[Federal Register Volume 80, Number 3 (Tuesday, January 6, 2015)]
[Notices]
[Pages 582-583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30895]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73959; File No. SR-NASDAQ-2014-095]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change To Provide a New Optional
Functionality to Minimum Quantity Orders
December 30, 2014.
I. Introduction
On September 18, 2014, 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 NASDAQ Rule (``Rule'') 4751(f)(5) to
provide a new optional functionality for Minimum Quantity Orders. The
proposed rule change was published for comment in the Federal Register
on October 6, 2014.\3\ On November 18, 2014, the Commission extended to
January 4, 2015, the time period in which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether the proposed rule change should be disapproved.\4\
The Commission received one comment letter regarding the proposed rule
change.\5\ 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. 73266 (September 30,
2014), 79 FR 60207 (``Notice'').
\4\ See Securities Exchange Act Release No. 73621, 79 FR 69957
(November 24, 2014).
\5\ See letter to SEC from James J. Angel, Associate Professor
of Finance, Georgetown University, dated November 26, 2014 (``Angel
Letter'').
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II. Description of the Proposal
A Minimum Quantity Order (``MQO'') allows a market participant to
specify a minimum share amount at which it will execute. A MQO will not
execute unless the volume of contra-side liquidity available to execute
against the order meets or exceeds the designated minimum. A MQO
received by the Exchange will execute immediately if there is
sufficient liquidity available on the Exchange within the limit price
of the order. In addition, multiple orders may be aggregated to meet
the minimum quantity. For example, a MQO will execute if the sum of the
shares of one or more orders is equal to or greater than its minimum
quantity. If a MQO does
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not execute immediately due to lack of contra-side liquidity that is
equal to or greater than the designated minimum, the order will post to
the NASDAQ order book as a Non-Displayed Order. Once posted, a MQO will
execute only if an incoming order is marketable against the resting MQO
and is equal to or greater than the minimum quantity set on the resting
MQO. Once posted, multiple orders cannot be aggregated to meet the
minimum quantity requirement of the Minimum Quantity Order. If a MQO
executes partially and the number of shares remaining is less than the
minimum quantity of the order, the minimum quantity of the order is
reduced to the remaining share size. If a MQO is received that is
marketable against a resting contra-side order with size that does not
meet the minimum quantity requirement, the MQO will be posted on the
book as a Non-Displayed Order at the locking price.
The Exchange proposes to offer an optional order handling
functionality that would permit an incoming MQO to forego executions
where multiple resting orders could otherwise be aggregated to satisfy
the minimum quantity designation. Under the proposed functionality, a
MQO would only execute against a single contra-side order that would
equal or exceed the minimum quantity designation of the MQO.\6\ In
addition, if the minimum quantity designation of an incoming MQO could
not be satisfied by a resting contra-side order, the MQO would be re-
priced one minimum price increment away from the resting liquidity and
posted to the NASDAQ order book as a Non-Displayed Order.\7\ If an
incoming MQO receives a partial execution, the remainder of the order
would be cancelled if it would lock resting contra-side liquidity that
does not meet the minimum quantity designation.\8\
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\6\ See Notice, 79 FR at 60209.
\7\ See proposed Rule 4751(f)(5); see also Notice, 79 FR at
60208.
\8\ See proposed Rule 4751(f)(5); see also Notice, 79 FR at
60209. The Exchange represents that the proposed functionality
already exists on other trading venues. See Notice, 79 FR at 60208-
09.
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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.\9\
In particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\10\ 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; and are not designed to permit unfair discrimination between
customers, issuers, brokers or dealers.
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\9\ 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).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange represents that some market participants have
indicated that they currently avoid routing larger orders to NASDAQ due
to the concern that such orders may interact against small orders
entered by professional traders, potentially resulting in more
expensive transactions. The Exchange represents that the optional
minimum execution size functionality proposed for MQOs should enhance
the utility of such orders for market participants and should
facilitate the entry of larger MQOs on the Exchange.\11\ Specifically
the Exchange believes that the proposed functionality would provide
market participants, including institutional firms that ultimately
represent individual retail investors in many cases, with better
control over MQOs, thereby enhancing the potential to improve execution
quality.\12\
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\11\ See Notice, 79 FR at 60208, 60210.
\12\ Id. at 60210.
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The Commission notes that a commenter expressed strong support for
the proposal.\13\ In particular, the commenter states that the proposed
rule change would benefit institutional investors, such as mutual funds
that invest on behalf of retail investors, by minimizing their
transaction costs.\14\ For example, according to the commenter, the
proposed functionality would improve large investors' ability to manage
their orders and thereby obtain better execution quality.\15\
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\13\ See Angel Letter, supra note 5.
\14\ Id.
\15\ Id.
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The Commission believes that the proposal should provide market
participants with enhanced capability to manage their order flow. For
the reasons noted above, the Commission believes 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,\16\ that the proposed rule change (SR-NASDAQ-2014-095) be, and it
hereby is, approved.
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\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30895 Filed 1-5-15; 8:45 am]
BILLING CODE 8011-01-P