[Federal Register Volume 84, Number 101 (Friday, May 24, 2019)]
[Notices]
[Pages 24191-24193]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10859]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85892; File No. SR-NASDAQ-2019-004]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Adopt a New MIDP Routing Option Under Rule 4758 and Make Conforming 
Changes to Rule 4703(e)

May 20, 2019.

I. Introduction

    On January 31, 2019, The Nasdaq Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt a new MIDP routing option under Nasdaq 
Rule 4758 and make conforming changes to Nasdaq Rule 4703(e). The 
proposed rule change was published for comment in the Federal Register 
on February 19, 2019.\3\ On April 3, 2019, pursuant to Section 19(b)(2) 
of the Act,\4\ the Commission designated a longer period within which 
to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On May 10, 2019, the Exchange filed Amendment 
No. 1 to the proposed rule change.\6\ The Commission received no 
comment letters on the proposed rule change. The Commission is 
publishing this notice to solicit comments on Amendment No. 1 from 
interested persons, and is approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85113 (February 12, 
2019), 84 FR 4885.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 85498, 84 FR 14171 
(April 9, 2019). The Commission designated May 20, 2019 as the date 
by which the Commission shall approve or disapprove, or institute 
proceedings to determine whether to disapprove, the proposed rule 
change.
    \6\ In Amendment No. 1, the Exchange: (1) Provided clarification 
and additional details regarding the operation of the MIDP routing 
option; (2) provided additional arguments supporting the proposed 
rule change; and (3) made technical and conforming changes. 
Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2019-004/srnasdaq2019004-5485246-185147.pdf.
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II. Description of the Proposal

    The Exchange proposes to adopt MIDP, a new order routing option 
under Nasdaq Rule 4758(a)(1)(A).\7\ The MIDP routing option would allow 
Nasdaq members to seek midpoint liquidity on Nasdaq and other markets 
on the Nasdaq system routing table.\8\ The MIDP routing option would be 
available only for a non-displayed order \9\ with a midpoint pegging 
order attribute.\10\ The Exchange would accept an order with the MIDP 
routing option (``MIDP order'') only with a time-in-force of Market 
Hours DAY or IOC, and a MIDP order could not be flagged to participate 
in any of the Nasdaq crosses.\11\
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    \7\ See proposed Nasdaq Rule 4758(a)(1)(A)(xvi).
    \8\ See id.; see also Amendment No. 1, supra note 6, at 4.
    \9\ See Nasdaq Rule 4702(b)(3) (defining Nasdaq's non-displayed 
order type).
    \10\ See proposed Nasdaq Rule 4758(a)(1)(A)(xvi). See also 
Nasdaq Rule 4703(d) (defining Nasdaq's midpoint pegging order 
attribute).
    \11\ See proposed Nasdaq Rule 4758(a)(1)(A)(xvi). The Exchange 
proposes a conforming change to Nasdaq Rule 4758(a)(1), which 
currently provides that order routing is available during Nasdaq 
System Hours, to allow for the times-in-force applicable to the MIDP 
routing option (i.e., Market Hours Day or IOC).
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    As proposed, a MIDP order would check the Nasdaq system for 
available shares and any remaining shares would then be routed to 
destinations on the system routing table that support midpoint eligible 
orders.\12\ A MIDP order to buy (sell) would be routed with a limit 
price that is at the lesser (greater) of: (1) The current NBO (NBB); or 
(2) the order's entered limit price (if applicable).\13\ If shares 
remain unexecuted after routing, the order would return to Nasdaq and 
check the Nasdaq system for available shares, with remaining shares 
posted on the Nasdaq book as a non-displayed order with a midpoint 
pegging order attribute (unless

