[Federal Register Volume 88, Number 7 (Wednesday, January 11, 2023)]
[Notices]
[Pages 1616-1621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00320]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96601; File No. SR-NASDAQ-2022-077]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4702 To 
Establish New ``Contra Midpoint Only'' and ``Contra Midpoint Only With 
Post-Only'' Order Types

January 5, 2023
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 1617]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 22, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 4702 to establish new ``Contra 
Midpoint Only'' and ``Contra Midpoint Only with Post-Only'' Order 
Types.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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 proposes to amend Rule 4702(b) to establish ``Contra 
Midpoint Only'' or ``CMO'' and ``Contra Midpoint Only with Post-Only'' 
or ``CMO+PO'' as new Order Types on the Exchange.
    A CMO is a non-displayed Order Type priced at the midpoint between 
the National Best Bid and the National Best Offer (the ``NBBO'' and the 
midpoint of the NBBO, the ``Midpoint''). The Exchange will cancel a CMO 
resting on the Order Book upon entry of certain types of incoming 
Orders that are indicative of pending price movements that would be 
less favorable to the CMO user than the prevailing price, thus 
providing protection to the CMO user against executions at the 
prevailing Midpoint price that the user may deem unfavorable. As 
explained below, once the System cancels a CMO under these 
circumstances, the user would be free to submit a new CMO at the new 
Midpoint price or, in certain cases, the Exchange would do so 
automatically on behalf of the user.
    A CMO+PO is similar to a CMO, except that it provides for ``post-
only'' functionality, meaning that like a Midpoint Peg Post-Only 
Order,\3\ a CMO+PO will execute upon entry only in circumstances where 
economically beneficial to the party entering the Order.
---------------------------------------------------------------------------

    \3\ See Rule 4702(b)(5).
---------------------------------------------------------------------------

    The CMO and CMO+PO are the latest in a series of innovative Order 
Types that the Exchange has developed to provide market participants 
with options that allow them to make their own determinations with 
regards to various trade-offs that exist when executing their 
strategies in the markets. One such trade off might be the amount of 
liquidity they can obtain in the near term versus the potential for 
market movement relative to the Midpoint price. Some participants may 
value avoiding immediate executions in order to wait for a better price 
while others would rather obtain the liquidity instead of waiting. 
Further, these options allow similarly-minded market participants to 
interact via these Order Types. In 2018, for example, Nasdaq introduced 
the Midpoint Extended Life Order (``M-ELO'').\4\ Like CMO, M-ELO is 
also a non-displayed Order Type that executes only at the Midpoint. It 
is eligible to execute only against other M-ELOs, and it protects users 
from interacting with time-sensitive orders by requiring them to wait a 
period of time (a ``Holding Period'') before their M-ELO is eligible to 
execute (originally one-half second, and subsequently reduced to 10 
milliseconds). \5\ In 2019, the Exchange enhanced the M-ELO concept by 
adding the Midpoint Extended Life Order Plus Continuous Book (``M-
ELO+CB'').\6\ A M-ELO+CB behaves exactly like a M-ELO, except that it 
may also interact with Midpoint Orders on the Exchange's Continuous 
Book (and thus have access to larger sources of liquidity) to the 
extent that such Midpoint Orders, in turn, opt to rest on the 
Continuous Book for at least 10 milliseconds before becoming eligible 
to execute against a M-ELO+CB. CMO and CMO+PO are the latest variations 
on the M-ELO/M-ELO+CB theme. M-ELOs only trade against other Orders 
from like-minded participants that are willing to wait the required 
time period before trading. CMOs and CMO+POs, by contrast, can trade in 
a wider array of situations, but like M-ELO, they will not trade in 
instances where the incoming order is likely to impact the prevailing 
price of the security. \7\ This will provide users of CMOs and CMO+POs 
with opportunities for more liquidity interaction than M-ELO but with 
slightly less protection. On the other hand, CMOs and CMO+POs will 
provide more protection to users than regular Midpoint Orders, but with 
less opportunity to interact with liquidity. Instead of imposing a 
waiting period, the Exchange will cancel a resting CMO when it faces 
incoming orders that are likely to shift the Midpoint, while also 
providing an opportunity to a participant to receive price improvement 
if or when the participant resubmits its CMO or CMO+PO to take 
advantage of a shift in the Midpoint.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 34-82825 (Mar. 7, 
2018), 83 FR 10937 (Mar. 13, 2018) (order approving SR-NASDAQ-2017-
074).
    \5\ In 2020, the Commission issued an order approving the 
Exchange's proposal to shorten the Holding Period for M-ELO and M-
ELO+CB Orders from one-half second to 10 milliseconds. See 
Securities Exchange Act Release No. 34-88743 (April 24, 2020), 85 FR 
24068 (April 30, 2020) (order approving SR-NASDAQ-2020-011).
    \6\ See Securities Exchange Act Release No. 34-86938 (September 
11, 2019), 84 FR 48978 (September 17, 2019) (order approving SR-
NASDAQ-2019-048).
    \7\ As part of its proposal, the Exchange proposes to amend Rule 
4702(b)(15) to state that a M-ELO+CB that satisfies the Holding 
Period of that Order Type shall be eligible to execute (at the 
midpoint of the NBBO) against other eligible Contra Midpoint Only 
Orders and Contra Midpoint Only with Post-Only Orders.
---------------------------------------------------------------------------

