[Federal Register Volume 81, Number 40 (Tuesday, March 1, 2016)]
[Notices]
[Pages 10687-10690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04359]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77226; File No. SR-NASDAQ-2016-023]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Rules 4702 and 4703
February 24, 2016,
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 February 10, 2016, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') 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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[[Page 10688]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to a proposed [sic] rule change to amend Rule
4702(b)(9)(B) to harmonize the processing of Orders with a Pegging
Attribute or that are designated for routing, which are eligible to
participate in the Opening Cross. The Exchange is also proposing to
make minor technical corrections to Rules 4702 and 4703.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaq.cchwallstreet.com, 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
Background
Rule 4702(b) concerns NASDAQ's Order Types \3\ and provides a
description of the various Order Attributes \4\ available to NASDAQ
Participants.\5\ NASDAQ is proposing to harmonize treatment of Orders
with a Pegging Order Attribute and Orders that are designated for
routing pursuant to Rule 4758(a) (``Routable Orders'') entered between
9:28 a.m. ET and initiation of the NASDAQ Opening Cross.\6\ The
Exchange is also making minor technical corrections to Rules 4702 and
4703.
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\3\ The term ``Order'' means an instruction to trade a specified
number of shares in a specified System Security submitted to the
NASDAQ Market Center by a Participant. An ``Order Type'' is a
standardized set of instructions associated with an Order that
define how it will behave with respect to pricing, execution, and/or
posting to the NASDAQ Book when submitted to NASDAQ. An ``Order
Attribute'' is a further set of variable instructions that may be
associated with an Order to further define how it will behave with
respect to pricing, execution, and/or posting to the NASDAQ Book
when submitted to NASDAQ. The available Order Types and Order
Attributes, and the Order Attributes that may be associated with
particular Order Types, are described in Rules 4702 and 4703. One or
more Order Attributes may be assigned to a single Order; provided,
however, that if the use of multiple Order Attributes would provide
contradictory instructions to an Order, the System will reject the
Order or remove non-conforming Order Attributes. See Rule 4701(e).
\4\ Id.
\5\ See Rule 4701(c).
\6\ See Rule 4752 for a description of NASDAQ's opening process,
including the Opening Cross.
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All Order Types, except Supplemental Orders,\7\ participate in the
Opening Cross if the Order has a Time-in-Force \8\ that would cause it
to be active at the time of the Opening Cross.\9\ Time-in-Force is an
Order Attribute \10\ selected by the Participant that provides the
period of time that the NASDAQ System \11\ will hold the Order for
potential execution. Participants specify an Order's Time-in-Force by
designating a time at which the Order will become active and a time at
which the Order will cease to be active. If the Participant enters an
Order for participation in the Opening Cross \12\ prior to completion
thereof and with a Time-in-Force that continues after the time of the
Opening Cross, the Order will participate in the Opening Cross like an
LOO Order,\13\ while operating thereafter (if unexecuted) in accordance
with its designated Order Type and Order Attributes (if not executed in
full in the NASDAQ Opening Cross, held by the System as discussed
below, or cancelled by the Participant). Such an Order may be referred
to as an ``Opening Cross/Market Hours Order.''
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\7\ A Supplemental Order is an Order Type with a Non-Display
Order Attribute that is held on the NASDAQ Book in order to provide
liquidity at the NBBO through a special execution process described
in Rule 4757(a)(1)(D). See Rule 4702(b)(6)(A).
\8\ See Rule 4703(a).
\9\ As described in Rule 4703(l), Market On Open (``MOO'')
Orders, Limit On Open (``LOO'') Orders, and Opening Imbalance Only
(``OIO'') Orders participate in the NASDAQ Opening Cross in the
manner specified in Rule 4752. Other order types eligible to
participate in the Opening Cross operate as ``Market Hours Orders''
or ``Open Eligible Interest'' as specified in Rule 4752. Rule
4703(l), also notes that Supplemental Orders, Retail Orders, and RPI
Orders are ineligible to participate in the Opening Cross. As
discussed herein, the Exchange is deleting references to Retail
Orders and RPI Orders since they are no longer available on NASDAQ.
\10\ See Rule 4701(e).
\11\ As defined by Rule 4701(a).
