Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4770 (Compliance With Regulation NMS Plan To Implement a Tick Size Pilot), 95243-95247 [2016-31108]

Download as PDF Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices 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–BX– 2016–072 and should be submitted on or before January 17, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016–31101 Filed 12–23–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79616; File No. SR– NASDAQ–2016–171] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4770 (Compliance With Regulation NMS Plan To Implement a Tick Size Pilot) asabaliauskas on DSK3SPTVN1PROD with NOTICES December 20, 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 December 13, 2016, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 20:45 Dec 23, 2016 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 4770 (Compliance with Regulation NMS Plan to Implement a Tick Size Pilot) relating to the handling to certain Order Types in Test Group Three Pilot Securities in connection with the Regulation NMS Plan to Implement a Tick Size Pilot Program (‘‘Plan’’ or ‘‘Pilot’’).3 Relatedly, Nasdaq also proposes to delete Commentary .14, which addresses the current handling of those Order Types. Finally, Nasdaq proposes to add language to Rule 4770(d)(1) to clarify the treatment of orders in a Test Group Three Security entered through the RASH, QIX or FIX protocols. The text of the proposed rule change is available on the Exchange’s Web site at https://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 On September 7, 2016, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) a proposed rule change (‘‘Proposal’’) to adopt paragraph (d) and Commentary .12 to Exchange Rule 4770 to describe changes to system functionality necessary to implement the Plan. The Exchange also proposed amendments to Rule 4770(a) and (c) to clarify how the Trade-at exception may 3 See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015) (‘‘Approval Order’’). 1 15 VerDate Sep<11>2014 notice to solicit comments on the proposed rule change from interested persons. Jkt 241001 PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 95243 be satisfied. The SEC published the Proposal in the Federal Register for notice and comment on September 20, 2016.4 Nasdaq subsequently filed three Partial Amendments to clarify aspects of the Proposal. The Commission approved the Proposal, as amended, on October 7, 2016.5 In SR–NASDAQ–2016–126, Nasdaq had initially proposed a re-pricing functionality for Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered through the OUCH and FLITE protocols in Test Group Three Pilot securities.6 Nasdaq subsequently determined that it would not offer this re-pricing functionality for Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered through the OUCH and FLITE protocols in Test Group Three Pilot securities. As part of Partial Amendment No. 2 to SR– NASDAQ–2016–126, Nasdaq proposed to delete the relevant language from Rule 4770 related to this re-pricing functionality. In that amendment, Nasdaq noted that this change would only impact the treatment of Price to Comply Orders, Non-Displayed Orders, and Post-Only orders that are submitted through the OUCH and FLITE protocols in Test Group Three Pilot Securities, as these types of Orders that are currently submitted to Nasdaq through the RASH, QIX or FIX protocols are already subject to this re-pricing functionality and will remain subject to this functionality under the Pilot. In the Amendment, Nasdaq further noted that its systems are currently programmed so that Price to Comply Orders, Non-Displayed Orders and PostOnly Orders entered through the OUCH and FLITE protocols in Test Group Three Pilot Securities may be adjusted repeatedly to reflect changes to the NBBO and/or the best price on the 4 See Securities Exchange Act Release No. 78837 (September 14, 2016), 81 FR 64544 (September 20, 2016) (Notice of filing of SR–NASDAQ–2016–126). 5 See Securities Exchange Act Release No. 79075 (October 7, 2016) (Order approving SR–NASDAQ– 2016–126). 6 As originally proposed, Rule 4770(d)(2) stated that Price to Comply Orders in a Test Group Three Pilot Security will be adjusted repeatedly in accordance with changes to the NBBO until such time as the Price to Comply Order is able to be ranked and displayed at its original entered limit price. Rule 4770(d)(3) stated that, if market conditions allow, a Non-Displayed Order in a Test Group Three Pilot Security will be adjusted repeatedly in accordance with changes to the NBBO up (down) to the Order’s limit price. Rule 4770(d)(4) stated that, if market conditions allow, the Post-Only Order in a Test Group Three Pilot Security will be adjusted repeatedly in accordance with changes to the NBBO or the best price on the Nasdaq Book, as applicable until such time as the Post-Only Order is able to be ranked and displayed at its original entered limit price. E:\FR\FM\27DEN1.SGM 27DEN1 95244 Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES Nasdaq book. Nasdaq stated that it is reprogramming its systems to remove this functionality for Price to Comply Orders, Non-Displayed Orders and PostOnly Orders entered through the OUCH and FLITE protocols in Test Group Three Pilot Securities. In the Amendment, Nasdaq stated that it anticipated that this re-programming shall be completed no later than November 30, 2016. If it appeared that this functionality would remain operational by October 17, 2016, Nasdaq indicated that it would file a proposed rule change with the SEC and will provide notice to market participants sufficiently in advance of that date to provide effective notice. The rule change and the notice to market participants would describe the current operation of the Nasdaq systems in this regard, and the timing related to the reprogramming. On October 17, 2016, Nasdaq filed a proposal to extend the date by which it would complete the re-programing of its systems to eliminate the re-pricing functionality in Test Group Three Pilot Securities for Price to Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-Only Orders that are entered through the OUCH or FLITE protocols.7 In that proposal, Nasdaq stated that it anticipated that this reprogramming shall be complete on or before October 31, 2016.8 As Nasdaq continued to re-program its systems to eliminate the re-pricing functionality in Test Group Three Pilot Securities for Price to Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-Only Orders that are entered through the OUCH or FLITE protocols, it extended the date by which the reprogramming shall be complete to the current date of December 12, 2016.9 Nasdaq has now completed reprogramming its systems to eliminate the re-pricing functionality in Test Group Three Pilot Securities for Price to 7 See Securities Exchange Act Release No. 79155 (October 25, 2016), 81 FR 75471 (October 31, 2016) (SR–NASDAQ–2016–143). Subsequent to the approval of SR–NASDAQ– 2016–126, Nasdaq become aware that this re-pricing functionality also applies to Price to Display Orders that are entered through the OUCH and FLITE protocols in Test Group Three Securities, and amended Commentary .14 to indicate that Price to Display Orders will be treated in the same manner as Price to Comply Orders under the re-pricing functionality. Id. 8 Id. 9 See Securities Exchange Release Nos. 79263 (November 8, 2016), 81 FR 80154 (November 15, 2016) (SR–NASDAQ–2016–151) (extending current re-pricing functionality to November 14, 2016); 79408 (November 28, 2016), 81 FR 87106 (December 2, 2016) (SR–NASDAQ–2016–159) (extending the current re-pricing functionality to December 12, 2016). VerDate Sep<11>2014 20:45 Dec 23, 2016 Jkt 241001 Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-Only Orders that are entered through the