[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Notices]
[Pages 62633-62635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26270]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84671; File No. SR-NASDAQ-2018-096]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4756(c)(2)

November 28, 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 November 16, 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 allow the Exchange to aggregate Displayed 
odd-lot Orders across price levels for transmission to network 
processors as the Exchange's best priced Order under Rule 4756(c)(2). 
While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative in the first quarter 
of 2019, and will announce the precise date by Equity Trader Alert at 
least thirty days prior to implementation.
    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.

[[Page 62634]]

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 amend Rule 4756 to allow the Exchange 
to aggregate Displayed \3\ odd-lot Orders across price levels for 
transmission to network processors as the Exchange's best ranked 
Displayed Order(s), which is based on how NYSE Arca, Inc. handles such 
orders pursuant to NYSE Arca Rule 7.36-E(b)(3).\4\ Rule 4756 concerns 
entry and display of Quotes \5\ and Orders,\6\ and paragraph (c) 
thereunder provides how the System \7\ will display Quotes and Orders 
submitted to the System. Rule 4756(c)(2), which the Exchange is 
proposing to amend, describes what the Exchange transmits to the 
network processors as the Exchange's best priced Order. Specifically, 
Rule 4756(c)(2) provides that, for each System Security,\8\ the 
aggregate size of all Quotes and Orders at the best price to buy and 
sell resident in the System will be transmitted for display to the 
appropriate network processor, unless the aggregate size is less than 
one round lot, in which case the aggregate size will be displayed in 
the System Book Feed \9\ but not be transmitted to a network 
processor.\10\ Thus, pursuant to Rule 4756(c)(2) Orders with an 
aggregate size of less than one round lot at a particular price level 
are displayed in the System Book Feed, but are not transmitted to a 
network processor. For example, if the Nasdaq best bid is $10.00, and 
there are the following three odd-lot Orders resting displayed on the 
Nasdaq Book with no other interest resting on the Nasdaq Book--25 
shares to buy at $10.00, 25 shares to buy at $9.99, and 50 shares to 
buy at $9.98--the System will not transmit any of these Orders to the 
appropriate processor, but rather will post them to the System Book 
Feed.\11\
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    \3\ Display is an Order Attribute that allows the price and size 
of an Order to be displayed to market participants via market data 
feeds. Certain Order Types may be non-displayed if they are not 
assigned a Display Order Attribute, and all non-displayed Orders may 
be referred to as ``Non-Displayed Orders'' (See Rule 4703(b)(3)(A) 
[sic]). In contrast, an Order with a Display Order Attribute may be 
referred to as a ``Displayed Order.'' See Rule 4703(k).
    \4\ See Securities Exchange Act Release No. 74796 (April 23, 
2015), 80 FR 23838 (April 29, 2015) (SR-NYSEArca-2015-08).
    \5\ The term ``Quote'' means a single bid or offer quotation 
submitted to the System by a Market Maker or Nasdaq Electronic 
Communications Network and designated for display (price and size) 
next to the Participant's Market Participant Identifier in the 
Nasdaq Book. Quotes are entered in the form of Orders with 
Attribution (as defined in Rule 4703). Accordingly, all Quotes are 
also Orders. See Rule 4701(d).
    \6\ 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).
    \7\ The term ``Nasdaq Market Center,'' or ``System'' shall mean 
the automated system for order execution and trade reporting owned 
and operated by The Nasdaq Stock Market LLC. See Rule 4701(a).
    \8\ The term ``System Securities'' shall mean (1) all securities 
listed on Nasdaq and (2) all securities subject to the Consolidated 
Tape Association Plan and the Consolidated Quotation Plan except 
securities specifically excluded from trading via a list of excluded 
securities posted on www.nasdaqtrader.com. See Rule 4701(b).
    \9\ The term ``System Book Feed'' shall mean a data feed for 
System Securities, generally known as the TotalView ITCH feed. See 
Rule 4701(l).
    \10\ Consequently, the Exchange currently will aggregate and 
transmit to the network processor odd-lot Orders at a particular 
price level if such Orders aggregate to at least one round lot and 
are priced better than the best-priced round lot interest on the 
Nasdaq Book.
    \11\ The Exchange notes that the network processors only accept 
quotations in round lots. As a consequence, if aggregated Orders do 
not equal a round lot the Exchange will round down to the nearest 
round lot for purposes of reporting to the appropriate network 
processor. This proposal does not change this process.
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    The Exchange is proposing to amend Rule 4756(c)(2) to allow the 
Exchange to aggregate odd-lot sized Displayed Orders at multiple price 
points that equal at least a round lot for purposes of transmitting the 
Exchange's best ranked Displayed Order(s) to the appropriate processor. 
In assigning a price to such aggregated odd-lot Orders, the Exchange 
would use the highest (lowest) price to buy (sell) wherein the 
aggregate size of all displayed buy (sell) interest in the System 
greater (less) than or equal to that price is one round lot or greater. 
Consequently, because the aggregated Displayed odd-lot Orders represent 
the best price available on the Exchange, they would be transmitted to 
the network processor as such. Using the example above, all three odd-
lot Orders resting displayed on the Nasdaq Book would be aggregated 
into a round lot Order and reported to the appropriate processor for 
quoting at a price of $9.98.\12\ The Exchange is proposing to amend 
Rule 4756(c)(2) to add four new subparagraphs to the rule, which 
provide that the Exchange will transmit to the appropriate processor 
the highest (lowest) price to buy (sell) wherein the aggregate size of 
all displayed buy (sell) interest in the System greater (less) than or 
equal to that price is one round lot or greater, and that the aggregate 
size of all displayed buy (sell) interest in the System greater (less) 
than or equal to that price will be transmitted rounded down to the 
nearest round lot.\13\
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    \12\ The Exchange notes that it is not proposing to change how 
it processes Orders for execution. Thus, Orders resting on the 
Nasdaq Book will be executed in price/display/time priority pursuant 
to Rule 4757.
    \13\ Supra note 10 [sic].
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    The Exchange is also proposing to make clarifying changes to Rule 
4756(c)(2). Currently, the rule does not note that the obligation to 
report the highest (lowest) aggregate Displayed interest to buy (sell) 
arises from Rule 602 of Regulation NMS. The Exchange is amending the 
rule to affirmatively state that the transmission to the appropriate 
network processor is done pursuant to Rule 602 of Regulation NMS. The 
Exchange is also deleting the text concerning the display in the System 
Book Feed of all Quotes and Orders at the best price to buy and sell 
resident in the System that are less than one round lot. The Exchange 
believes that this text is redundant of paragraph (1) of Rule 4756(c) 
and serves no purpose under the clarified rule. The Exchange notes that 
the clarifying changes do not alter how it currently handles Quotes and 
Orders for display and trade reporting.
    The Exchange plans to implement the change proposed herein in the 
first quarter of 2019, and will announce the precise date by Equity 
Trader Alert at least thirty days prior to implementation.