    The specific proposed characteristics of the CMO are as follows.
    A CMO is a non-displayed Order Type with the Midpoint Pegging 
Attribute that will be priced and ranked in time order at the Midpoint. 
A user may cancel a CMO at any time.
    The System will cancel a CMO Order automatically if a CMO is 
resting at the Midpoint on the Exchange Book, an incoming Order is 
priced through the price of the CMO, the CMO would otherwise trade 
against the incoming Order,\8\ and one or more of the following 
conditions apply, which the Exchange observes are indicative of a 
pending price shift in favor of the CMO user:
---------------------------------------------------------------------------

    \8\ For example, if the incoming Order is filled fully by 
resting interest with price/time priority ahead of the resting CMO 
Order, then the CMO order will not be cancelled by the System.
---------------------------------------------------------------------------

     The incoming Order is Displayed and its size is greater 
than that of the resting CMO;

[[Page 1618]]

     The incoming Order is not Displayed, it is priced at the 
far side of the NBBO, and its size is greater than that of the resting 
CMO; or
     The incoming Order is assigned the ISO attribute.
    Again, in these instances, the Exchange observes that the incoming 
Order will likely cause the NBBO to shift, such that cancellation of 
the CMO will be preferable to allowing the CMO to execute at a Midpoint 
price that may be stale. The user may then choose to resubmit the CMO 
manually to take advantage of the price shift, in the case of a CMO 
with a price that the Exchange fixes at the Midpoint that prevails at 
the time of entry (a ``Fixed'' CMO, discussed below). In the case of a 
CMO entered as a Peg Managed Order in accordance with Rule 4703(d), and 
which has a price that the System updates in accordance with post-entry 
shifts in the Midpoint (a ``Managed'' CMO, also discussed below), the 
System will automatically re-submit a new CMO on behalf of the user 
after cancelling the original CMO.
    Additionally, because a CMO inherently possesses the Midpoint 
Pegging Attribute, it will behave in accordance with Rule 4703(d), 
which governs Orders with Midpoint Pegging.\9\ Thus, consistent with 
Rule 4703(d), the following behavior applies to CMOs:
---------------------------------------------------------------------------

    \9\ In part, this proposal references Rule text that the 
Exchange amended in a recent filing with the Commission but which 
the Exchange has yet to implement. See Securities Exchange Act 
Release No. 34-95768 (September 14, 2022), 87 FR 57534 (September 
20, 2022) (SR-NASDAQ-2022-051); Securities Exchange Act Release No. 
34-96341 (November 17, 2022), 87 FR 71712 (November 23, 2022) 
(delaying implementation of SR-NASDAQ-2022-051). To the extent that 
the Commission approves the proposal for adoption of the CMO and 
CMO+PO prior to implementation of SR-NASDAQ 2022-051, the Exchange 
may act to implement those features of the CMO and CMO+PO that do 
not require the availability of the Rule text amendments set forth 
in SR-NASDAQ-2022-051 to operate--namely, those features applicable 
to a Fixed CMO and Fixed CMO+PO. The Exchange will specify in an ETA 
exactly which features of the CMO and CMO+PO will be available to 
participants as of the initial implementation date and which of them 
will be available only as of the date of implementation of SR-
NASDAQ-2022-051. A present, the Exchange expects that SR-NASDAQ-
2022-051 will be ready for full implementation in the second or 
third quarter of 2023, although that time frame is subject to 
change.
---------------------------------------------------------------------------