OUCH or FLITE protocols. However, as a result of removing the re-pricing functionality, there are instances, due to the different functionality of the OUCH and FLITE protocols in comparison to the other applicable Nasdaq protocols, where the behavior of certain Order Types entered through the OUCH and FLITE protocols in Test Group Three Pilot Securities will differ from the behavior of those Order Types as set forth in Rule 4770; specifically, the behavior of Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered through the OUCH and FLITE protocols when the Order locks or crosses a Protected Quotation. Nasdaq is therefore amending Rule 4770 to clarify these differences. Although the changes made to Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered through OUCH and FLITE reflect the different functionality of the OUCH and FLITE protocols in comparison with the other Nasdaq protocols, the proposed changes treat Price to Comply Orders, NonDisplayed Orders and Post-Only Orders entered through OUCH and FLITE protocols in Test Group Three Securities as consistently as possible with such orders entered through OUCH and FLITE in Control Group Securities, and Test Group One and Test Group Two Securities. These changes will adjust Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered through OUCH and FLITE when the Order has been ranked at a midpoint of the NBBO that then becomes impermissible due to changes in the NBBO. Price To Comply Orders Currently, Rule 4770(d)(2) states that a Price to Comply Order in a Test Group Pilot Security will operate as described in Rule 4702(b)(1) except as provided under this paragraph. If a Price to Comply Order for a Test Group Three Pilot Security is partially executed upon entry and the remainder would lock a Protected Quotation of another market center, the unexecuted portion of the Order will be cancelled. If the Order is not executable against any previously posted orders on the Nasdaq Book, and the limit price of a buy (sell) Price to Comply Order in a Test Group Three Pilot Security would lock or cross a Protected Quotation of another market center, the Order will display at one minimum price increment below (above) the Protected Quotation, and the Order will be ranked on the Nasdaq PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 Book at the current midpoint of the NBBO. Nasdaq proposes to augment this provision to clarify the behavior of Price to Comply Orders entered through the OUCH or FLITE protocols in Test Group Three Pilot Securities that lock or cross a Protected Quotation. Specifically, a Price to Comply Order in a Test Group Three Pilot Security entered through OUCH or FLITE may be adjusted in the following manner after initial entry and posting to the Nasdaq Book. If entered at a price that locked a Protected Quotation, and if the NBBO changes such that its price will no longer lock a Protected Quotation, the Price to Comply Order will be adjusted to rank and display at its original entered limit price.10 If entered at a price that crossed a Protected Quotation, and if the NBBO changes such that it can be ranked at the price of the Protected Quotation it crossed, the Price to Comply Order, based on the participant’s choice, may either be (i) cancelled or (ii) adjusted to rank at the price of the Protected Quotation it crossed upon entry with its displayed price remaining unchanged. If, after being posted on the Nasdaq Book, the non-displayed price of a Price to Comply Order becomes locked or crossed by a Protected Quotation due to a change in the NBBO, or if the Price to Comply Order is at an impermissible price under Regulation NMS or the Plan and it cannot otherwise be adjusted as above, the Price to Comply Order will be cancelled.11 Non-Displayed Orders Currently, Rule 4770(d)(3) states that a Non-Displayed Order in a Test Group Pilot Security will operate as described in Rule 4702(b)(3) except as provided under this paragraph. A resting NonDisplayed Order in a Test Group Three Pilot security cannot execute at the price of a Protected Quotation of another market center unless the 10 Nasdaq notes that a Price to Comply Order will always be adjusted in this scenario, regardless of its port setting. 11 For example, if the National Best Bid is $10.00 and the National Best Offer is $10.10, and a Price to Comply Order to buy at $10.15 is entered, the Price to Comply Order will be displayed at $10.05 and ranked at $10.075. If the National Best Offer then changes to $10.15, the Price to Comply Order will be adjusted to rank at $10.10, and will remain displayed at $10.05. If the National Best Offer subsequently changes to $10.10, the Price to Comply Order will be cancelled. Nasdaq notes that a Price to Comply Order, NonDisplayed Order, or Post-Only Order entered through OUCH or FLITE in either a Control Group Security, a Test Group One Pilot Security or a Test Group Two Pilot Security would only cancel if the resting order is crossed (not locked) by a Protected Quotation due to a change in the NBBO. E:\FR\FM\27DEN1.SGM 27DEN1 Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES incoming Order otherwise qualifies for an exception to the Trade-at prohibition provided under Rule 4770(c)(3)(D). If the limit price of a buy (sell) NonDisplayed Order in a Test Group Three Pilot Security would lock or cross a Protected Quotation of another market center, the Order will be ranked on the Nasdaq Book at either one minimum price increment below (above) the National Best Offer (National Best Bid) or at the midpoint of the NBBO, whichever is higher (lower). For a NonDisplayed Order in a Test Group Three Pilot Security entered through RASH, QIX, or FIX, if after being posted to the Nasdaq Book, the NBBO changes so that the Non-Displayed Order would no longer be executable at its posted price due to the requirements of Regulation NMS or the Plan, the Non-Displayed Order will be repriced to a price that is at either one minimum price increment below (above) the National Best Offer (National Best Bid) or at the midpoint of the NBBO, whichever is higher (lower) and will receive a new timestamp.12 For a Non-Displayed Order in a Test Group Three Pilot Security entered through OUCH or FLITE, if after such a NonDisplayed Order is posted to the Nasdaq Book, the NBBO changes so that the Non-Displayed Order would no longer be executable at its posted price due to the requirements of Regulation NMS or the Plan, the Non-Displayed Order will be cancelled back to the Participant. Nasdaq proposes to amend this provision to clarify the behavior of NonDisplayed Orders entered through the OUCH or FLITE protocols in Test Group Three Pilot Securities that lock or cross a Protected Quotation. Specifically, a Non-Displayed Order in a Test Group Three Pilot Security entered through OUCH or FLITE may be adjusted in the following manner after initial entry and posting to the Nasdaq Book. If entered at a price that locked a Protected Quotation, and if the NBBO changes such that its price would no longer lock a Protected Quotation, the 12 As part of this proposal, Nasdaq also proposes to clarify the operation of this provision so that it is structurally consistent with provisions in the descriptions of Price to Comply and Post-Only Orders. Specifically, Nasdaq will amend this language to provide that, if a resting Non-Displayed Order in a Test Group Three Pilot Security entered through RASH, QIX, or FIX becomes locked or crossed by a Protected Quotation due to a change in the NBBO, or if the Non-Displayed Order is at an impermissible price under Regulation NMS or the Plan, the Non-Displayed Order will be repriced to a price that is at either one minimum price increment below (above) the National Best Offer (National Best Bid) or at the midpoint of the NBBO, whichever is higher (lower) and will receive a new