
[Federal Register Volume 88, Number 180 (Tuesday, September 19, 2023)]
[Notices]
[Pages 64478-64480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20170]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98378; File No. SR-BX-2023-023]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4, 
Rules 4702 and 4703

September 13, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 5, 2023, Nasdaq BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (the ``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 Equity 4, Rules 4702 and 4703.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/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 amendments to its Rules to address 
inconsistencies between the Rule Text and observed System behavior as 
well as behavior unaccounted for in the existing Rule text, as follows. 
This proposal is similar to a rule change filed by the Exchange's 
sister exchange, the Nasdaq Stock Market, LLC on August 16, 2023.\3\
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    \3\ See Securities Exchange Act Release No. 34-98225 (August 16, 
2023), 88 FR 60255 (August 31, 2023) (SR-NASDAQ-2023-030). The 
Exchange's proposal differs from that of Nasdaq in that it excludes 
changes to Order Types and Attributes that are inapplicable to the 
Exchange due to its absence of opening and closing crosses.
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First Rule Change
    The first proposed rule change addresses an edge case of 
inconsistency between the Rule text and System behavior, this time 
regarding Market Maker Peg Orders.\4\ Rule 4702(b)(7)(A) states that, 
if after entry of a Market Maker Peg Order that has a displayed price 
based on the NBBO, and the NBBO subsequently shifts such that the 
displayed price of the Market Maker Peg Order to buy (sell) is equal to 
or greater (less) than the National Best Bid (or National Best Offer), 
the Market Maker Peg Order will not be subsequently repriced until a 
new reference price is established that is more aggressive than the 
displayed price of the Market Maker Peg Order. System testing revealed 
that the System does not reprice Market Maker Peg Orders in this 
scenario, but only if such Orders are in round lot sizes, whereas it 
does reprice such Orders when they are in odd lot sizes. After 
evaluation, the Exchange determined to maintain this System behavior 
and amend the Rule to conform to it. The Exchange proposes to do so 
because the existing language proscribing repricing only makes sense 
within the context of round lot Market Maker Peg Orders, which this 
scenario would set a new NBBO and when they do so, cannot reprice with 
respect to the reference price they just set. By contrast, odd lot 
Market Maker Peg Orders are ineligible to set the NBBO, and do not have 
this same problem. Accordingly, the Exchange proposes to amend Rule 
4702(b)(7)(A) to clarify that the prohibition against repricing only 
applies to Market Maker Peg Orders in round lot sizes.
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    \4\ Pursuant to Rule 4702(b)(7)(A), a ``Market Maker Peg Order'' 
is an Order Type designed to allow a Market Maker to maintain a 
continuous two-sided quotation at a displayed price that is 
compliant with the quotation requirements for Market Makers set 
forth in Equity 2, Section 5(a)(2). The displayed price of the 
Market Maker Peg Order is set with reference to a ``Reference 
Price'' in order to keep the displayed price of the Market Maker Peg 
Order within a bounded price range. The Reference Price for a Market 
Maker Peg Order to buy (sell) is the then-current National Best Bid 
(National Best Offer), or if no such National Best Bid or National 
Best Offer, the most recent reported last-sale eligible trade from 
the responsible single plan processor for that day, or if none, the 
previous closing price of the security as adjusted to reflect any 
corporate actions (e.g., dividends or stock splits) in the security.
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Second Rule Change
    The second proposal would amend Equity 4, Rule 4703(h), to correct 
its description of behavior of the Non-Displayed portion of Orders with 
the Reserve Attribute.\5\ Rule 4703(h) provides as follows, in 
pertinent part:
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    \5\ ``Reserve Size'' is, in part, an Order Attribute that 
``permits a Participant to stipulate that an Order Type that is 
displayed may have its displayed size replenished from additional 
non-displayed size.'' Rule 4703(h). The Rule also states that 
Reserve ``is not available for Orders that are not displayed; 
provided, however, that if a Participant enters Reserve Size for a 
Non-Displayed Order with a Time-in-Force of IOC, the full size of 
the Order, including Reserve Size, will be processed as a Non- 
Displayed Order.'' Id. In addition to the change proposed above, the 
Exchange proposes to eliminate from the immediately preceding 
language ``with a Time-in-Force of IOC'' because the Exchange does 
not assess a reason to include this qualifier. The statement that a 
Non-Displayed Order with Reserve will be entirely non-displayed is 
true even as to Non-Displayed Orders with other TIFs.

