[Federal Register Volume 83, Number 194 (Friday, October 5, 2018)]
[Notices]
[Pages 50425-50427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21679]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84328; File No. SR-NASDAQ-2018-077]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
the Minimum Quantity Order Attribute

October 1, 2018.
    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 19, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to specify that an Order with a Minimum 
Quantity Order Attribute is ineligible to participate in the Nasdaq 
Opening, Halt or Closing Crosses and is not included in the calculation 
of the Cross price.
    The text of the proposed rule change is available on the Exchange's 
website 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
    The Exchange is proposing to specify that an Order \3\ with a 
Minimum Quantity Order Attribute \4\ is ineligible to participate in 
the Nasdaq Opening,\5\ Halt \6\ or Closing \7\ Crosses (collectively, 
the ``Nasdaq Crosses'') and is not included in the calculation of the 
Cross price. Minimum Quantity is an Order Attribute that allows a 
Participant to provide that an Order will not execute unless a 
specified minimum quantity of shares can be obtained. In 2011, the 
Exchange amended its rules concerning the Minimum Quantity Order 
Attribute to remove a restriction from the rule, which only allowed 
Orders with a Minimum Quantity Order Attribute to immediately 
execute.\8\ Thus, the proposed change allowed an Order with a Minimum 
Quantity Order Attribute to post to the Nasdaq Book \9\ if it is not 
able to execute immediately and, once posted to the Nasdaq Book, the 
Order would execute if an incoming Order that is marketable against it 
would satisfy its minimum quantity requirement.\10\ In proposing the 
new Order Attribute, the Exchange did not address participation of the 
Order Attribute in the Nasdaq Crosses; however, it never intended for 
Orders with a Minimum Quantity Order Attribute to participate in any of 
the Nasdaq Crosses. The Minimum Quantity Order Attribute allows market 
participants avoid transacting with smaller Orders that they believe

[[Page 50426]]

ultimately increase the cost of the transaction. In particular, if a 
market participant that seeks to execute a large number of shares is 
able to execute in larger sizes, the contra-party to the execution is 
less likely to be a participant that reacts to short term changes in 
the stock price. As such, the price impact to the stock could be less 
acute when larger individual executions are obtained by the market 
participant. The Minimum Quantity Order Attribute is also designed to 
give a participant flexibility in whether its Order will receive 
partial executions in a volatile market. Because the Nasdaq Crosses 
offer a controlled price discovery process, flexibility and avoidance 
of small-sized executions is not required. In proposing the Minimum 
Quantity Order Attribute amendments in 2011, Nasdaq stated:

    \3\ The term ``Order'' means an instruction to trade a specified 
number of shares in a specified System Security submitted to the 
Nasdaq Market Center by a Participant. 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. 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. The available Order Types and Order 
Attributes, and the Order Attributes that may be associated with 
particular Order Types, are described in Rules 4702 and 4703. One or 
more Order Attributes may be assigned to a single Order; provided, 
however, that if the use of multiple Order Attributes would provide 
contradictory instructions to an Order, the System will reject the 
Order or remove non-conforming Order Attributes. See Rule 4701(e).
    \4\ Id.
    \5\ See Rule 4752.
    \6\ See Rule 4753.
    \7\ See Rule 4754.
    \8\ See Securities Exchange Act Release No. 65536 (October 12, 
2011), 76 FR 64411 (October 18, 2011) (SR-NASDAQ-2011-140).
    \9\ See Rule 4701(a)(1).
    \10\ See note 8, supra.

    A Minimum Quantity Order provides a means by which a market 
participant may avoid partial executions of orders at sizes that it 
considers inadequate to achieve its purposes. For example, a market 
participant seeking to sell a large position in a trading session 
with high volatility may use the order type to avoid selling only a 
small portion of the order at the price it considers acceptable.\11\
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    \11\ See note 8, supra at 64412.