timestamp. VerDate Sep<11>2014 20:45 Dec 23, 2016 Jkt 241001 Non-Displayed Order will be adjusted to rank at its original entered limit price.13 If entered at a price that crossed a Protected Quotation, and if the NBBO changes such that it can be ranked at the price of the Protected Quotation it crossed, the Order, based on the Participant’s choice, may either be (i) cancelled or (ii) adjusted to rank at the price of the Protected Quotation it crossed.14 If entered at a price that locked or crossed a Protected Quotation, and if the NBBO changes such that it cannot be ranked at the price of the Protected Quotation it locked or crossed but can be ranked closer to its original limit price, the Non-Displayed Order will be adjusted to the new midpoint of the NBBO.15 If, after being posted on the Nasdaq Book, the Non-Displayed Order becomes locked or crossed by a Protected Quotation due to a change in the NBBO, or if the Non-Displayed Order is at an impermissible price under Regulation NMS or the Plan and it cannot otherwise be adjusted as above, the Non-Displayed Order will be cancelled.16 Post-Only Orders Currently, Rule 4770(d)(4) states that a Post-Only Order in a Test Group Pilot Security will operate as described in Rule 4702(b)(4) except as provided under this paragraph. For orders that are not attributable, if the limit price of a buy (sell) Post-Only Order in a Test Group Three Pilot Security would lock or cross a Protected Quotation of another market center, the Order will display at one minimum price 13 Nasdaq notes that a Non-Displayed Order will always be adjusted in this scenario, regardless of its port setting. 14 For example, if the National Best Bid is $10.00 and the National Best Offer is $10.10, and a NonDisplayed Order to buy at $10.15 is entered, the Non-Displayed Order will be ranked at $10.05. If the National Best Offer then changes to $10.15, the Non-Displayed Order may either be adjusted to rank at $10.10, or may be cancelled back to the Participant. 15 For example, if the National Best Bid is $10.00 and the National Best Offer is $10.10, and a NonDisplayed Order to buy at $10.10 is entered, the Non-Displayed Order will be ranked at $10.05. If the National Best Bid then changes to $10.05, the price of the Non-Displayed Order will be adjusted to $10.075. Nasdaq notes that a Non-Displayed Order entered through OUCH or FLITE in either a Control Group Security, a Test Group One Pilot Security or a Test Group Two Pilot Security would be ranked at the locking price upon entry. 16 For example, if the National Best Bid is $10.00 and the National Best Offer is $10.10, and a NonDisplayed Order to buy at $10.10 is entered, the Non-Displayed Order will be ranked at $10.05. If the National Best Offer then changes to $10.05, the Non-Displayed Order will be cancelled back to the Participant. PO 00000 Frm 00148 Fmt 4703 Sfmt 4703 95245 increment below (above) the Protected Quotation, and the Order will be ranked on the Nasdaq Book at the current midpoint of the NBBO. Nasdaq proposes to augment this provision to clarify the behavior of PostOnly Orders entered through the OUCH or FLITE protocols in Test Group Three Pilot Securities that lock or cross a Protected Quotation. Specifically, a Non-Attributable Post-Only Order in a Test Group Three Pilot Security entered through OUCH or FLITE may be adjusted in the following manner after initial entry and posting to the Nasdaq Book. If entered at a price that locked a Protected Quotation, and if the NBBO changes such that its price will no longer lock a Protected Quotation, the Post-Only Order will be adjusted to rank and display at its original entered limit price.17 If entered at a price that crossed a Protected Quotation, and if the NBBO changes such that it can be ranked at the price of the Protected Quotation it crossed, the Post-Only Order, based on the Participant’s choice, may either be (i) cancelled or (ii) adjusted to rank at the price of the Protected Quotation it crossed upon entry with its displayed price remaining unchanged. If, after being posted on the Nasdaq Book, the non-displayed price of a resting Post-Only Order becomes locked or crossed by a Protected Quotation due to a change in the NBBO, or if the PostOnly Order is at an impermissible price under Regulation NMS or the Plan and it cannot otherwise be adjusted as above, the Post-Only Order will be cancelled. Commentary .14 In removing the current re-pricing functionality, Commentary .014 [sic], which addresses the behavior of current treatment of Price to Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-Only Orders that are entered through the OUCH or FLITE protocols in Test Group Three Pilot Securities, is no longer necessary.18 The 17 Nasdaq notes that a Post-Only Order will always be adjusted in this scenario, regardless of its port setting. 18 Under Commentary .14, the current treatment of Price to Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-Only Orders that are entered through the OUCH or FLITE protocols in Test Group Three securities is as follows: Following entry, and if market conditions allow, a Price to Comply Order in a Test Group Three Pilot Security will be adjusted repeatedly in accordance with changes to the NBBO until such time as the Price to Comply Order is able to be ranked and displayed at its original entered limit price. Following entry, and if market conditions allow, a Price to Display Order in a Test Group Three Pilot E:\FR\FM\27DEN1.SGM Continued 27DEN1 95246 Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices Exchange therefore proposes to delete this Commentary from the Rule. Finally, Nasdaq proposes to add language to Rule 4770(d)(1) to clarify the treatment of orders in a Test Group Three Security entered through the RASH, QIX or FIX protocols. Specifically, subject to the provisions set forth in the remainder of Rule 4770(d), if the entered limit price of an Order in a Test Group Three Pilot Security, entered through RASH, QIX, or FIX, locked or crossed a Protected Quotation and the NBBO changes so that the Order can be ranked closer to its original entered limit price, the price of the Order will be adjusted repeatedly in accordance with changes to the NBBO. Nasdaq is proposing to make this change to clarify the current treatment of orders in Test Group Three Pilot Securities entered through RASH, QIX or FIX. asabaliauskas on DSK3SPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,19 in general, and furthers the objectives of Section 6(b)(5) of the Act,20 in particular, in that it is 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. The Exchange believes that the proposed rule change is consistent with the Act because it clarifies the changes the Exchange is making to the handling of certain Order Types necessary to implement the requirements of the Plan on its System and, in the case of the changes of Rule 4770(d)(1), to clarify the current treatment of orders in Test Group Three Pilot Securities entered through RASH, QIX or FIX. As a result of removing the current repricing functionality that applies to certain Order Types in Test Group Three Securities entered through the OUCH and FLITE protocols, and due to the different functionality of the OUCH Security will be adjusted repeatedly in accordance with changes to the NBBO until such time as the Price to Display Order is able to be ranked and displayed at its original entered limit price. Following entry, and if market conditions allow, a Non-Displayed Order in a Test Group Three Pilot Security will be adjusted repeatedly in accordance with changes to the NBBO up (down) to the Order’s limit price. Following entry, and if market conditions allow, a Post-Only Order in a Test Group Three Pilot Security will be adjusted repeatedly in accordance with changes to the NBBO or the best price on the Nasdaq Book, as applicable until such time as the Post-Only Order is able to be ranked and displayed at its original entered limit price. 