[[Page 62635]]

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ 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, because the proposed change would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system by allowing the Exchange to aggregate odd lot Orders across 
multiple price levels for purposes of determining the Exchange's best 
ranked Displayed Order(s) for transmission to the appropriate network 
processor. The proposed change will provide market participants with 
greater visibility into liquidity available on the Exchange via the 
appropriate network processor. Because arriving marketable contra-side 
Orders execute in price-time priority against resting odd-lot Orders 
priced better than resting round-lot Orders, the Exchange believes that 
it is appropriate to display such odd-lot interest on the public data 
feeds as the Exchange's best bid or offer if in the aggregate, they 
equal a round lot or more. The Exchange further believes that 
aggregating such odd-lot Orders at the highest (lowest) price to buy 
(sell) wherein the aggregate size of all buy (sell) interest in the 
System greater (less) than or equal to that price is one round lot or 
greater would remove impediments to and perfect the mechanism of a free 
and open market because it represents the best aggregated execution 
price for incoming sell (buy) Orders. The Exchange notes that the 
incoming marketable interest would receive price improvement when 
executing against any odd-lot orders priced better than the aggregated 
displayed price. Last, the Exchange believes that the proposed 
clarifying changes will help promote a better understanding of the 
operation of the rule. As noted above, the clarifying changes do not 
alter how the Exchange currently handles Quotes and Orders for display 
and trade reporting.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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. As noted above, the Exchange is 
copying functionality that is currently in use by a competitor 
exchange. The proposed change may increase the Exchange's position at 
the National Best Bid and Offer, thus allowing the Exchange to receive 
greater Order flow and, consequently, executions. This is the same 
benefit that the competitor exchange has received since adopting the 
process proposed herein. Thus, the proposed change is a competitive 
response, but does not place any burden on competition because it is 
copying a process used by a competitor exchange, which was approved by 
the Commission.

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 \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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.
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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

     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-2018-096 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-2018-096. 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-2018-096 and should be submitted 
on or before December 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26270 Filed 12-3-18; 8:45 am]
 BILLING CODE 8011-01-P