     A CMO user may only enter a CMO Order during Market Hours.
     A CMO user may specify that a CMO peg to the Midpoint in 
one of two ways, either with fixed pegging (a'' Fixed CMO'') or with 
managed pegging (a ``Managed CMO'').
     For a Fixed CMO, the System will fix the price of the CMO 
at the Midpoint prevailing at the time of Order entry. After posting to 
the Exchange Book, the price of a Fixed CMO will not thereafter be 
adjusted based on changes to the Inside Bid or Offer. However, the 
System will cancel a Fixed CMO after initial entry and posting to the 
Exchange Book if any of following conditions are met (in addition to 
those cancellation conditions that will apply specifically to CMOs in 
the proposed rule): (i) there is no Inside Bid and/or Inside Offer; 
(ii) the Fixed CMO to buy (sell) is entered with a limit price above 
(below) the Midpoint and is ranked at the Midpoint, and thereafter, the 
Inside Bid and/or Inside Offer change so that the Midpoint changes and 
the Fixed CMO is no longer at the Midpoint); (iii) the Fixed CMO to buy 
(sell) is entered at a limit price that is equal to or less than 
(greater than) the Midpoint and is ranked at its limit price; 
thereafter, the Inside Bid and/or Inside Offer change so that the 
Midpoint is lower (higher) than the limit price of the Fixed CMO; (iv) 
the Fixed CMO to buy (sell) is entered at a limit price that is equal 
to or less than (greater than) the Midpoint and is ranked at its limit 
price, and thereafter, the Inside Bid and Inside Offer become crossed, 
such that the Midpoint of the crossed Quotation remains equal to or 
higher (lower) than the limit price of the Fixed CMO, and then a new 
sell (buy) Order is received at a price that locks or crosses the limit 
price of the resting Fixed CMO; or (v) the Fixed CMO to buy (sell) is 
entered at a limit price that is greater than (less than) the Midpoint 
and is therefore ranked at the Midpoint, and thereafter, the Inside Bid 
and Inside Offer become crossed but the Midpoint does not change, and 
then a new sell (buy) Order is received at a price that locks or 
crosses the Midpoint of the Inside Bid and Inside Offer.\10\
---------------------------------------------------------------------------

    \10\ A user may enter a Fixed CMO using OUCH or FLITE. See Rule 
4703(d).
---------------------------------------------------------------------------

     A Managed CMO \11\ will have its price set upon initial 
entry and will thereafter have its price reset in accordance with 
changes to the relevant Inside Quotation. A Managed CMO will receive a 
new timestamp whenever its price is updated and therefore will be 
evaluated with respect to possible execution (and routing, if it has 
been assigned a Routing Order Attribute) in the same manner as a newly 
entered Order. If the price to which a Managed CMO is pegged becomes 
unavailable, pegging would lead to a price at which the Managed CMO 
cannot be posted, or if the Inside Bid and Inside Offer become crossed, 
then the System will cancel the Managed CMO back to the participant if 
assigned a Routing Order Attribute. If Managed CMO is not assigned a 
Routing Order Attribute, and the price to which it is pegged becomes 
unavailable, pegging would lead to a price at which the Managed CMO 
cannot be posted, or if the Inside Bid and Inside Offer become crossed, 
them the Managed CMO will be removed from the Exchange Book and will be 
re-entered once there is a permissible price, provided however, that 
the System will cancel the Managed CMO if no permissible pegging price 
becomes available within one second after the Managed CMO was removed 
and no longer available on the Exchange Book (the Exchange may, in the 
exercise of its discretion modify the length of this one second time 
period by posting advance notice of the applicable time period on its 
website).\12\
---------------------------------------------------------------------------