19 15 U.S.C. 78f(b). 20 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 20:45 Dec 23, 2016 Jkt 241001 and FLITE protocols in comparison to the other applicable Nasdaq protocols, these Order Types will behave differently than is currently set forth in Rule 4770 when entered through the OUCH or FLITE protocols in certain instances. As noted above, these changes will adjust Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered through OUCH and FLITE when the Order has been ranked at a midpoint of the NBBO that then becomes impermissible due to changes in the NBBO. These changes also will adjust Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders entered through OUCH and FLITE in scenarios where the subsequent movement of the NBBO implicates the Trade-at prohibition with respect to the resting order. By clarifying the behavior of certain Order Types in Test Group Three Pilot Securities entered through the OUCH or FLITE protocols, the proposal will help allow market participants to continue to trade NMS Stocks, within quoting and trading requirements that are in compliance with the Plan, with certainty on how certain orders and trading interests would be treated. This, in turn, will help encourage market participants to continue to provide liquidity in the marketplace. More generally, Nasdaq also notes that the Plan, which was approved by the Commission pursuant to an order issued by the Commission in reliance on Section 11A of the Act,21 provides the Exchange authority to establish, maintain, and enforce written policies and procedures that are reasonably designed to comply with applicable quoting and trading requirements specified in the Plan. The Exchange believes that the proposed rule change is consistent with the authority granted to it by the Plan to establish specifications and procedures for the implementation and operation of the Plan that are consistent with the provisions of the Plan. Likewise, the Exchange believes that the proposed rule change provides interpretations of the Plan that are consistent with the Act, in general, and furthers the objectives of the Act, in particular. Finally, Nasdaq believes that the proposal is consistent with the Act because the proposed functionality will more closely align the handling of Price to Comply Orders, Non-Displayed Orders, and Post-Only Orders that are entered through the OUCH or FLITE protocols for Test Group Three Pilot Securities with the handling of such Orders entered through the OUCH or FLITE protocols for Control Group, Test Group One and Test Group Two Securities than the current functionality in place for these Orders. 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 proposed changes are being made to establish, maintain, and enforce written policies and procedures that are reasonably designed to comply with the trading and quoting requirements specified in the Plan, of which other equities exchanges are also Participants. Other competing national securities exchanges are subject to the same trading and quoting requirements specified in the Plan, and must take the same steps that the Exchange has to conform its existing rules to the requirements of the Plan. Therefore, the proposed changes would not impose any burden on competition, while providing certainty of treatment and execution of trading interests on the Exchange to market participants in NMS Stocks that are acting in compliance with the requirements specified in the Plan. 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 Because the foregoing 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 for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 22 and subparagraph (f)(6) of Rule 19b–4 thereunder.23 A proposed rule change filed under Rule 19b–4(f)(6) 24 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),25 the Commission may designate a shorter time if such action is consistent with the 22 15 23 17 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 24 Id. 21 15 PO 00000 U.S.C. 78k–1. Frm 00149 Fmt 4703 25 17 Sfmt 4703 E:\FR\FM\27DEN1.SGM CFR 240.19b–4(f)(6)(iii). 27DEN1 95247 Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES protection of investors and the public interest. In this filing, the Exchange has asked that the Commission waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing. The Exchange notes the proposed rule is intended to clarify the differences in the handling of certain orders entered into the system by different protocols. The Exchange notes that orders will be treated as consistently as possible across the Test Groups and the Control Group while complying with each grouping’s varied quoting and trading requirements. Additionally, the Exchange proposed to remove Commentary .14 because it is no longer necessary. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the proposal clarifies the Exchange’s rules and provides transparency to members with regards to the handling of certain orders entered via OUCH and FLITE as well as RASH, QIX, or FIX protocols for locked or crossed orders in Test Group Three Pilot Securities. The Commission notes that the Exchange proposed to remove the functionality described in Commentary .14 and make the necessary corresponding systems changes in Partial Amendment No. 2 to Nasdaq– 2016–126, which the Commission approved.26 The Exchange notes that it was able to implement the systems changes and that they became fully operational on the December 14, 2016. Therefore, the Commission hereby waives the 30-day operative delay and designates the proposed rule change to be operative on December 14, 2016.27 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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: • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2016–171 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2016–171. 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 (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 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–2016–171 and should be submitted on or before January 17, 2017. 26 See 27 For [FR Doc. 2016–31108 Filed 12–23–16; 8:45 am] VerDate Sep<11>2014 20:45 Dec 23, 2016 Jkt 241001 [Release No. 34–79620; File No. SR–FINRA– 2016–046] Electronic Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Eduardo A. Aleman, Assistant Secretary. supra note 5. purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Reporting Transactions in U.S. Treasury Securities to the Trade Reporting and Compliance Engine December 20, 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 December 14, 2016, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) 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 FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rule 6710 to clarify the definitions of ‘‘Auction Transaction’’ and ‘‘WhenIssued Transaction’’ for the purposes of reporting transactions in U.S. Treasury Securities to the Trade Reporting and Compliance Engine (‘‘TRACE’’). Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions are in brackets. * * * * * 6000. QUOTATION AND TRANSACTION REPORTING FACILITIES * * * * 6700. TRADE REPORTING AND COMPLIANCE ENGINE (TRACE) 6710. Definitions The terms used in this Rule 6700 Series shall have the same meaning as those defined in the FINRA By-Laws and rules unless otherwise specified. For the purposes of this Rule 6700 Series, the following terms have the following meaning: (a) through (ee) No Change. (ff) ‘‘Collateralized Debt Obligation’’ (‘‘CDO’’) means a type of Securitized Product backed by fixed-income assets BILLING CODE 8011–01–P 1 15 28 17 PO 00000 CFR 200.30–3(a)(12). Frm 00150 Fmt 4703 Sfmt 4703 * 2 17 E:\FR\FM\27DEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 27DEN1