    In all cases, if the remaining size of the Non-Displayed Order 
is less than the fixed or random amount stipulated by the 
Participant, the full remaining size of the Non-Displayed

[[Page 64479]]

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Order will be displayed and the Non-Displayed Order will be removed.

    As stated, this Rule requires that the entire Non-Displayed portion 
of a Reserve Order will become Displayed the moment the size of the 
Non-Displayed portion drops below an amount that a participant 
designates or has directed the System to randomly designate (the ``Max 
Floor''). In conducting a test of System behavior, however, the 
Exchange observed that the System does not, in fact, operate in this 
manner. Instead, the System maintains the Non-Displayed portion of a 
Reserve Order as such when the size of that Non-Displayed Portion drops 
below the Max Floor. Rather than correct the current System behavior to 
match the Rule, the Exchange determined that users of Reserve Orders 
prefer the current System behavior because it is true to the underlying 
intent of Reserve functionality, which is to help limit the price 
impacts of trading large quantities of shares by displaying only small 
portions of such shares at a given time, while hiding the rest in 
reserve. Thus, the Exchange proposes to address the inconsistency 
between the Rule text and the behavior of the System by deleting the 
aforementioned language from Rule 4703(h). Going forward, the System 
will not convert to a Displayed Order the Non-Displayed remainder of a 
Reserve Order that falls below the Max Floor, and the System will not 
remove it.
2. Statutory Basis
    The Exchange believes that its proposals are consistent with 
section 6(b) of the Act, in general, and further the objectives of 
section 6(b)(5) of the Act, in particular, in that they are 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.
    It is consistent with the Act to amend the Exchange's Rules to 
address inconsistencies between the Rule text and observed System 
behavior, including by adapting the Rule text to codify observed System 
behavior, where the observed behavior is more consistent with the 
underlying purpose of an Order Attribute than is the Rule text 
(maintaining the Non-Displayed status of a reserve portion of a Reserve 
Order that drops below the Max Floor) and where System behavior 
reflects a nuance not contemplated by the existing Rules (clarifying 
that the prohibition against repricing Market Maker Peg Orders that 
have prices equal to or better than the NBBO only applies to round lot 
Market Maker Peg Orders, and not to odd lots).
    Finally, it is consistent with the Act to amend Rule 4703(h) to 
delete qualifying language which erroneously suggests that Non-
Displayed Orders with Reserve are only non-displayed when such Orders 
have a TIF of IOC. Investors and the public have an interest in the 
Exchange maintaining a Rulebook that is accurate.

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 proposals merely address 
inconsistencies between Rule text and System behavior. The Exchange 
neither intends nor perceives that these rule changes will have any 
impact on competition.

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

    The Exchange has filed the proposed rule change pursuant to section 
19(b)(3)(A)(iii) of the Act \6\ and Rule 19b-4(f)(6) thereunder.\7\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6)(iii) thereunder.\9\
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    \6\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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 such 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 under 
section 19(b)(2)(B) \10\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-BX-2023-023 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-BX-2023-023. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information

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that you wish to make available publicly. We may redact in part or 
withhold entirely from publication submitted material that is obscene 
or subject to copyright protection. All submissions should refer to 
file number SR-BX-2023-023 and should be submitted on or before October 
10, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20170 Filed 9-18-23; 8:45 am]
BILLING CODE 8011-01-P


