[Federal Register Volume 77, Number 158 (Wednesday, August 15, 2012)]
[Notices]
[Pages 49034-49035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20040]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67639; File No. SR-NASDAQ-2012-071]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Approving a Proposed Rule Change To Amend Rule 4758(a)(1)(A) To Reflect
a Change in NASDAQ's Routing Functionality
August 10, 2012.
I. Introduction
On June 14, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange''), 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 amend Rule 4758(a)(1)(A) to reflect a change in
NASDAQ's routing functionality. The proposed rule change was published
for comment in the Federal Register on June 29, 2012.\3\ The Commission
received no comment letters regarding 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. 67246 (June 25,
2012), 77 FR 38875 (``Notice'').
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II. Description
NASDAQ has proposed to amend Rule 4758(a)(1)(A) to reflect a change
in NASDAQ's order routing functionality, which will allow routable
orders \4\ to simultaneously execute against NASDAQ available shares
and route to other markets for execution of the remainder of the order.
Currently, when a routable order is entered into the NASDAQ system, the
NASDAQ book is first checked for available shares. If such an order is
not filled or filled only partially, then the order is routed to away
markets with the best bid or best offer pursuant to NASDAQ's System
routing table.\5\
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\4\ For purposes of this filing, a ``routable order'' is an
order entered into the NASDAQ System, which is not of an Order Type
precluded from routing to other markets.
\5\ The ``System routing table'' is the proprietary process for
determining the specific trading venues to which the System routes
orders and the order in which it routes them. See Rule
4758(a)(1)(A).
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NASDAQ stated that it has observed that upon partial execution of a
routable order at NASDAQ market participants often react to the order
by cancelling their orders on other markets and entering new orders at
inferior prices. This occurs because the current process directs the
order to NASDAQ before attempting to access available liquidity at
other markets and thereby allows market participants to react to the
execution (an effect known as ``market impact'' or ``information
leakage''). As a consequence, the available shares at the away market
are no longer available, resulting in a lower likelihood of
successfully accessing liquidity on away markets (i.e., the ``fill
rate'') and an increased likelihood of ultimately receiving an
execution at an inferior price. As such, NASDAQ has proposed to address
this by changing how the routing process will operate.
NASDAQ has proposed to execute routable orders against the NASDAQ
book for available shares and to simultaneously route any remaining
shares to additional markets. Specifically, under the proposed change a
routable order would attempt to execute against the available shares at
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NASDAQ and, to the extent the order would not be filled by such
available shares, NASDAQ would simultaneously route the remainder of
the order to other venues, according to NASDAQ's System routing table,
in a manner consistent with Regulation NMS (i.e., satisfying all
displayed protected quotes). In the event that the amount of shares on
other markets is insufficient to completely fill the order, or the
order fails to completely execute, NASDAQ would then post the remaining
shares on the NASDAQ book or cancel the remaining shares per the routed
order's instructions. NASDAQ believes that this simultaneous execution
against NASDAQ available shares and routing to other venues' shares
will avoid the deleterious effect of market impact discussed above and
result in overall faster and better executions of its members' routable
orders.
NASDAQ noted, in its proposal, that it is not changing the
execution and routing sequence of all routable orders. The TFTY, SAVE,
SOLV, and CART orders are designed to execute serially as part of their
strategies, which is generally to reduce the blended fees associated
with transacting on multiple markets. As such, simultaneous routing of
such orders would not result in a better execution in terms of the
goals of these routable order types.
III. Discussion and Commission's 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.\6\
In particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\7\ 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 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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\6\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\7\ 15 U.S.C. 78f(b)(5).
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The proposed rule change meets these requirements in that it
promotes efficiency in the market, and should, as represented by
NASDAQ, increase the likelihood that a routable order will receive
faster and better executions. As a result, the proposed rule change
could improve NASDAQ's ability to effectively process routable orders.
For these reasons, the Commission believes that the proposed change is
consistent with Section 6(b)(5) of the Act.\8\
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\8\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-NASDAQ-2012-071) is approved.
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\9\ 15 U.S.C. 78s(b)(2).
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-20040 Filed 8-14-12; 8:45 am]
BILLING CODE 8011-01-P