[Federal Register Volume 87, Number 55 (Tuesday, March 22, 2022)]
[Notices]
[Pages 16279-16280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05979]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94431; File No. SR-NASDAQ-2022-006]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving Proposed Rule Change To Enable Exchange Participants To Enter 
Midpoint Extended Life Orders and M-ELO Plus Continuous Book Orders 
With an Immediate-or-Cancel Time-in-Force Instruction

March 16, 2022.

I. Introduction

    On January 19, 2022, 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 enable Exchange participants to enter Midpoint 
Extended Life Orders (``M-ELOs'') and M-ELO Plus Continuous Book Orders 
(``M-ELO+CBs'') with an immediate-or-cancel (``IOC'') Time-in-Force 
(``TIF'') instruction. The proposed rule change was published for 
comment in the Federal Register on February 2, 2022.\3\ The Commission 
has not received any comment letters on the proposed rule change. This 
order approves the proposed rule change.
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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. 94076 (January 27, 
2022), 87 FR 5926 (``Notice'').
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II. Description of the Proposal

    M-ELO is an order type with a non-display order attribute that is 
priced at the midpoint between the national best bid and national best 
offer (``NBBO'') and that will not be eligible to execute until a 
holding period of 10 milliseconds (``Holding Period'') has passed after 
acceptance of the order by the Exchange system.\4\ Once a M-ELO becomes 
eligible to execute, the order may only execute against other eligible 
M-ELOs and M-ELO+CBs.\5\
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    \4\ See Nasdaq Equity 4, Rule (``Rule'') 4702(b)(14).
    \5\ See id.
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    M-ELO+CB is an order type that has all of the characteristics and 
attributes of a M-ELO, except that after satisfying its Holding Period, 
in addition to executing against other eligible M-ELO+CBs and M-ELOs, 
it may also execute against certain orders on the Exchange's continuous 
book.\6\ Specifically, a M-ELO+CB may also execute against non-
displayed orders with midpoint pegging and midpoint peg post-only 
orders (collectively, ``Midpoint Orders'') resting on the Exchange's 
continuous book, if: (1) The Midpoint Order has the midpoint trade now 
order attribute enabled; (2) the Midpoint Order has rested on the 
continuous book for at least 10 milliseconds after the NBBO midpoint 
falls within the limit price set by the participant; (3) no other order 
is resting on the continuous book that has a more aggressive price than 
the current NBBO midpoint; and (4) the Midpoint Order satisfies any 
minimum quantity requirement of the M-ELO+CB.\7\
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    \6\ See Nasdaq Rule 4702(b)(15).
    \7\ See id.
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    Currently, M-ELOs and M-ELO+CBs may not be entered with a TIF of 
IOC.\8\ The Exchange now proposes to amend Nasdaq Rule 4702(b)(14) to 
enable Exchange participants to enter M-ELOs and M-ELO+CBs with an IOC 
instruction.\9\ As proposed, if a M-ELO or M-ELO+CB is entered with a 
TIF of IOC, it would execute against eligible resting interest 
immediately upon the expiration of the Holding Period.\10\ If no 
eligible resting interest is available, or shares of the order remain 
unexecuted after trading against available eligible resting interest, 
then the system would automatically cancel the order or the remaining 
shares of the order, as applicable.\11\ If the order is ineligible to 
begin the Holding Period upon entry (i.e., the NBBO is crossed at the 
time of order entry, there is no NBB or NBO at the time of order entry, 
or the order is entered with a limit price that is not at or better 
than the NBBO midpoint), then the system would cancel the order 
immediately.\12\
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    \8\ See Nasdaq Rule 4702(b)(14)(B), (b)(15). An order with a TIF 
of IOC is one that is designated to deactivate immediately after 
determining whether the order is marketable. See Nasdaq Rule 
4703(a)(1).
    \9\ See proposed Nasdaq Rule 4702(b)(14)(B). Because Nasdaq Rule 
4702(b)(15) incorporates by reference the M-ELO characteristics and 
attributes set forth in Nasdaq Rule 4702(b)(14), the proposed rule 
change would also allow M-ELO+CBs to be entered with a TIF of IOC.
    \10\ See proposed Nasdaq Rule 4702(b)(14)(B).
    \11\ See id.
    \12\ See id.; Notice, supra note 3, at 5928.
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    As proposed, M-ELOs and M-ELO+CBs with a TIF of IOC would be 
subject to real-time surveillance to determine if they are being abused 
by

