>. Please include
file number SR-NASDAQ-2023-057 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-2023-057. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2023-057 and should
be submitted on or before February 2, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00504 Filed 1-11-24; 8:45 am]
BILLING CODE 8011-01-P
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