Agencies

[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95243-95247]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31108]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79616; File No. SR-NASDAQ-2016-171]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4770 (Compliance With Regulation NMS Plan To Implement a 
Tick Size Pilot)

December 20, 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 December 13, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 4770 (Compliance with 
Regulation NMS Plan to Implement a Tick Size Pilot) relating to the 
handling to certain Order Types in Test Group Three Pilot Securities in 
connection with the Regulation NMS Plan to Implement a Tick Size Pilot 
Program (``Plan'' or ``Pilot'').\3\ Relatedly, Nasdaq also proposes to 
delete Commentary .14, which addresses the current handling of those 
Order Types. Finally, Nasdaq proposes to add language to Rule 
4770(d)(1) to clarify the treatment of orders in a Test Group Three 
Security entered through the RASH, QIX or FIX protocols.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at https://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
    On September 7, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposed rule change (``Proposal'') to 
adopt paragraph (d) and Commentary .12 to Exchange Rule 4770 to 
describe changes to system functionality necessary to implement the 
Plan. The Exchange also proposed amendments to Rule 4770(a) and (c) to 
clarify how the Trade-at exception may be satisfied. The SEC published 
the Proposal in the Federal Register for notice and comment on 
September 20, 2016.\4\ Nasdaq subsequently filed three Partial 
Amendments to clarify aspects of the Proposal. The Commission approved 
the Proposal, as amended, on October 7, 2016.\5\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 78837 (September 14, 
2016), 81 FR 64544 (September 20, 2016) (Notice of filing of SR-
NASDAQ-2016-126).
    \5\ See Securities Exchange Act Release No. 79075 (October 7, 
2016) (Order approving SR-NASDAQ-2016-126).
---------------------------------------------------------------------------

    In SR-NASDAQ-2016-126, Nasdaq had initially proposed a re-pricing 
functionality for Price to Comply Orders, Non-Displayed Orders, and 
Post-Only Orders entered through the OUCH and FLITE protocols in Test 
Group Three Pilot securities.\6\ Nasdaq subsequently determined that it 
would not offer this re-pricing functionality for Price to Comply 
Orders, Non-Displayed Orders, and Post-Only Orders entered through the 
OUCH and FLITE protocols in Test Group Three Pilot securities. As part 
of Partial Amendment No. 2 to SR-NASDAQ-2016-126, Nasdaq proposed to 
delete the relevant language from Rule 4770 related to this re-pricing 
functionality.
---------------------------------------------------------------------------

    \6\ As originally proposed, Rule 4770(d)(2) stated that Price to 
Comply Orders in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO until such time as 
the Price to Comply Order is able to be ranked and displayed at its 
original entered limit price. Rule 4770(d)(3) stated that, if market 
conditions allow, a Non-Displayed Order in a Test Group Three Pilot 
Security will be adjusted repeatedly in accordance with changes to 
the NBBO up (down) to the Order's limit price. Rule 4770(d)(4) 
stated that, if market conditions allow, the Post-Only Order in a 
Test Group Three Pilot Security will be adjusted repeatedly in 
accordance with changes to the NBBO or the best price on the Nasdaq 
Book, as applicable until such time as the Post-Only Order is able 
to be ranked and displayed at its original entered limit price.
---------------------------------------------------------------------------

    In that amendment, Nasdaq noted that this change would only impact 
the treatment of Price to Comply Orders, Non-Displayed Orders, and 
Post-Only orders that are submitted through the OUCH and FLITE 
protocols in Test Group Three Pilot Securities, as these types of 
Orders that are currently submitted to Nasdaq through the RASH, QIX or 
FIX protocols are already subject to this re-pricing functionality and 
will remain subject to this functionality under the Pilot.
    In the Amendment, Nasdaq further noted that its systems are 
currently programmed so that Price to Comply Orders, Non-Displayed 
Orders and Post-Only Orders entered through the OUCH and FLITE 
protocols in Test Group Three Pilot Securities may be adjusted 
repeatedly to reflect changes to the NBBO and/or the best price on the

[[Page 95244]]

Nasdaq book. Nasdaq stated that it is re-programming its systems to 
remove this functionality for Price to Comply Orders, Non-Displayed 
Orders and Post-Only Orders entered through the OUCH and FLITE 
protocols in Test Group Three Pilot Securities. In the Amendment, 
Nasdaq stated that it anticipated that this re-programming shall be 
completed no later than November 30, 2016. If it appeared that this 
functionality would remain operational by October 17, 2016, Nasdaq 
indicated that it would file a proposed rule change with the SEC and 
will provide notice to market participants sufficiently in advance of 
that date to provide effective notice. The rule change and the notice 
to market participants would describe the current operation of the 
Nasdaq systems in this regard, and the timing related to the re-
programming.
    On October 17, 2016, Nasdaq filed a proposal to extend the date by 
which it would complete the re-programing of its systems to eliminate 
the re-pricing functionality in Test Group Three Pilot Securities for 
Price to Comply Orders, Price to Display Orders, Non-Displayed Orders, 
and Post-Only Orders that are entered through the OUCH or FLITE 
protocols.\7\ In that proposal, Nasdaq stated that it anticipated that 
this re-programming shall be complete on or before October 31, 2016.\8\ 
As Nasdaq continued to re-program its systems to eliminate the re-
pricing functionality in Test Group Three Pilot Securities for Price to 
Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-
Only Orders that are entered through the OUCH or FLITE protocols, it 
extended the date by which the re-programming shall be complete to the 
current date of December 12, 2016.\9\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 79155 (October 25, 
2016), 81 FR 75471 (October 31, 2016) (SR-NASDAQ-2016-143).
     Subsequent to the approval of SR-NASDAQ-2016-126, Nasdaq become 
aware that this re-pricing functionality also applies to Price to 
Display Orders that are entered through the OUCH and FLITE protocols 
in Test Group Three Securities, and amended Commentary .14 to 
indicate that Price to Display Orders will be treated in the same 
manner as Price to Comply Orders under the re-pricing functionality. 
Id.
    \8\ Id.
    \9\ See Securities Exchange Release Nos. 79263 (November 8, 
2016), 81 FR 80154 (November 15, 2016) (SR-NASDAQ-2016-151) 
(extending current re-pricing functionality to November 14, 2016); 
79408 (November 28, 2016), 81 FR 87106 (December 2, 2016) (SR-
NASDAQ-2016-159) (extending the current re-pricing functionality to 
December 12, 2016).
---------------------------------------------------------------------------