Consequently, use of the Minimum Quantity Order Attribute outside of 
the continuous market is inconsistent with the purpose of this Order 
Attribute. Upon adoption of the Minimum Quantity Order Attribute 
amendments in 2011, the Exchange also clearly notified market 
participants via an Equity Trader Alert that Orders with a Minimum 
Quantity Order Attribute are ineligible to participate in the Nasdaq 
Crosses.\12\
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    \12\ Specifically, the Exchange provided a series of FAQ's, 
which included the following: ``Can orders with Minimum Quantity 
instructions participate in auctions (i.e. open, halt, close)? No, 
orders with MinQty instructions will not participate in auctions 
(i.e. open, halt, close).'' See Nasdaq Equity Trader Alert #2011-51 
(available at: http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2011-51).
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    In light of this ambiguity in the Rules,\13\ the Exchange is 
proposing to specify that an Order with a Minimum Quantity Order 
Attribute is ineligible to participate in the Nasdaq Opening, Halt or 
Closing Crosses and is not included in the calculation of the Cross 
price.\14\
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    \13\ Notwithstanding the ambiguity in the Rules, no market 
participant has requested participation of their Orders with a 
Minimum Quantity Order Attribute in any of the Nasdaq Crosses.
    \14\ The Exchange notes that it recently identified an issue 
with the handling of Orders with a Minimum Quantity Order Attribute, 
which allowed such Orders to participate in the Crosses but they 
were not included in the calculation of the Cross price. See Nasdaq 
Market System Status Alert, August 24, 2018 and August 30, 2018 
(available at: http://www.nasdaqtrader.com/Trader.aspx?id=MarketSystemStatusSearch). The Exchange further notes 
that neither the Rules concerning the Nasdaq Crosses nor the Minimum 
Quantity Rule addressed participation of Minimum Quantity Orders in 
the Nasdaq Crosses. To make the treatment consistent with the 
Exchange's original intent when implementing the new Order 
Attribute, the Exchange has determined to exclude Orders with a 
Minimum Quantity Order Attribute from both the calculation of the 
Cross price (which is currently the case) and possible execution in 
the Nasdaq Crosses. The Exchange is correcting the issue concurrent 
with the implementation of this proposed rule change.
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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, by specifying in its rules that an Order with a Minimum 
Quantity Order Attribute may not participate in the Nasdaq Crosses and 
is not included in the calculation of the Cross price. As described 
above, the Minimum Quantity Order Attribute allows market participants 
to avoid transacting with smaller Orders that they believe ultimately 
increase the cost of the transaction, particularly if they have a large 
number of shares to be executed. As such, the price impact to the stock 
could be less acute when larger individual executions are obtained by 
the market participant. The Minimum Quantity Order Attribute is also 
designed to give a participant flexibility in whether its Order will 
receive partial executions in a volatile market. Because the Nasdaq 
Crosses offer a controlled price discovery process, flexibility and 
avoidance of small-sized executions is not required. The Exchange notes 
that no market participant has requested participation of their Orders 
with a Minimum Quantity Order Attribute in any of the Nasdaq Crosses. 
The proposed change will further perfect the Exchange's rules and 
protect investors and the public interest by avoiding any confusion 
caused by vague rules. Adding specificity to the rules with respect to 
Orders with a Minimum Quantity Order Attribute will ensure that the 
rule concerning this Order Attribute is consistent with the Exchange's 
intent upon its adoption.\17\
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ See note 12, supra.
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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. Rather, the proposed rule 
change makes the Exchange's rules more specific by explicitly stating 
that an Order with a Minimum Quantity Order Attribute is ineligible to 
participate in the Nasdaq Opening, Halt or Closing Crosses and is not 
included in the calculation of the Cross price, which will enhance 
market participants' understanding of the operation of Orders with a 
Minimum Quantity Order Attribute in the Nasdaq Crosses. Moreover, the 
proposed change is consistent with the intent of the Order Attribute. 
As described above, the Minimum Quantity Order Attribute is designed to 
help market participants reduce costs of executing large-sized Orders, 
which otherwise may execute in many small transactions, each 
potentially increasing the price of the transaction. The Nasdaq Crosses 
provide a controlled price discovery process, in which the control and 
flexibility of the Minimum Quantity Order Attribute is not needed. The 
Exchange notes that no market participant has requested participation 
of the Minimum Quantity Order Attribute in any of the Nasdaq Crosses. 
Accordingly, the proposed rule change does not implicate competition 
whatsoever.

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\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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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[[Page 50427]]

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \20\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \21\ 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 requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. Waiver 
of the operative delay would allow the Exchange to promptly amend its 
rule to exclude Orders with a Minimum Quantity Order Attribute from the 
Nasdaq Crosses and Cross price calculations,\22\ and promptly implement 
system changes in accordance with the rule. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\23\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ According to the Exchange, no market participant has 
requested participation of the Minimum Quantity Order Attribute in 
any of the Nasdaq Crosses.
    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission also 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 the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2018-077 on the subject line.

Paper Comments

     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-2018-077. 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 (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 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-2018-077, and should be submitted 
on or before October 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21679 Filed 10-4-18; 8:45 am]
 BILLING CODE 8011-01-P


