
[Federal Register Volume 82, Number 50 (Thursday, March 16, 2017)]
[Notices]
[Pages 14074-14076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05223]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80216; File No. SR-NASDAQ-2017-028]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4703 and Rule 4753

March 10, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 8, 2017, 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 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 Rule 4703 (Order Attributes) to 
specify the behavior of locked or crossed Orders during the Nasdaq 
Opening or Closing Cross. Nasdaq also proposes to make a corresponding 
change to Rule 4753, which governs the Halt Cross.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, 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
    Nasdaq proposes to amend Rule 4703 (Order Attributes) to specify 
the behavior of locked or crossed Orders during the Nasdaq Opening or 
Closing Cross in light of recent changes to its Post-Only Order 
functionality. Nasdaq also proposes to make a corresponding change to 
Rule 4753, which governs the Halt Cross.
    Rule 4703(l) describes the application of the Nasdaq Opening and 
Closing Cross to Nasdaq Order Types. Rule 4703(l) states that all Order 
Types, except Supplemental Orders, Retail Orders, and RPI Orders 
participate in the Nasdaq Opening Cross and/or the Nasdaq Closing Cross 
if the Order has a Time-in-Force that would cause the Order to be in 
effect at the time of the Nasdaq Opening Cross and/or Nasdaq Closing 
Cross. Market on Open (``MOO'') Orders, Limit On Open (``LOO'') Orders, 
and IOI Orders participate in the Nasdaq Opening Cross in the manner 
specified in Rule 4752 (Opening Process). Other Order Types eligible to 
participate in the Nasdaq Opening Cross operate as ``Market Hours 
Orders'' or ``Open Eligible Interest'' as specified in Rule 4752. MOC 
Orders, LOC Orders and IO Orders participate in the Nasdaq Closing 
Cross in the manner specified in Rule 4754 (Nasdaq Closing Cross). 
Other Order Types eligible to participate in the Nasdaq Closing Cross 
operate as ``Close Eligible Interest'' in the manner specified in Rule 
4754.
    Nasdaq proposes to add language to Rule 4703(l) to specify the 
treatment of Orders that are locked or crossed during the Opening or 
Closing Cross. Specifically, for purposes of selecting the Nasdaq 
Opening Cross or Closing Cross price, an Order to buy (sell) that is 
locked or crossed at its non-displayed price by a Post-Only Order on 
the Nasdaq Book shall be deemed to have a price at one minimum price 
increment below (above) the price of the Post-Only Order. This 
functionality will impact Non-Displayed Orders, Post-Only Orders, Price 
to Comply Orders and Midpoint Peg Post-Only Orders when

[[Page 14075]]