    Nasdaq has now completed re-programming its systems to eliminate 
the re-pricing functionality in Test Group Three Pilot Securities for 
Price to Comply Orders, Price to Display Orders, Non-Displayed Orders, 
and Post-Only Orders that are entered through the OUCH or FLITE 
protocols. However, as a result of removing the re-pricing 
functionality, there are instances, due to the different functionality 
of the OUCH and FLITE protocols in comparison to the other applicable 
Nasdaq protocols, where the behavior of certain Order Types entered 
through the OUCH and FLITE protocols in Test Group Three Pilot 
Securities will differ from the behavior of those Order Types as set 
forth in Rule 4770; specifically, the behavior of Price to Comply 
Orders, Non-Displayed Orders, and Post-Only Orders entered through the 
OUCH and FLITE protocols when the Order locks or crosses a Protected 
Quotation. Nasdaq is therefore amending Rule 4770 to clarify these 
differences. Although the changes made to Price to Comply Orders, Non-
Displayed Orders, and Post-Only Orders entered through OUCH and FLITE 
reflect the different functionality of the OUCH and FLITE protocols in 
comparison with the other Nasdaq protocols, the proposed changes treat 
Price to Comply Orders, Non-Displayed Orders and Post-Only Orders 
entered through OUCH and FLITE protocols in Test Group Three Securities 
as consistently as possible with such orders entered through OUCH and 
FLITE in Control Group Securities, and Test Group One and Test Group 
Two Securities. These changes will adjust Price to Comply Orders, Non-
Displayed Orders, and Post-Only Orders entered through OUCH and FLITE 
when the Order has been ranked at a midpoint of the NBBO that then 
becomes impermissible due to changes in the NBBO.
Price To Comply Orders
    Currently, Rule 4770(d)(2) states that a Price to Comply Order in a 
Test Group Pilot Security will operate as described in Rule 4702(b)(1) 
except as provided under this paragraph. If a Price to Comply Order for 
a Test Group Three Pilot Security is partially executed upon entry and 
the remainder would lock a Protected Quotation of another market 
center, the unexecuted portion of the Order will be cancelled. If the 
Order is not executable against any previously posted orders on the 
Nasdaq Book, and the limit price of a buy (sell) Price to Comply Order 
in a Test Group Three Pilot Security would lock or cross a Protected 
Quotation of another market center, the Order will display at one 
minimum price increment below (above) the Protected Quotation, and the 
Order will be ranked on the Nasdaq Book at the current midpoint of the 
NBBO.
    Nasdaq proposes to augment this provision to clarify the behavior 
of Price to Comply Orders entered through the OUCH or FLITE protocols 
in Test Group Three Pilot Securities that lock or cross a Protected 
Quotation. Specifically, a Price to Comply Order in a Test Group Three 
Pilot Security entered through OUCH or FLITE may be adjusted in the 
following manner after initial entry and posting to the Nasdaq Book.
    If entered at a price that locked a Protected Quotation, and if the 
NBBO changes such that its price will no longer lock a Protected 
Quotation, the Price to Comply Order will be adjusted to rank and 
display at its original entered limit price.\10\
---------------------------------------------------------------------------

    \10\ Nasdaq notes that a Price to Comply Order will always be 
adjusted in this scenario, regardless of its port setting.
---------------------------------------------------------------------------

    If entered at a price that crossed a Protected Quotation, and if 
the NBBO changes such that it can be ranked at the price of the 
Protected Quotation it crossed, the Price to Comply Order, based on the 
participant's choice, may either be (i) cancelled or (ii) adjusted to 
rank at the price of the Protected Quotation it crossed upon entry with 
its displayed price remaining unchanged.
    If, after being posted on the Nasdaq Book, the non-displayed price 
of a Price to Comply Order becomes locked or crossed by a Protected 
Quotation due to a change in the NBBO, or if the Price to Comply Order 
is at an impermissible price under Regulation NMS or the Plan and it 
cannot otherwise be adjusted as above, the Price to Comply Order will 
be cancelled.\11\
---------------------------------------------------------------------------

    \11\ For example, if the National Best Bid is $10.00 and the 
National Best Offer is $10.10, and a Price to Comply Order to buy at 
$10.15 is entered, the Price to Comply Order will be displayed at 
$10.05 and ranked at $10.075. If the National Best Offer then 
changes to $10.15, the Price to Comply Order will be adjusted to 
rank at $10.10, and will remain displayed at $10.05. If the National 
Best Offer subsequently changes to $10.10, the Price to Comply Order 
will be cancelled.
    Nasdaq notes that a Price to Comply Order, Non-Displayed Order, 
or Post-Only Order entered through OUCH or FLITE in either a Control 
Group Security, a Test Group One Pilot Security or a Test Group Two 
Pilot Security would only cancel if the resting order is crossed 
(not locked) by a Protected Quotation due to a change in the NBBO.
---------------------------------------------------------------------------

Non-Displayed Orders
    Currently, Rule 4770(d)(3) states that a Non-Displayed Order in a 
Test Group Pilot Security will operate as described in Rule 4702(b)(3) 
except as provided under this paragraph. A resting Non-Displayed Order 
in a Test Group Three Pilot security cannot execute at the price of a 
Protected Quotation of another market center unless the