\12\ An Order may be designated by a Participant for
participation in the Opening Cross by adding a ``flag'' to the
order, or an Order may participate in the Opening Cross without such
a flag if, by its nature, must participate (e.g., LOO Order).
\13\ See Rule 4702(b)(9).
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In addition to a Time-in-Force, an Order may have other Attributes
associated with it, such as price, size, eligibility to participate in
the NASDAQ Opening and Closing Crosses, Pegging, and whether the Order
is Routable.\14\ An Order that is designated as Routable \15\ employs
one of several Routing Options described in Rule 4758(a)(1)(A).
Routable Day Orders eligible to participate in the Opening Cross that
are entered into the System prior to 9:28 a.m. ET are added to the
NASDAQ book as they were entered by the Participant (i.e., Order Type
and Order Attributes).\16\ If such an Order has a Time-in-Force that
will allow it to continue after completion of the Opening Cross and the
Order was not executed fully in the Cross, the order will be entered
into the NASDAQ book for participation in Market Hours \17\ trading.
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\14\ See Rule 4703.
\15\ See Rule 4703(f) for a description of the Routing Order
Attribute.
\16\ Any Order with a Pegging Order Attribute entered prior to
9:28 a.m. ET, other than a Market Pegging designated for
participation in the Opening Cross, is not accepted by the System.
See Rule 4703(d) for a discussion of Pegging.
\17\ See Rule 4701(g).
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An Order may have a Pegging Attribute. Pegging is an Order
Attribute that allows an Order to have its price automatically set with
reference to the NBBO; provided, however, that if NASDAQ is the sole
market center at the Best Bid or Best Offer (as applicable), then the
price of any Displayed Order with Pegging will be set with reference to
the highest bid or lowest offer disseminated by a market center other
than NASDAQ.\18\
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\18\ See Rule 4703(d).
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There are three varieties of Pegging; Primary, Market, and
Midpoint. Primary Pegging means Pegging with reference to the Inside
Quotation on the same side of the market. Market Pegging means Pegging
with reference to the Inside Quotation on the opposite side of the
market. Midpoint Pegging means Pegging with reference to the midpoint
between the Inside Bid and the Inside Offer. NASDAQ also has a Market
Maker Peg Order, which is an Order Type designed to assist a Market
Maker in maintaining a continuous two-sided quotation at a displayed
price that is compliant with the quotation requirements for Market
Makers set forth in Rule 4613(a)(2).\19\ Pegging is available only
during Market Hours. Orders with a Pegging Attribute entered into the
System prior to 9:28 a.m. ET are rejected, unless the Order is a Market
Maker Peg Order or a Market Peg Order designated to participate in the
Opening Cross.
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\19\ See Rule 4702(a)(7) [sic]. A Market Maker Peg Order may be
entered through RASH, FIX or QIX only.
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[[Page 10689]]
Opening Cross/Market Hours Orders entered into the System at 9:28
a.m. ET up to initiation of the Opening Cross (the ``Late Period'') are
designated as ``Late Market Hours Orders,'' \20\ which are handled
differently than Orders entered prior to the Late Period. Under the
current rule, an Opening Cross/Market Hours Order that is entered
during the Late Period will be (i) held and entered into the System
after the completion of the NASDAQ Opening Cross if it has been
assigned a Pegging Attribute or Routing Attribute, (ii) treated as an
``Opening Imbalance Only Orders [sic]'' or ``OIO Orders [sic]'' \21\
for the purposes of the Opening Cross and, if not executed in full,
entered into the System after the completion of the NASDAQ Opening
Cross if entered through RASH, QIX, or FIX but not assigned a Pegging
Attribute or Routing Attribute, or (iii) treated as an OIO Order and
cancelled after the NASDAQ Opening Cross if entered through OUCH or
FLITE.\22\ An Opening Cross/Market Hours Order entered through RASH or
FIX after the time of the NASDAQ Opening Cross will be accepted but the
NASDAQ Opening Cross flag will be ignored. A Routable Order flagged to
participate in the NASDAQ Opening Cross with a Time-in-Force other than
IOC and entered at or after 9:28 a.m. will be held and entered into the
System after the NASDAQ Opening Cross. All other LOO Orders and Opening
Cross/Market Hours Orders entered at or after 9:28 a.m. will be
rejected.
