
[Federal Register Volume 84, Number 57 (Monday, March 25, 2019)]
[Notices]
[Pages 11143-11146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05567]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85356; File No. SR-NASDAQ-2019-014]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4703 To Make Clarifying Changes

March 19, 2019.
    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 6, 2019, 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 amend Rule 4703 (Order Attributes) to make 
clarifying changes to the Midpoint Trade Now and Trade Now Order 
Attributes.
    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

[[Page 11144]]

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 proposes to amend Rule 4703 (Order Attributes) to make 
clarifying changes to the Midpoint Trade Now and Trade Now Order 
Attributes.
Midpoint Trade Now
    On November 9, 2018, the Exchanged filed an immediately effective 
filing to adopt Midpoint Trade Now,\3\ which has not yet been 
implemented.\4\ Midpoint Trade Now will be an Order Attribute \5\ that 
allows a resting Order that becomes locked at its non-displayed price 
by an incoming Midpoint Peg Post-Only Order \6\ to automatically 
execute against crossing or locking interest, including potentially 
against the Midpoint Peg Post-Only Order that locked the resting Order, 
as a liquidity taker. The new Order Attribute was designed to primarily 
address execution with Midpoint Peg Post-Only Order locking interest 
and the rule was drafted as such; however, executions may occur 
following the Exchange's priority rules \7\ whereby a Midpoint Peg 
Post-Only Order may trigger Midpoint Trade Now, yet not receive a full 
or partial execution with the resting Order with Midpoint Trade Now.
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    \3\ See Securities Exchange Act Release No. 84621 (November 19, 
2018), 83 FR 60514 (November 26, 2018) (SR-NASDAQ-2018-090).
    \4\ The Exchange plans on implementing Midpoint Trade Now in the 
first quarter of 2019. Id.
    \5\ 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).
    \6\ A Midpoint Peg Post-Only Order is an Order Type with a Non-
Display Order Attribute that is priced at the midpoint between the 
NBBO and that will execute upon entry only in circumstances where 
economically beneficial to the party entering the Order. The 
Midpoint Peg Post-Only Order is available during Market Hours only. 
See Rule 4702(b)(5).
    \7\ The Exchange follows a Price/Display/Time Execution 
Algorithm, whereby better priced Orders are presented for execution 
first, equally priced Orders with a Display Attribute will be ranked 
in time priority, and Orders with a Non-Display Attribute, including 
the Non-Displayed portion of an Order with Reserve Size, are ranked 
in time priority. See Rule 4757.
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    In certain scenarios, the System \8\ will allow the resting Order 
with Midpoint Trade Now to resolve both the locked condition against 
the Midpoint Peg Post-Only Order triggering Midpoint Trade Now, as well 
as other locking or crossing Orders that have execution priority over 
the Midpoint Peg Post-Only Order.\9\ For example, assuming that the 
National Best Bid and Offer (``NBBO'') is $10.00 x $10.01, Order #1 to 
buy 300 shares at the midpoint with Midpoint Trade Now posts at $10.005 
and Order #2 is a Post-Only Order to sell 200 shares with a limit 
$10.00 that posts to the Nasdaq Book at $10.00 and is displayed at 
$10.01, if Order #3 is a Midpoint Peg Post-Only Order to sell 200 
shares posts to the Nasdaq Book at $10.005, Midpoint Trade Now would be 
triggered. Under the Midpoint Trade Now, Order #3 would not be the 
first Order that resting Order #1 would execute against. Instead, Order 
#1 would execute 200 shares against Order #2 at $10.00, and then 
execute 100 shares against Order #3. In another example, assuming that 
the NBBO is $10.00 x $10.02, Order #1 to buy 200 shares at the midpoint 
with Midpoint Trade Now posts at $10.01, and Order #2 is a Non-
Displayed Order to sell 500 shares with a Minimum Quantity Order 
Attribute of 300 shares that posts at $10.01. Both resting Orders will 
not execute because the size of Order #1 does not satisfy the Minimum 
Quantity requirement of Order #2. If Order #3 arrives as an Order to 
buy 400 shares, it would execute against Order #2 leaving 100 shares of 
Order #2.\10\ If Order #4 then arrives as a Midpoint Peg Post-Only 
Order to sell 300 shares, it would trigger Midpoint Trade Now for Order 
#1 and Order #1 would first execute against the remaining 100 shares of 
Order #2, and then execute 100 shares against Order #4.
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    \8\ The term ``Nasdaq Market Center,'' or ``System'' means the 
automated system for order execution and trade reporting owned and 
operated by The Nasdaq Stock Market LLC. See Rule 4701(a).
    \9\ Thus, the System treats the Order similar to any new 
incoming Orders by executing against resting Orders in Price/
Display/Time priority.
    \10\ The minimum quantity value of Order #2 is reduced to equal 
the number of shares remaining following its partial execution 
against Order #3, since its size has become less than the minimum 
quantity originally specified. See Rule 4703(m).
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    There is also the possibility that the Midpoint Peg Post-Only Order 
will not receive an execution at all, notwithstanding that it initiated 
the Midpoint Trade Now functionality. Using the first example above, if 
Order #2 was entered, as a Post-Only Order to sell for 300 shares, 
under the Midpoint Trade Now, Order #1 would execute in full against 
Order #2 at $10.00. Thus, although the Midpoint Peg Post-Only Order 
triggered Midpoint Trade Now, it would not receive an execution with 
the Midpoint Trade Now Order.
    As noted above, the rule text adopted by the Exchange does not 
account for executions against locking or crossing interest other than 
Midpoint Peg Post-Only Orders when Midpoint Trade Now is triggered. 
Specifically, the rule states that the resting Order that becomes 
locked at its non-displayed price by an incoming Midpoint Peg Post-Only 
Order would execute against ``that Midpoint Peg Post-Only Order.'' 
Thus, the rule as currently drafted does not address the executions 
described above. To account for how the functionality will operate, the 
Exchange is proposing to eliminate the text ``that Midpoint Peg Post-
Only Order'' from Rule 4703(n) and to replace it with ``a locking or 
crossing Order(s),'' which will expressly allow the executions 
described above to occur.
Trade Now
    The Exchange is also proposing a related clarifying change to the 
Trade Now Order Attribute.\11\ Trade Now allows a resting Order that 
becomes locked by an incoming Displayed Order to execute against the 
available size of the contra-side locking Order as a liquidity taker, 
and any remaining shares of the resting Order will remain posted on the 
Nasdaq Book with the same priority. Like an Order with Midpoint Trade 
Now, an Order with Trade Now may execute against both locking and 
crossing Orders; \12\ however, the current rule does not account for 
crossing Orders. Consequently, the Exchange is proposing to amend Rule 
4703(m) to note that a Trade Now execution may also occur against an 
Order that crosses a resting Order with Trade Now.\13\ For example, 
assuming