    \11\ The features of Managed CMOs and Managed CMO+POs cross-
reference a version of Rule 4703(d) that is set forth in SR-NASDAQ-
2022-051 and not yet implemented. Thus, Managed CMOs and Managed 
CMO+POs will not be available for use prior to implementation of SR-
NASDAQ 2022-051. See n.10, supra.
    \12\ A user may enter a Managed CMO using RASH, FIX, QIX, or 
OUCH. See Rule 4703(d).
---------------------------------------------------------------------------

     If at the time of entry, there is no price to which a 
Managed CMO, that has not been assigned a Routing Order Attribute or a 
Time in Force of Immediate-or-Cancel, can be pegged or pegging would 
lead to a price at which the Order cannot be posted, or if the Inside 
Bid and Inside Offer are Crossed, then the CMO will not be immediately 
available on the Exchange Book and will be entered once there is a 
permissible price provided however, that the System will cancel the 
Managed CMO if no permissible pegging price becomes available within 
one second after Order entry (the Exchange may, in the exercise of its 
discretion, modify the length of this one second time period by posting 
advance notice of the applicable time period on its website).
     For a Managed CMO Order that has been assigned a Routing 
Order Attribute, if there is no permissible price to which the Order 
can be pegged at the time of entry, pegging would lead to a price at 
which the Order cannot be posted, or the Inside Bid and Inside Offer 
are crossed, the Order will be rejected.
     A CMO will have its price set upon initial entry to the 
Midpoint, unless the CMO has a limit price, and that limit price is 
lower than the Midpoint for a CMO to buy (higher than the Midpoint for 
CMO to sell), in which case the Order will be ranked on the Exchange 
Book at its limit price. If the Inside Bid and Inside Offer are locked, 
a CMO will be priced at the locking price; and for Fixed CMOs, if the 
Inside Bid and Inside Offer are crossed or if there is no

[[Page 1619]]