[[Page 16280]]

market participants.\13\ Moreover, as is the case for all other M-ELOs 
and M-ELO+CBs, the Exchange would monitor the use of M-ELOs and M-
ELO+CBs with a TIF of IOC, with the intent to apply additional 
measures, as necessary, to ensure that their usage is appropriately 
tied to the intent of the order types.\14\ The Exchange states that it 
is committed to determining whether there is opportunity or prevalence 
of behavior that is inconsistent with normal risk management behavior, 
such as excessive cancellations.\15\ According to the Exchange, 
manipulative abuse is subject to potential disciplinary action under 
the Exchange's rules, and other behavior that is not necessarily 
manipulative but nonetheless frustrates the purposes of M-ELOs or M-
ELO+CBs may be subject to penalties or other participant requirements 
to discourage such behavior, should it occur.\16\
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    \13\ See Notice, supra note 3, at 5928.
    \14\ See id.
    \15\ See id.
    \16\ See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\17\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\18\ 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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    \17\ 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).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed IOC functionality could 
make the use of M-ELOs and M-ELO+CBs more efficient for Exchange 
participants that choose to use these order types.\19\ In particular, 
the proposed functionality could be attractive to Exchange participants 
that wish to enhance the efficiency of their decision-making process 
regarding whether to send additional M-ELOs or M-ELO+CBs to the 
Exchange or to seek liquidity elsewhere.\20\ The proposed functionality 
could also enhance efficiency for Exchange participants that submit M-
ELOs or M-ELO+CBs that do not satisfy the conditions for a Holding 
Period to commence upon order entry, because it would allow these 
orders to be cancelled immediately rather than be held by the system 
until such time as the conditions are met, and therefore allow these 
participants to more quickly assess whether they wish to submit new M-
ELOs or M-ELO+CBs that would satisfy the conditions to commence a 
Holding Period upon entry.\21\ Moreover, because M-ELOs and M-ELO+CBs 
are optional order types, if certain Exchange participants determine 
that the proposal would make these order types less attractive for 
their particular investment objectives, these participants may elect to 
reduce or eliminate their use of these order types.
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    \19\ The Exchange states that institutional investors have 
approached the Exchange recently to request the ability to enter IOC 
instructions for M-ELOs and M-ELO+CBs. See Notice, supra note 3, at 
5927. The Exchange also understands that some participants 
representing institutional investor orders have developed methods 
that mimic the functions of IOC. See id. at 5927 n.10.
    \20\ See id. at 5927.
    \21\ See id.
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    In its original order approving M-ELO on the Exchange, the 
Commission stated its belief that the M-ELO order type could create 
additional and more efficient trading opportunities on the Exchange for 
investors with longer investment time horizons, including institutional 
investors, and could provide these investors with an ability to limit 
the information leakage and the market impact that could result from 
their orders.\22\ In its order approving M-ELO+CB, the Commission 
stated its belief that, as with M-ELOs, M-ELO+CBs represent a 
reasonable effort to further enhance the ability of longer-term trading 
interest to participate effectively on an exchange.\23\
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    \22\ See Securities Exchange Act Release No. 82825 (March 7, 
2018), 83 FR 10937, 10938-39 (March 13, 2018) (order approving SR-
NASDAQ-2017-074). The Commission also stated that the M-ELO order 
type is intended to provide additional execution opportunities on 
the Exchange for market participants that may not be as sensitive to 
very short-term changes in the NBBO and are willing to wait a 
prescribed period of time following their order submission to 
receive a potential execution against other market participants that 
have similarly elected to forgo an immediate execution. See id. at 
10940. In addition, the Commission stated that the M-ELO order type 
is intended to mitigate the risk that an opportunistic low-latency 
trader will be able to execute against a member's order at a time 
that is disadvantageous to the member, such as just prior to a 
change in the NBBO. See id.
    \23\ See Securities Exchange Act Release No. 86938 (September 
11, 2019), 84 FR 48978, 48980-81 (September 17, 2019) (order 
approving SR-NASDAQ-2019-048).
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    The Commission believes that the proposed IOC functionality for M-
ELOs and M-ELO+CBs would not undermine the original intent of these 
order types. As proposed, these order types would continue to be 
available to market participants that are willing to wait a prescribed 
period of time following their order submission to receive a potential 
execution against other market participants that have similarly elected 
to forgo an immediate execution. As described above, the IOC 
instruction would activate only at the expiration of the Holding 
Period, rather than immediately upon order entry. In addition, while M-
ELOs and M-ELO+CBs with an IOC instruction would be cancelled 
immediately upon entry if they do not meet the conditions to start the 
Holding Period at the time of entry, such cancellation would not depend 
on the availability of eligible resting interest on the Exchange, and 
therefore would not provide any indication of the availability of such 
interest on the Exchange. Finally, as described above, the Exchange 
will continue to conduct real-time surveillance and monitor the use of 
M-ELOs and M-ELO+CBs, including those with a TIF of IOC, to determine 
whether these order types are being abused by market participants and 
whether their usage is appropriately tied to the intent of the order 
types.\24\
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    \24\ See supra notes 13-16 and accompanying text.
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    Based on the foregoing, the Commission finds that the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-NASDAQ-2022-006) be, and 
hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05979 Filed 3-21-22; 8:45 am]
BILLING CODE 8011-01-P