[[Page 95245]]

incoming Order otherwise qualifies for an exception to the Trade-at 
prohibition provided under Rule 4770(c)(3)(D). If the limit price of a 
buy (sell) Non-Displayed Order in a Test Group Three Pilot Security 
would lock or cross a Protected Quotation of another market center, the 
Order will be ranked on the Nasdaq Book at either one minimum price 
increment below (above) the National Best Offer (National Best Bid) or 
at the midpoint of the NBBO, whichever is higher (lower). For a Non-
Displayed Order in a Test Group Three Pilot Security entered through 
RASH, QIX, or FIX, if after being posted to the Nasdaq Book, the NBBO 
changes so that the Non-Displayed Order would no longer be executable 
at its posted price due to the requirements of Regulation NMS or the 
Plan, the Non-Displayed Order will be repriced to a price that is at 
either one minimum price increment below (above) the National Best 
Offer (National Best Bid) or at the midpoint of the NBBO, whichever is 
higher (lower) and will receive a new timestamp.\12\ For a Non-
Displayed Order in a Test Group Three Pilot Security entered through 
OUCH or FLITE, if after such a Non-Displayed Order is posted to the 
Nasdaq Book, the NBBO changes so that the Non-Displayed Order would no 
longer be executable at its posted price due to the requirements of 
Regulation NMS or the Plan, the Non-Displayed Order will be cancelled 
back to the Participant.
---------------------------------------------------------------------------

    \12\ As part of this proposal, Nasdaq also proposes to clarify 
the operation of this provision so that it is structurally 
consistent with provisions in the descriptions of Price to Comply 
and Post-Only Orders. Specifically, Nasdaq will amend this language 
to provide that, if a resting Non-Displayed Order in a Test Group 
Three Pilot Security entered through RASH, QIX, or FIX becomes 
locked or crossed by a Protected Quotation due to a change in the 
NBBO, or if the Non-Displayed Order is at an impermissible price 
under Regulation NMS or the Plan, the Non-Displayed Order will be 
repriced to a price that is at either one minimum price increment 
below (above) the National Best Offer (National Best Bid) or at the 
midpoint of the NBBO, whichever is higher (lower) and will receive a 
new timestamp.
---------------------------------------------------------------------------

    Nasdaq proposes to amend this provision to clarify the behavior of 
Non-Displayed Orders entered through the OUCH or FLITE protocols in 
Test Group Three Pilot Securities that lock or cross a Protected 
Quotation. Specifically, a Non-Displayed Order in a Test Group Three 
Pilot Security entered through OUCH or FLITE may be adjusted in the 
following manner after initial entry and posting to the Nasdaq Book.
    If entered at a price that locked a Protected Quotation, and if the 
NBBO changes such that its price would no longer lock a Protected 
Quotation, the Non-Displayed Order will be adjusted to rank at its 
original entered limit price.\13\
---------------------------------------------------------------------------

    \13\ Nasdaq notes that a Non-Displayed Order will always be 
adjusted in this scenario, regardless of its port setting.
---------------------------------------------------------------------------

    If entered at a price that crossed a Protected Quotation, and if 
the NBBO changes such that it can be ranked at the price of the 
Protected Quotation it crossed, the Order, based on the Participant's 
choice, may either be (i) cancelled or (ii) adjusted to rank at the 
price of the Protected Quotation it crossed.\14\
---------------------------------------------------------------------------

    \14\ For example, if the National Best Bid is $10.00 and the 
National Best Offer is $10.10, and a Non-Displayed Order to buy at 
$10.15 is entered, the Non-Displayed Order will be ranked at $10.05. 
If the National Best Offer then changes to $10.15, the Non-Displayed 
Order may either be adjusted to rank at $10.10, or may be cancelled 
back to the Participant.
---------------------------------------------------------------------------

    If entered at a price that locked or crossed a Protected Quotation, 
and if the NBBO changes such that it cannot be ranked at the price of 
the Protected Quotation it locked or crossed but can be ranked closer 
to its original limit price, the Non-Displayed Order will be adjusted 
to the new midpoint of the NBBO.\15\
---------------------------------------------------------------------------

    \15\ For example, if the National Best Bid is $10.00 and the 
National Best Offer is $10.10, and a Non-Displayed Order to buy at 
$10.10 is entered, the Non-Displayed Order will be ranked at $10.05. 
If the National Best Bid then changes to $10.05, the price of the 
Non-Displayed Order will be adjusted to $10.075.
    Nasdaq notes that a Non-Displayed Order entered through OUCH or 
FLITE in either a Control Group Security, a Test Group One Pilot 
Security or a Test Group Two Pilot Security would be ranked at the 
locking price upon entry.
---------------------------------------------------------------------------

    If, after being posted on the Nasdaq Book, the Non-Displayed Order 
becomes locked or crossed by a Protected Quotation due to a change in 
the NBBO, or if the Non-Displayed Order is at an impermissible price 
under Regulation NMS or the Plan and it cannot otherwise be adjusted as 
above, the Non-Displayed Order will be cancelled.\16\
---------------------------------------------------------------------------

    \16\ For example, if the National Best Bid is $10.00 and the 
National Best Offer is $10.10, and a Non-Displayed Order to buy at 
$10.10 is entered, the Non-Displayed Order will be ranked at $10.05. 
If the National Best Offer then changes to $10.05, the Non-Displayed 
Order will be cancelled back to the Participant.
---------------------------------------------------------------------------

Post-Only Orders
    Currently, Rule 4770(d)(4) states that a Post-Only Order in a Test 
Group Pilot Security will operate as described in Rule 4702(b)(4) 
except as provided under this paragraph. For orders that are not 
attributable, if the limit price of a buy (sell) Post-Only Order in a 
Test Group Three Pilot Security would lock or cross a Protected 
Quotation of another market center, the Order will display at one 
minimum price increment below (above) the Protected Quotation, and the 
Order will be ranked on the Nasdaq Book at the current midpoint of the 
NBBO.
    Nasdaq proposes to augment this provision to clarify the behavior 
of Post-Only Orders entered through the OUCH or FLITE protocols in Test 
Group Three Pilot Securities that lock or cross a Protected Quotation. 
Specifically, a Non-Attributable Post-Only Order in a Test Group Three 
Pilot Security entered through OUCH or FLITE may be adjusted in the 
following manner after initial entry and posting to the Nasdaq Book.
    If entered at a price that locked a Protected Quotation, and if the 
NBBO changes such that its price will no longer lock a Protected 
Quotation, the Post-Only Order will be adjusted to rank and display at 
its original entered limit price.\17\
---------------------------------------------------------------------------

    \17\ Nasdaq notes that a Post-Only Order will always be adjusted 
in this scenario, regardless of its port setting.
---------------------------------------------------------------------------