Inside Bid and/or Inside Offer, the Fixed CMO will not be accepted. 
However, even if the Inside Bid and Inside Offer are locked, an Order 
with CMO that locked an Order on the Exchange Book would execute.
     If a CMO has been assigned a Discretion Order Attribute, 
the CMO may execute at any price within the discretionary price range, 
even if beyond the limit price specified with respect to the Midpoint 
Pegging Order Attribute. If CMO is priced at its limit price, the price 
of the CMO may nevertheless be changed to a less aggressive price based 
on changes to the Inside Quotation.
     Like other Orders with Pegging, CMOs are subject to a 
collar. Any portion of a CMO with a Routing attribute to buy (sell) 
that could execute, either on the Exchange or when routed to another 
market center, at a price of more than the greater of $0.25 or 5 
percent higher (lower) than the NBO (NBB) at the time when the order 
reaches the System (the ``Collar Price''), will be cancelled. A CMO 
entered without a Routing attribute will be cancelled, if it would, as 
a result of the price determined by a Pegging Attribute, execute or 
post to the Exchange Book at a price through the Collar Price.
     The System will cancel CMOs when a trading halt is 
declared, and the System will reject any CMOs entered during a trading 
halt.
    As noted above, a CMO will not be accepted outside of Market Hours, 
but it will be eligible to participate in the Nasdaq Closing Cross. A 
CMO remaining unexecuted after the Nasdaq Closing Cross occurs will be 
cancelled by the System unless, in the case of a Fixed CMO, the user 
selects a Time in Force for the Fixed CMO that provides for it to 
persist thereafter.
    A CMO user may opt to apply the Minimum Quantity, Trade Now, or 
Discretion Order Attributes to a CMO. Again, the Non-Display and 
Midpoint Pegging Attributes always apply to CMOs.
    A CMO+PO will possess all of the characteristics and attributes of 
a CMO, as described above, as well as those of a Midpoint Peg Post-Only 
Order, as set forth in Rule 4702(b)(5), with certain exceptions set 
forth below.
    Like a Midpoint Peg Post-Only Order, a CMO+PO is a non-displayed 
Order that is priced at the Midpoint and executes upon entry only in 
circumstances where economically beneficial to the party entering the 
Order. If a CMO+PO has a Fixed Midpoint, then it may be adjusted after 
initial entry and posting to the Exchange Book. The price at which a 
Fixed CMO+PO is ranked on the Nasdaq Book is the midpoint between the 
NBBO, unless the Order has a limit price that is lower than the 
midpoint between the NBBO for an Order to buy (higher than the midpoint 
between the NBBO for an Order to sell), in which case the Order will be 
ranked on the Nasdaq Book at its limit price. The price of the Fixed 
CMO+PO will not thereafter be adjusted based on changes to the NBBO. 
However, a Fixed CMO+PO will be cancelled back to the Participant after 
initial entry and posting to the Nasdaq Book if any of the following 
conditions are met:
     There is no National Best Bid and/or National Best Offer;
     The Fixed CMO+PO to buy (sell) is entered with a limit 
price above (below) the Midpoint of the NBBO and is ranked at the 
Midpoint of the NBBO; thereafter, the NBBO changes so that the Midpoint 
changes and the Fixed CMO+PO is no longer at the NBBO Midpoint;
     The Fixed CMO+PO to buy (sell) is entered at a limit price 
that is equal to or less than (greater than) the Midpoint of the NBBO 
and is ranked at its limit price; thereafter, the NBBO changes so that 
the Midpoint of the NBBO is lower (higher) than the limit price of the 
Fixed CMO+PO;
     The Fixed CMO+PO to buy (sell) is entered at a limit price 
that is equal to or less than (greater than) the Midpoint of the NBBO 
and is ranked at its limit price, thereafter the NBBO becomes crossed, 
such that the Midpoint of the crossed NBBO remains equal to or higher 
(lower) than the limit price of the Fixed CMO+PO, and then a new sell 
(buy) Order is received at a price that locks or crosses the limit 
price of the resting Fixed CMO+PO; or
     The Fixed CMO+PO to buy (sell) is entered at a limit price 
that is greater than (less than) the Midpoint of the NBBO and is 
therefore ranked at the Midpoint of the NBBO, thereafter the NBBO 
becomes crossed but the Midpoint does not change, and then a new sell 
(buy) Order is received at a price that locks or crosses the Midpoint 
of the NBBO.
    If a CMO+PO has a Managed Midpoint, then also like a Midpoint Peg 
Post-Only Order, the price of the CMO+PO will be updated repeatedly to 
equal the midpoint between the NBBO; provided, however, that the CMO+PO 
will not be priced higher (lower) than its limit price. In the event 
that the midpoint between the NBBO becomes higher than (lower than) the 
limit price of a CMO+PO to buy (sell), the price of the CMO+PO will 
stop updating and the CMO+PO will post (with a Non-Display Attribute) 
at its limit price, but will resume updating if the midpoint becomes 
lower than (higher than) the limit price of the CMO+PO to buy (sell). 
Similarly, if a CMO+PO is on the Nasdaq Book and subsequently the NBBO 
is crossed, or if there is no NBBO, the Order will be removed from the 
Nasdaq Book and will be re-entered at the new midpoint once there is a 
valid NBBO that is not crossed. The CMO+PO receives a new timestamp 
each time its price is changed.
    Like a Midpoint Peg Post-Only Order, but unlike an ordinary CMO, a 
CMO+PO will not be eligible to participate in the Nasdaq Opening Cross, 
Closing Cross, or Halt Cross, and all CMO+POs will be cancelled if they 
remain on the Exchange Book at the end of Market Hours.\13\ Also like a 
Midpoint Peg Post-Only Order, but unlike an ordinary CMO, a CMO+PO may 
not possess the Discretion or Routing Order Attributes, and a CMO+PO 
must be priced at more than $1 per share. Finally, unlike a Midpoint 
Peg Post-Only Order, RASH may be used to enter a CMO+PO with a Time in 
Force of IOC (as well as OUCH, which can be used for such purposes with 
respect to a MPPO), and in such cases the Order will be canceled after 
determining whether it can be executed.
---------------------------------------------------------------------------