the non-displayed price of that Order is locked or crossed by a Post-
Only Order.\3\ Thus, a Non-Displayed Order to buy that is locked by a 
Post-Only Order to sell at $11.03 would be deemed to have a price of 
$11.02 for purposes of selecting the Cross price. Nasdaq is proposing 
to re-price the non-displayed price of an Order that is locked or 
crossed, rather than the Post-Only Order, because re-pricing a non-
displayed Order will produce less market impact than re-pricing an 
order that is already displayed.
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    \3\ In this scenario, the Post-Only Order would have locked or 
crossed the Non-Displayed Order, Post-Only Order, Price to Comply 
Order, or Midpoint Peg Post-Only Order at its non-displayed price 
upon entry if the value of price improvement associated with 
executing against the Order is not met.
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    The same functionality will apply to Orders that are locked or 
crossed during the Nasdaq Halt Cross.\4\ Accordingly, Nasdaq proposes 
to add Rule 4753(d), which states that, for purposes of selecting the 
Nasdaq Halt Cross price, an Order to buy (sell) that is locked or 
crossed at its non-displayed price by a Post-Only Order on the Nasdaq 
Book prior to the trading halt shall be deemed to have a price at one 
minimum price increment below (above) the price of the Post-Only Order.
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    \4\ The Halt Cross is defined as the process for determining the 
price at which Eligible Interest shall be executed at the open of 
trading for a halted security and for executing that Eligible 
Interest. See Rule 4753(a)(4).
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    The proposed change supplements the recently-approved changes to 
the Post-Only Order and the resulting modifications to Nasdaq 
systems.\5\ The change also reflects the intent of the Nasdaq Opening 
and Closing Cross functionality, which currently prices buy (sell) 
Opening Imbalance Only (``OIO'') Orders and Imbalance Only (``IO'') 
Orders to the highest bid (lowest offer) on the Nasdaq Book (but not 
beyond the Order's stated limit price), and prevents buy and sell OIO 
and IO Orders from being priced at the same price and executing against 
each other.
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    \5\ See Securities Exchange Act Release No. 79290 (November 10, 
2016), 81 FR 81184 (November 17, 2016) (SR-NASDAQ-2016-111). Nasdaq 
initially proposed to implement the new Post-Only functionality on 
November 21, 2016. See Equity Trader Alert #2016-291. However, 
following testing, Nasdaq has decided to delay the implementation of 
this new functionality to provide additional time for systems 
testing. The new functionality shall be implemented no later than 
March 31, 2017. See Securities Exchange Act Release No. 80045 
(February 15, 2017), 82 FR 11389 (February 22, 2017) (SR-NASDAQ-
2017-013). Under the new Post-Only functionality, the behavior of 
Post-Only orders would be altered when the adjusted price of such 
orders lock or cross a non-displayed price on the Exchange's Book. 
Specifically, if the adjusted price of the Post-Only Order would 
lock or cross a non-displayed price on the Exchange's Book, the 
Post-Only order would be posted in the same manner as a Price to 
Comply Order. However, the Post-Only Order would execute if (i) it 
is priced below $1.00 and the value of price improvement associated 
with executing against an Order on the Nasdaq Book (as measured 
against the original limit price of the Order) equals or exceeds the 
sum of fees charged for such execution and the value of any rebate 
that would be provided if the Order posted to the Nasdaq Book and 
subsequently provided liquidity, or (ii) it is priced at $1.00 or 
more and the value of price improvement associated with executing 
against an Order on the Nasdaq Book (as measured against the 
original limit price of the Order) equals or exceeds $0.01 per 
share. Additionally, if the Post-Only Order would not lock or cross 
a Protected Quotation but would lock or cross a Non-Displayed Order 
on the Exchange's Book, the Post-Only Order would be posted, ranked, 
and displayed at its limit price. The Post-Only Order would execute 
if (i) it is priced below $1.00 and the value of price improvement 
associated with executing against an Order on the Nasdaq Book equals 
or exceeds the sum of fees charged for such execution and the value 
of any rebate that would be provided if the Order posted to the 
Nasdaq Book and subsequently provided liquidity, or (ii) it is 
priced at $1.00 or more and the value of price improvement 
associated with executing against an Order on the Nasdaq Book equals 
or exceeds $0.01 per share.
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    The change is also similar to the treatment of Post-Only Orders 
with Midpoint Pegging during the Opening Cross, Closing Cross and Halt 
Cross.\6\ Rule 4702(b)(5)(A) provides that, for purposes of any cross 
in which a Midpoint Peg Post-Only Order participates, a Midpoint Peg 
Post-Only Order to buy (sell) that is locking a preexisting Order shall 
be deemed to have a price equal to the price of the highest sell Order 
(lowest buy Order) that would be eligible to execute against the 
Midpoint Peg Post-Only Order in such circumstances. Thus, a Midpoint 
Peg Post-Only Order to buy that locked a preexisting Non-Displayed 
Order to sell at $11.03 would be deemed to have a price of $11.02. With 
this change, Nasdaq will be adopting a similar functionality for an 
Order that is locked or crossed at its non-displayed price by a Post-
Only Order for purposes of the Opening Cross, Closing Cross, and Halt 
Cross.
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    \6\ Midpoint Pegging means Pegging with reference to the 
midpoint between the Inside Bid and the Inside Offer (the 
``Midpoint''). Thus, if the Inside Bid was $11 and the Inside Offer 
was $11.06, an Order with Midpoint Pegging would be priced at 
$11.03. An Order with Midpoint Pegging is not displayed. An Order 
with Midpoint Pegging may be executed in sub-pennies if necessary to 
obtain a midpoint price. See Rule 4703(d).
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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. 
The proposed change is consistent with the Act because it reflects the 
intent of the Nasdaq Opening and Closing Cross functionality, which 
currently prices buy (sell) OIO Orders and IO Orders to the highest bid 
(lowest offer) on the Nasdaq Book (but not beyond the Order's stated 
limit price), and prevents buy and sell OIO and IO Orders from being 
priced at the same price and executing against each other. The proposed 
change also adopts a re-pricing functionality that is similar to a re-
pricing functionality that is currently in effect for Midpoint Peg 
Post-Only Orders during the Opening Cross, Closing Cross and Halt 
Cross. Finally, the proposed change supplements the recently-approved 
changes to the Post-Only Order and the resulting modifications to 
Nasdaq systems.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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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 change adopts a 
re-pricing functionality that is similar to a re-pricing functionality 
that is currently in effect for Midpoint Peg Post-Only Orders during 
the Opening Cross, Closing Cross and Halt Cross. Moreover, the use of 
Exchange Order types and attributes is voluntary, and no member is 
required to use any specific Order type or attribute or even to use any 
Exchange Order type or attribute or any Exchange functionality at all. 
If an Exchange member believes for any reason that the proposed rule 
change will be detrimental, that perceived detriment can be avoided by 
choosing not to enter or interact with the Order types modified by this 
proposed rule change. Finally, the proposal will apply equally to all 
Orders that meet its criteria.

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

[[Page 14076]]

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 and Rule 19b-4(f)(6) thereunder.\9\
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    \9\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \10\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ permits the 
Commission to 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. The 
Exchange represents that the proposal supplements the recently-approved 
changes to the Post-Only Order type and the resulting modifications to 
Nasdaq systems, and that it will implement those previously approved 
changes no later than March 31, 2017.\12\ Waiver of the 30-day 
operative delay would allow the Exchange to implement the previously 
approved changes to the Post-Only Order type concurrently with the 
supplemental changes in this proposal. Accordingly, the Commission 
finds that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest and designates the 
proposal operative upon filing.\13\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ See supra note 5 and accompanying text. The Exchange also 
notes that the proposed functionality reflects the intent of the 
Nasdaq Opening and Closing Cross functionality and is similar to a 
functionality that is currently in effect for Midpoint Peg Post-Only 
Orders.
    \13\ 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. 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 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2017-028 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2017-028. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-028 and should 
be submitted on or before April 6, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05223 Filed 3-15-17; 8:45 am]
 BILLING CODE 8011-01-P