[[Page 11145]]

that the NBBO is $10.00 x $10.02, Order #1 is a Non-Displayed Order to 
buy 500 shares with a Minimum Quantity Order Attribute of 300 shares 
posts at $10.01, and Order #2 is a Non-Displayed Order to sell 200 
shares that posts at $10.00. Both resting Orders will not execute 
because the size of Order #2 does not satisfy the Minimum Quantity 
requirement of Order #1. Order #3 arrives as a Post-Only Order to sell 
300 shares at $10.01 and it posts at $10.01. A Trade Now instruction 
for Order #1 would result in Order #1 executing 200 shares of Order #2 
first, and then execute 300 shares against Order #3.
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    \11\ Id.
    \12\ See Supra note 9.
    \13\ The Exchange is adding rule text that clarifies that an 
Order with Trade Now may execute against locking or crossing 
interest to both the introductory paragraph of the rule as well as 
under the second bullet thereunder, which describes how Trade Now 
functions under the OUCH and FLITE protocols. The Exchange is not 
adding rule text to the first bullet thereunder, which describes how 
Trade Now functions under the RASH and FIX protocols, because the 
existing text describes what automatically triggers the 
functionality (i.e., a locked Order) and does not address the nature 
of the interest that may be executed against (i.e., locking and 
crossing interest), as described by this proposal.
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    Another example involves a security priced below $1. Assuming that 
the NBBO is $0.9970 x $1.00, Order #1 is a Non-Displayed Order with 
Trade Now to sell 500 shares at $0.9970 resting on the Nasdaq Book. 
Order #2 is subsequently entered as a Post Only Order to buy 400 shares 
at $0.9999, which posts to the book, crossing Order #1. If Order #3 is 
thereafter entered as a Post Only Order to buy 500 shares at $0.9970 
thereby locking Order #1, Order #3 would trigger Trade Now for Order #1 
resulting in an execution between Order #1 and Order #2 for 400 shares, 
and an execution between Order #1 and Order #3 for 100 shares.
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, by clarifying the operation of new functionality, which is 
effective but not yet implemented. The proposed change will allow the 
Midpoint Trade Now functionality to operate consistent with the 
Exchange's priority rules. Similarly, the proposed change to the Trade 
Now rule will clarify that a resting Order with Trade Now may execute 
against locking or crossing resting Orders. These clarifying changes 
will ensure that the Trade Now and Midpoint Trade Now rules are 
consistent with the rules governing priority of Orders on the Exchange 
and more fully describe their operation, respectively. Accordingly, the 
Exchange believes that the proposed changes are consistent with the 
Section 6(b)(5) of the Act.
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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. The proposed changes do not 
impose any burden on competition because they clarify the operation of 
rules so that they are consistent with the Exchange's rules concerning 
priority. Thus, the changes are done for non-competitive reasons and 
may promote competition to the extent that they better explain the 
operation of the two Order Attributes, allowing competitor exchanges 
and other market venues to make an informed decision on whether such 
functionality is warranted on those venues.

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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \18\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ 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 so that 
the proposed changes may be made at the earliest time possible, thereby 
minimizing any market participant confusion that may be caused by the 
current rules.\20\ The Exchange further states that the proposal would 
make its rules for Trade Now and Midpoint Trade Now consistent with its 
rules governing priority. For these reasons, the Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. Therefore, the 
Commission hereby waives the operative delay and designates the 
proposal as operative upon filing.\21\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ The Exchange states that Trade Now is currently available 
and Midpoint Trade Now will be implemented soon.
    \21\ 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2019-014 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-2019-014. 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

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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-2019-014 and should be submitted on or before April 15, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05567 Filed 3-22-19; 8:45 am]
 BILLING CODE 8011-01-P


