[Federal Register Volume 76, Number 106 (Thursday, June 2, 2011)]
[Notices]
[Pages 31998-32000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-13624]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64552; File No. SR-NASDAQ-2011-070]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify the Functionality of the Post-Only Order
May 26, 2011.
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 May 19, 2011, The NASDAQ Stock Market LLC (the ``Exchange'' or
``NASDAQ'') 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 is filing this proposed rule change to modify the
functionality of its Post-Only Order. NASDAQ proposes to implement the
rule change thirty days after the date of filing or as soon thereafter
as practicable. The text of the proposed rule change is available
[[Page 31999]]
at http://nasdaq.cchwallstreet.com/, at NASDAQ's principal office, 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
NASDAQ proposes to modify the functionality associated with its
existing Post-Only Order. Currently, if a Post-Only Order would lock an
order on the NASDAQ System at the time of entry, the order is re-priced
and displayed by the System to one minimum price increment (i.e., $0.01
or $0.0001) below the current low offer (for bids) or above the current
best bid (for offers). Thus, if the best bid and best offer on the
NASDAQ book were $10.00 x $10.05, and a market participant entered a
Post-Only Order to buy at $10.05, the order would be re-priced and
displayed at $10.04. This aspect of the functionality of the order is
not changing. In addition, if a Post-Only Order would cross an order on
the System, the order will be repriced as described above unless the
value of price improvement associated with executing against a resting
order equals or exceeds the sum of fees charged for such execution and
the value of any rebate that would be provided if the order posted to
the book and subsequently provided liquidity, in which case the order
will execute. As provided by Rule 4757, price improvement accrues to
the party entering the order. Thus, if a sell order is on the book at
$10 and a Post-Only Order to buy at $10.01 is entered, the order will
execute at $10. This aspect of the order's functionality is also not
changing.\3\
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\3\ The functionality was described in the original filing to
establish the Post-Only Order but was not fully reflected in the
text of Rule 4751. See Securities Exchange Act Release No. 59392
(February 11, 2009), 74 FR 7943 (February 20, 2009) (SR-NASDAQ-2009-
006). Accordingly, the rule is being amended to provide a complete
description of the order's current behavior when crossing an
existing order on the System.
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At present, however, the order is repriced in a similar manner if
the order would lock or cross a protected quotation of another market
center. Thus, if the national best offer of $10.05 is being displayed
on another market center but not on NASDAQ, at present an order to buy
at $10.05 would be repriced and displayed at $10.04. Under the changed
functionality that NASDAQ is proposing, if the order locks or crosses
the other market center, the order will be accepted at the locking
price (i.e., the current low offer (for bids) or to the current best
bid (for offers)) and displayed by the System to one minimum price
increment (i.e., $0.01 or $0.0001) below the current low offer (for
bids) or above the current best bid (for offers). Thus, if the national
best bid and offer, as displayed on another market center, was $10 x
$10.05, an order to buy at $10.05 or higher would be accepted at the
locking price of $10.05, but would be displayed at $10.04.
Subsequently, an incoming order to sell at $10.05 or lower would be
matched against the Post-Only buy order. In this case, the incoming
sell order would receive price improvement.
As a result of the change, the order will resemble more closely
NASDAQ's Price to Comply order, which uses a similar logic of retaining
a locking price but displaying at a non-locking price. The modified
Post-Only Order will serve to allow the market participant entering the
order to post its order at its desired price, unless the price would
lock or cross the NASDAQ book, in which case the order will execute or
be repriced, as is currently the case, to avoid the internal lock/
cross. The revised order type is designed to provide market
participants with better control over their execution costs and to
provide them with a means to offer price improvement opportunities to
other market participants.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\4\ in general, and with Section
6(b)(5) of the Act,\5\ in particular, in that the proposal is 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 regulating, clearing, settling,
processing information with respect to, and 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. NASDAQ also believes that
the modified order is consistent with Rule 610(d) under Regulation
NMS.\6\ Rule 610(d) requires exchanges to establish, maintain, and
enforce rules that require members reasonably to avoid ``[d]isplaying
quotations that lock or cross any protected quotation in an NMS
stock.'' Such rules must be ``reasonably designed to assure the
reconciliation of locked or crossed quotations in an NMS stock,'' and
must ``prohibit * * * members from engaging in a pattern or practice of
displaying quotations that lock or cross any quotation in an NMS
stock.'' Rule 600 under Regulation NMS \7\ defines a ``quotation'' as a
``bid or offer,'' and in turn defines ``bid or offer'' to mean ``the
bid price or the offer price communicated by a member * * * to any
broker or dealer, or to any customer, at which it is willing to buy or
sell one or more round lots of an NMS security * * *.'' Thus, the
hidden price of the Post-Only Order is not a quotation under Regulation
NMS, and is therefore covered neither by the provisions of Rule 610
pertaining to displayed quotations nor by the provision requiring rules
to assure reconciliation of locked or crossed quotations. In this
respect, the order is similar to NASDAQ's existing Price to Comply
order, which uses a hidden locking price and a displayed non-locking
price to ensure compliance with this rule. It is also similar to the
Post Only Order of the BATS Exchange and the BATS-Y Exchange, as
described in BATS Exchange Rule 11.9(c)(4) and (6) and BATS-Y Exchange
Rule 11.9(c)(4) and (6), and the Post Only Order of the EDGA Exchange
and EDGX Exchange, as described in EDGA Exchange Rule 11.5(c)(4) and
(5) and EDGX Exchange Rule 11.5(c)(4) and (5).
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\4\ 15 U.S.C. 78f.
\5\ 15 U.S.C. 78f(b)(5).
\6\ 17 CFR 242.610(d).
\7\ 17 CFR 242.600.
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. Rather, the change
will promote greater competition by allowing NASDAQ to adopt
functionality already in use at competing national securities
exchanges.
[[Page 32000]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, 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) thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with 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 fulfilled this requirement.
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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.
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 e-mail to [email protected]. Please include
File Number SR-NASDAQ-2011-070 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2011-070. This
file number should be included on the subject line if e-mail 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 Web site (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 Web site
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. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NASDAQ-2011-070 and should be submitted on or before June 23, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13624 Filed 6-1-11; 8:45 am]
BILLING CODE 8011-01-P