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\20\ See Rule 4752(a)(7).
\21\ An OIO Order is an Order Type entered with a price that may
be executed only in the Opening Cross and only against MOO Orders
(Rule 4702(b)(8)), LOO Orders (Rule 4702(b)(9)), or Early Market
Hours Orders (Rule 4752(a)(7)). See Rule 4702(b)(10).
\22\ NASDAQ maintains several communications protocols for
Participants to use in entering Orders and sending other messages to
the NASDAQ Market Center. These are OUCH, RASH, QIX, and FLITE,
which are NASDAQ proprietary protocols, and FIX, which is a non-
proprietary protocol. See http://www.nasdaqtrader.com/Trader.aspx?id=TradingSpecs for a description of the various order
entry port specifications.
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Proposed Changes
The Exchange is proposing to make two changes to how it handles
Opening Cross/Market Hours Order entered into the System during the
Late Period. Currently, the Exchange will hold Orders entered during
the Late Period that have been assigned certain Pegging and Routing
Attributes and enter them into the System after the completion of the
Opening Cross,\23\ while it will reject Orders entered during the Late
Period with certain other Pegging and Routing Attributes. As discussed
below, Opening Cross/Market Hours Orders entered into the System during
the Late Period that have a Pegging Attribute or Routing Attribute are
held and entered into the System after the completion of the Opening
Cross with the exception of Orders with a Primary or Midpoint Pegging
Attribute, which are instead rejected by the System, or Orders with a
DOT or LIST Routing Attribute, which are instead converted by the
System to an OIO Order.\24\
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\23\ The Exchange notes that the System will hold such an Order
notwithstanding that the market participant flags the Order as
eligible for participation in the Opening Cross.
\24\ DOT and LIST Orders entered during the Late Period are sent
to the Primary Listing Market for the security. If an Order in a
NASDAQ-listed security is assigned a DOT or LIST Routing Attribute
and entered into the System during the Late Period, the System will
convert the Order to an OIO Order for participation in the Opening
Cross.
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First, the Exchange is proposing to harmonize how it handles
Opening Cross/Market Hours Orders entered into the System during the
Late Period that have a Pegging Attribute. As noted above, the Exchange
will hold an Order entered into the System during the Late Period that
has been assigned a Market Pegging Attribute and will enter it into the
System after the completion of the Opening Cross. The Exchange is
proposing to instead reject all Orders with a Market, Midpoint, or
Primary Pegging attribute.\25\ The Exchange notes that a Market Pegged
Order entered during the Late Period is the only type of Order with a
Pegging Attribute currently held by the System until after completion
of the Opening Cross. Primary Pegged and Midpoint Pegged Orders entered
during the Late Period are currently rejected. NASDAQ is proposing to
harmonize the treatment of Market, Midpoint, or Primary Pegged Orders
entered during the Late Period by rejecting any such Order. As a
consequence, the Exchange is amending Rule 4702(b)(9) to reflect that
an Order with a Market, Midpoint, or Primary Pegging Attribute entered
during the Late Period will be rejected.
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\25\ Market Maker Peg Orders entered during the Late Period are
accepted and treated as OIO Orders for potential participation in
the Opening Cross, and thereafter entered into the continuous book
as a Market Maker Peg Order if not executed in full in the Opening
Cross. The Exchange is proposing to add new text to Rule
4702(b)(9)(B) to make clear that Market Maker Peg Orders are not
included as an Order that will be rejected by the System. The
Exchange is not proposing to change how Market Maker Peg Orders are
handled.