    \13\ A CMO+PO entered prior to the beginning of Market Hours 
will be rejected. A CMO+PO will be cancelled by the System when a 
trading halt is declared, and any CMO+PO entered during a trading 
halt will be rejected.
---------------------------------------------------------------------------

    CMO and CMO+PO executions will be reported to Securities 
Information Processors and provided in the Exchange's proprietary data 
feed without any new or special indication.
    As part of the surveillance the Exchange currently performs, CMOs 
and CMO+POs will be subject to real-time surveillance to determine if 
they are being abused by market participants. The Exchange is committed 
to determining whether there is opportunity or prevalence of behavior 
that is inconsistent with normal risk management behavior. 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 the CMO or CMO+PO may be subject 
to penalties or other participant requirements to discourage such 
behavior, should it occur.\14\
---------------------------------------------------------------------------

    \14\ Punitive fees or other participant requirements tied to CMO 
and CMO+PO usage will be implemented by rule filing under Section 
19(b) of the Act, 15 U.S.C. 78s(b), should the Exchange determine 
that they are necessary to maintain a fair and orderly market.
---------------------------------------------------------------------------

    The Exchange plans to implement CMO and CMO+PO within thirty days 
after Commission approval of the

[[Page 1620]]

proposal. The Exchange will make the CMO and CMO+PO available to all 
members and to all securities upon implementation. The Exchange will 
announce the implementation date by Equity Trader Alert.\15\
---------------------------------------------------------------------------

    \15\ The Exchange plans to propose a fee structure for the CMO 
and CMO+PO in a subsequent Commission rule filing.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\17\ 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. In particular, the proposal is consistent with the Act 
because it would create additional options with respect to how 
participants can manage trading at the Midpoint. These additional 
options allow participants to more finely tune their interactions in 
the market, which can lead to more efficient trading opportunities on 
the Exchange for investors with similar investment objectives.\18\ Much 
like the analogous M-ELO Order Type, which Nasdaq introduced a few 
years ago, CMO and CMO+PO would provide market participants with a 
means to avoid certain execution scenarios which they may deem 
unfavorable. Unlike M-ELO, however, which imposes a waiting period upon 
participants to bring like-minded participants together, the CMO and 
CMO+PO would have no such waiting period. That is, the Exchange 
designed CMO and CMO+PO for participants that want Midpoint executions, 
but have a greater urgency to execute their orders and are not 
concerned about interacting with other participants acting with similar 
urgency. At the same time, the CMO and CMO+PO will avoid interacting 
with orders that are likely to shift the midpoint even without a 
holding period by providing for the System to cancel a CMO or CMO+PO 
when faced with incoming Order that cross the Midpoint or are otherwise 
likely to cause a shift in the Midpoint. For Fixed CMOs and CMO+POs, 
users could then choose to enter a new CMO to take advantage of a 
better ensuing Midpoint; for Managed CMOs and CMO+PO, the System will 
do this automatically.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Cf. Securities Exchange Act Release No. 34-82825 (March 7, 
2018), 83 FR 10937 (March 13, 2018) (SR-NASDAQ-2017-074) (approving 
the Midpoint Extended Life Order (``M-ELO'') because it 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.'').
---------------------------------------------------------------------------

    The CMO and CMO+PO will be available for voluntary use by all 
Exchange members. Moreover, the proposal is not unfair to participants 
with incoming Orders that trigger cancellation of CMOs because exchange 
functionality which permits like-minded participants the ability to 
achieve their objectives in an efficient manner will improve overall 
execution quality on the market, to the benefit of all market 
participants. Moreover, the protections that these Order Types provide 
are narrowly tailored to mitigate the risk of adverse executions.\19\
---------------------------------------------------------------------------