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an IOC).\14\ If a MIDP order has a time-in-force of IOC and there are 
unexecuted shares remaining after routing, the order would first check 
the Nasdaq system for available shares, and then any remaining shares 
would be cancelled.\15\
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    \12\ See proposed Nasdaq Rule 4758(a)(1)(A)(xvi). MIDP orders 
(including those that have a minimum quantity order attribute) would 
route sequentially and in their full amount to the various venues on 
the Nasdaq system routing table. See Amendment No. 1, supra note 6, 
at 5 n.7.
    \13\ See proposed Nasdaq Rule 4758(a)(1)(A)(xvi). If the entered 
limit price of a buy (sell) MIDP order is less (greater) than the 
current midpoint price, the order would not be routed but would 
instead be posted on the Nasdaq book as a non-displayed order with a 
midpoint pegging order attribute, unless the order has a time-in-
force of IOC, in which case the order would be cancelled. See id. 
Once on the Nasdaq book, if the NBBO moves and the order's limit 
price is equal to the midpoint of the NBBO (i.e., the price of the 
resting order is not being updated to a new midpoint price), the 
order would not subsequently route. See Amendment No. 1, supra note 
6, at 5 n.8. If the NBBO updates so that a resting MIDP order would 
be updated to a new midpoint price, it would be routed again and, if 
shares remain unexecuted after routing, the order would check the 
Nasdaq system for available shares with any remaining shares 
reposted to the Nasdaq book. See proposed Nasdaq Rule 
4758(a)(1)(A)(xvi).
    \14\ See proposed Nasdaq Rule 4758(a)(1)(A)(xvi).
    \15\ See id.
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    The Exchange also proposes to allow a member to use the minimum 
quantity order attribute \16\ upon entry of a MIDP order.\17\ If, upon 
entry, the size of a MIDP order is less than the minimum quantity 
designated by the member, the order would be rejected.\18\ If, at any 
point during the routing process and prior to the MIDP order returning 
to post on the Nasdaq book, the remaining size of the order becomes 
less than the specified minimum quantity, the order would be cancelled 
back to the member.\19\ If shares of a MIDP order with a minimum 
quantity order attribute remain unexecuted after routing, the order 
would return to Nasdaq and check the Nasdaq system for available shares 
with any remaining shares posted on the Nasdaq book (unless an IOC) as 
a non-displayed order with a midpoint pegging order attribute and the 
minimum quantity condition specified by the member upon entry of the 
order.\20\ As noted above, if a MIDP order has a time-in-force of IOC 
and there are unexecuted shares remaining after routing, the order 
would first check the Nasdaq system for available shares, and then any 
remaining shares would be cancelled.\21\
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    \16\ See Nasdaq Rule 4703(e) (defining Nasdaq's minimum quantity 
order attribute).
    \17\ See proposed Nasdaq Rule 4758(a)(1)(A)(xvi). The Exchange 
proposes a conforming change to Nasdaq Rule 4703(e), which currently 
provides that an order with a minimum quantity order attribute and a 
routing order attribute will be rejected. According to the Exchange, 
an order could not have both a minimum quantity order attribute and 
a routing order attribute due to limitations in the Nasdaq system, 
but the Exchange has made technical changes to allow an order to 
have both the minimum quantity order attribute and the MIDP routing 
option. See Amendment No, 1, supra note 6, at 7. As proposed, the 
minimum quantity order attribute could only be combined with the 
MIDP routing option and not with any other routing options. See id.
    \18\ See proposed Nasdaq Rule 4758(a)(1)(A)(xvi).
    \19\ See id. To reflect this order cancellation, the Exchange 
proposes a conforming change to Nasdaq Rule 4703(e), which currently 
provides that if, following a partial execution, the number of 
shares remaining in an order with a minimum quantity order attribute 
is less than the specified minimum quantity value, the minimum 
quantity value of the order will be reduced to the number of shares 
remaining.
    \20\ See id.
    \21\ See id.
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    The Exchange proposes to implement the proposal in the second 
quarter of 2019, and the Exchange represents that it will provide 
notice of the implementation date at least 30 days prior to 
implementation via an Equity Trader Alert.\22\
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    \22\ See Amendment No. 1, supra note 6, at 7.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\23\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\24\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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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    \23\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the MIDP routing option would provide 
an additional mechanism for Nasdaq members to seek midpoint liquidity 
on Nasdaq and other markets.\25\ The Commission also believes that 
allowing Nasdaq members to use the minimum quantity order attribute 
with the MIDP routing option would provide Nasdaq members with 
additional control over the execution of their MIDP orders. In 
particular, the Commission believes that allowing an order to have both 
the minimum quantity order attribute and the MIDP routing option would 
enable Nasdaq members to seek midpoint executions on Nasdaq and away 
venues while controlling the amount of order information provided 
through executions. Moreover, the Commission believes that cancelling a 
MIDP order if the order's remaining size is less than the specified 
minimum quantity (rather than continuing to route) would allow a Nasdaq 
member's minimum quantity instruction to be honored every time its MIDP 
order is routed to an away venue as a new order \26\ and would further 
enable the member to control the amount of order information provided 
while the MIDP order is accessing liquidity at away venues.\27\
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    \25\ As the Exchange noted, Cboe BYX Exchange, Inc. (``BYX'') 
and Cboe EDGA Exchange, Inc. (``EDGA'') each currently have two 
routing strategies (RMPT and RMPL) that utilize a midpoint peg order 
to check their respective systems for available shares, with any 
remaining shares sent to destinations on their system routing tables 
that support midpoint eligible orders. See Amendment No. 1, supra 
note 6, at 8 n.18; BYX Rule 11.13(b)(3)(Q); EDGA Rule 11.11(g)(12). 
Under those strategies, if any shares remain unexecuted after 
routing, they are posted on the exchange book as a midpoint peg 
order, unless otherwise instructed by the user. See Amendment No. 1, 
supra note 6, at 8 n.18; BYX Rule 11.13(b)(3)(Q); EDGA Rule 
11.11(g)(12).
    \26\ According to the Exchange, each time a MIDP order is routed 
to an away venue it is treated as a new order. See Amendment No. 1, 
supra note 6, at 6 n.14.
    \27\ Also, the member may reenter a MIDP order with updated 
characteristics (e.g., minimum quantity).
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    Based on the foregoing, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-2019-004 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-2019-004. 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

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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-2019-004, and should be submitted on or before June 14, 2019.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. As discussed above, in Amendment No. 1, the 
Exchange provided clarification and additional details regarding the 
operation of the MIDP routing option, provided additional arguments in 
support of the proposed rule change, and made various technical and 
conforming changes. The Commission believes that the changes made in 
Amendment No. 1 do not raise any material or novel regulatory issues. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\28\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \28\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-NASDAQ-2019-004), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \29\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10859 Filed 5-23-19; 8:45 am]
 BILLING CODE 8011-01-P