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Second, the Exchange is proposing to harmonize how all Routable
Orders entered during the Late Period that are eligible to participate
in the Opening Cross are handled. Currently, any Order employing a DOT
\26\ or LIST \27\ Routing Option that is eligible to participate in the
Opening Cross and that is entered into the System during the Late
Period is either sent to the appropriate primary listing market for
participation in that market's opening process or, in the case of
securities whose primary listing market is NASDAQ or another market not
supported by DOT, converted by the System to OIO Order.\28\ If such a
converted Routable Order does not execute in the Opening Cross, then it
reverts back to the Order Type as was entered by the Participant for
participation in Market Hours trading. By contrast, an Order employing
any of the other Routing Options under Rule 4758(a)(1)(A) that is
eligible to participate in the Opening Cross and that is entered into
the System during the Late Period is held by the System until
completion of the Opening Cross and thereafter is added to the
continuous order book for Market Hours trading, consistent with the
Order Type and Attributes, which is consistent with the current rule as
discussed above. The Exchange is proposing to harmonize how all
Routable Orders entered during the Late Period that are eligible to
participate in the Opening Cross are handled by converting all such
Orders into OIO Orders and, upon completion of the Opening Cross,
converting any such Order that is not fully executed back to its
original Order Type and Attributes.\29\
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\26\ DOT is a Routing Option that allows the entering firm to
designate an Order for participation in the NYSE or NYSE MKT opening
or closing processes. See Rule 4758(a)(1)(A)(i).
\27\ LIST is a Routing Option designed to allow orders to
participate in the opening and/or closing process of the primary
listing market for a security. See Rule 4758(a)(1)(A)(x).
\28\ An Order with a Market Pegging Attribute entered during the
Late Period is rejected back to the Participant. In both scenarios,
the Orders are not eligible to participate in the Opening Cross
since Pegging is available only during Market Hours. See Rule
4703(d).
\29\ An Order with a TIF of IOC would be canceled upon
completion of the Opening Cross instead of being converted back to
an IOC Order.
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Last, the Exchange is making technical corrections to Rules 4702
and 4703 to remove references to Retail Orders and RPI Orders, which
were erroneously included in the rules when they were adopted.\30\
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\30\ Retail Orders and RPI Orders were part of the Retail Price
Improvement Program under Rule 4780, which was eliminated. See
Securities Exchange Act Release No. 75252 (June 22, 2015), 80 FR
36865 (June 26, 2015) (SR-NASDAQ-2015-024).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with
[[Page 10690]]
Section 6 of the Act,\31\ in general, and further the objectives of
Section 6(b)(5) of the Act,\32\ in particular, in that it 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; and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\31\ 15 U.S.C. 78f.
\32\ 15 U.S.C. 78f(b)(5).
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Specifically, the proposed changes promote just and equitable
principles of trade and perfects the mechanisms of a free and open
market and the national market system by providing greater clarity
concerning the System's operation with respect to Pegged and Routable
Orders during the Opening Cross process and how such orders with a
Time-in-Force characteristic that allows them to trade during Market
Hours are processed upon initiation of the Opening Cross.
The proposed change will contribute to the protection of investors
and the public interest by bringing consistency to the processing of
Orders in the Opening Cross, thereby avoiding any Participant confusion
that may be caused by dissimilar treatment of Routable and Pegged
Orders. With respect to Routable Orders, uniformly converting such
Orders, which are designated to participate in the Opening Cross, is
consistent with a Participant's intent to first potentially execute
during the Opening Cross and, to the extent not fully executed,
thereafter join Market Hours trading consistent with the Order Type and
Routing Option employed, unless otherwise cancelled after the Opening
Cross as discussed above.
With respect to Pegged Orders, uniformly canceling all Pegged
Orders as described under Rule 4703(d) is consistent with the nature of
a Pegged Order, which is only available during Market Hours. Further,
these changes simplify the processing making it easier for all
participants to understand how their orders behave with respect to the
Opening Cross and thereafter. The proposed elimination of references to
Retail Orders and RPI Orders will also serve to avoid potential
Participant confusion arising from including references thereto in
light of the elimination of the Retail Price Improvement Program.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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.
Specifically, the change is designed to promote consistency in the
treatment of Pegged and Routable Orders in the Opening Cross. Such a
change does not place a burden on competition between market
participants as the changes are applied consistently to all
participants. Moreover, the proposed change does not impose a burden on
competition among exchanges as they are done to clarify NASDAQ's rules
and do not impact 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
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 will:
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-2016-023 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-NASDAQ-2016-023. 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 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 10:00 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; 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-2016-023 and
should be submitted on or before March 22, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
Robert W. Errett,
Deputy Secretary.
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\33\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-04359 Filed 2-29-16; 8:45 am]
BILLING CODE 8011-01-P