    \19\ Cf. Order Approving a Proposed Rule Change to Add a New 
Discretionary Limit Order Type Called D-Limit, Securities Exchange 
Act Release No. 34-89686 (August 26, 2020), 85 FR 54438 (September 
1, 2020) (SR-IEX-2019-15) (``D-Limit orders will encourage long term 
investors to participate in the displayed exchange market by 
protecting them against one particular strategy employed by short 
term traders. It is not unfairly discriminatory for an exchange to 
address that advantage in a narrowly tailored manner that promotes 
investor protection and the public interest. Accordingly, the 
Commission concludes that IEX's proposal is not designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers.'').
---------------------------------------------------------------------------

    Like all other Order Types, the Exchange will conduct real-time 
surveillance to monitor the use of CMOs and CMO+POs to ensure that such 
usage is appropriately tied to the intent of the Order Type. 
Transactions in CMOs and CMO+POs will be reported to the Securities 
Information Processor and will be provided in the Exchange's 
proprietary data feed in the same manner as all other transactions 
occurring on the Exchange, without any new or special indication that 
it is a CMO or CMO+PO execution. The Exchange believes that doing so is 
important to ensuring that investors are protected from any market 
impact that may occur if CMO executions were reported with a special 
indication.
    The Exchange does not believe that the proposed CMO or CMO+PO will 
negatively affect the quality of the market. To the contrary, the 
Exchange believes that the addition of CMO and CMO+PO will draw new 
market participants to the Exchange's transparent and well-regulated 
market, including participants that were previously not utilizing M-
ELOs or M-ELO+CBs. Moreover, like these other Order Types, the CMO and 
CMO+PO will allow investors an opportunity to find like-minded 
counterparties at the midpoint on the Exchange, while also limiting 
executions users may deem unfavorable and providing opportunities for 
price improvement. Insofar as the CMO and CMO+PO would provide new 
options for participants to achieve efficient, high-quality midpoint 
executions, the CMO and CMO+PO stands to increase participation on the 
Exchange and to improve the quality of executions on the Exchange, to 
the benefit of all market participants.

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 Exchange believes that the introduction of the CMO and CMO+PO 
will draw new market participants to the Exchange while also providing 
a new option for existing participants that wish to achieve benefits 
similar to M-ELO or M-ELO+CB--high-quality Midpoint executions--but do 
not wish for their Orders to be subject to a Holding Period or care 
about their counterparties being subject to the same. To the extent the 
proposed change is successful in attracting additional market 
participants or increasing existing participation on the Exchange, 
Nasdaq believes that the proposed change will promote competition among 
trading venues by making the Exchange a more attractive trading venue 
for investors and participants.
    Additionally, adoption of the CMO and CMO+PO will not burden 
competition among market participants. The CMO and CMO+PO will be 
available to all Exchange members and it will be available on an 
optional basis. Thus, any member that seeks to avail itself of the 
benefits of a CMO or CMO+PO can choose accordingly. Although the 
proposal provides potential benefits for investors that select the CMO 
and CMO+PO, the Exchange believes that all market participants will 
benefit to the extent that this proposal contributes to a healthy and 
attractive market that is attentive to the needs of all types of 
investors.
    The proposal also will not adversely impact market participants 
that choose not to use these Order Types because no changes need to be 
made to participants' systems to account for it. As discussed above, 
CMO and CMO+PO executions will be reported the same as other 
executions, without any new or special indicator.
    In any event, the Exchange notes that it operates in a highly 
competitive market in which market participants can

[[Page 1621]]

readily choose between competing venues if they deem participation in 
the Exchange's market is no longer desirable. In such an environment, 
the Exchange must carefully consider the impact that any change it 
proposes may have on its participants, understanding that it will 
likely lose participants to the extent a change is viewed as 
unfavorable by them. Because competitors are free to modify the 
incentives and structure of their markets, the Exchange believes that 
the degree to which modifying the market structure of an individual 
market may impose any burden on competition is limited. Last, to the 
extent the proposed change is successful in attracting additional 
market participants or additional activity by existing participants, 
the Exchange also believes that the proposed change will promote 
competition among trading venues by making the Exchange a more 
attractive trading venue for participants and investors.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2022-077 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-2022-077. 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-2022-077 and should be submitted 
on or before February 1, 2023.
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00320 Filed 1-10-23; 8:45 am]
BILLING CODE 8011-01-P