    If entered at a price that crossed a Protected Quotation, and if 
the NBBO changes such that it can be ranked at the price of the 
Protected Quotation it crossed, the Post-Only Order, based on the 
Participant's choice, may either be (i) cancelled or (ii) adjusted to 
rank at the price of the Protected Quotation it crossed upon entry with 
its displayed price remaining unchanged.
    If, after being posted on the Nasdaq Book, the non-displayed price 
of a resting Post-Only Order becomes locked or crossed by a Protected 
Quotation due to a change in the NBBO, or if the Post-Only Order is at 
an impermissible price under Regulation NMS or the Plan and it cannot 
otherwise be adjusted as above, the Post-Only Order will be cancelled.
Commentary .14
    In removing the current re-pricing functionality, Commentary .014 
[sic], which addresses the behavior of current treatment of Price to 
Comply Orders, Price to Display Orders, Non-Displayed Orders, and Post-
Only Orders that are entered through the OUCH or FLITE protocols in 
Test Group Three Pilot Securities, is no longer necessary.\18\ The

[[Page 95246]]

Exchange therefore proposes to delete this Commentary from the Rule.
---------------------------------------------------------------------------

    \18\ Under Commentary .14, the current treatment of Price to 
Comply Orders, Price to Display Orders, Non-Displayed Orders, and 
Post-Only Orders that are entered through the OUCH or FLITE 
protocols in Test Group Three securities is as follows:
    Following entry, and if market conditions allow, a Price to 
Comply Order in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO until such time as 
the Price to Comply Order is able to be ranked and displayed at its 
original entered limit price.
    Following entry, and if market conditions allow, a Price to 
Display Order in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO until such time as 
the Price to Display Order is able to be ranked and displayed at its 
original entered limit price.
    Following entry, and if market conditions allow, a Non-Displayed 
Order in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO up (down) to the 
Order's limit price.
    Following entry, and if market conditions allow, a Post-Only 
Order in a Test Group Three Pilot Security will be adjusted 
repeatedly in accordance with changes to the NBBO or the best price 
on the Nasdaq Book, as applicable until such time as the Post-Only 
Order is able to be ranked and displayed at its original entered 
limit price.
---------------------------------------------------------------------------

    Finally, Nasdaq proposes to add language to Rule 4770(d)(1) to 
clarify the treatment of orders in a Test Group Three Security entered 
through the RASH, QIX or FIX protocols. Specifically, subject to the 
provisions set forth in the remainder of Rule 4770(d), if the entered 
limit price of an Order in a Test Group Three Pilot Security, entered 
through RASH, QIX, or FIX, locked or crossed a Protected Quotation and 
the NBBO changes so that the Order can be ranked closer to its original 
entered limit price, the price of the Order will be adjusted repeatedly 
in accordance with changes to the NBBO. Nasdaq is proposing to make 
this change to clarify the current treatment of orders in Test Group 
Three Pilot Securities entered through RASH, QIX or FIX.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\20\ in particular, in that it is 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with the Act because it clarifies the changes the Exchange is making to 
the handling of certain Order Types necessary to implement the 
requirements of the Plan on its System and, in the case of the changes 
of Rule 4770(d)(1), to clarify the current treatment of orders in Test 
Group Three Pilot Securities entered through RASH, QIX or FIX.
    As a result of removing the current re-pricing functionality that 
applies to certain Order Types in Test Group Three Securities entered 
through the OUCH and FLITE protocols, and due to the different 
functionality of the OUCH and FLITE protocols in comparison to the 
other applicable Nasdaq protocols, these Order Types will behave 
differently than is currently set forth in Rule 4770 when entered 
through the OUCH or FLITE protocols in certain instances. As noted 
above, these changes will adjust Price to Comply Orders, Non-Displayed 
Orders, and Post-Only Orders entered through OUCH and FLITE when the 
Order has been ranked at a midpoint of the NBBO that then becomes 
impermissible due to changes in the NBBO. These changes also will 
adjust Price to Comply Orders, Non-Displayed Orders, and Post-Only 
Orders entered through OUCH and FLITE in scenarios where the subsequent 
movement of the NBBO implicates the Trade-at prohibition with respect 
to the resting order.
    By clarifying the behavior of certain Order Types in Test Group 
Three Pilot Securities entered through the OUCH or FLITE protocols, the 
proposal will help allow market participants to continue to trade NMS 
Stocks, within quoting and trading requirements that are in compliance 
with the Plan, with certainty on how certain orders and trading 
interests would be treated. This, in turn, will help encourage market 
participants to continue to provide liquidity in the marketplace.
    More generally, Nasdaq also notes that the Plan, which was approved 
by the Commission pursuant to an order issued by the Commission in 
reliance on Section 11A of the Act,\21\ provides the Exchange authority 
to establish, maintain, and enforce written policies and procedures 
that are reasonably designed to comply with applicable quoting and 
trading requirements specified in the Plan. The Exchange believes that 
the proposed rule change is consistent with the authority granted to it 
by the Plan to establish specifications and procedures for the 
implementation and operation of the Plan that are consistent with the 
provisions of the Plan. Likewise, the Exchange believes that the 
proposed rule change provides interpretations of the Plan that are 
consistent with the Act, in general, and furthers the objectives of the 
Act, in particular.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    Finally, Nasdaq believes that the proposal is consistent with the 
Act because the proposed functionality will more closely align the 
handling of Price to Comply Orders, Non-Displayed Orders, and Post-Only 
Orders that are entered through the OUCH or FLITE protocols for Test 
Group Three Pilot Securities with the handling of such Orders entered 
through the OUCH or FLITE protocols for Control Group, Test Group One 
and Test Group Two Securities than the current functionality in place 
for these Orders.

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 proposed changes are being 
made to establish, maintain, and enforce written policies and 
procedures that are reasonably designed to comply with the trading and 
quoting requirements specified in the Plan, of which other equities 
exchanges are also Participants. Other competing national securities 
exchanges are subject to the same trading and quoting requirements 
specified in the Plan, and must take the same steps that the Exchange 
has to conform its existing rules to the requirements of the Plan. 
Therefore, the proposed changes would not impose any burden on 
competition, while providing certainty of treatment and execution of 
trading interests on the Exchange to market participants in NMS Stocks 
that are acting in compliance with the requirements specified in the 
Plan.

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

    Because the foregoing 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 for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \22\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission 
may designate a shorter time if such action is consistent with the

[[Page 95247]]

protection of investors and the public interest. In this filing, the 
Exchange has asked that the Commission waive the requirement that the 
proposed rule change not become operative for 30 days after the date of 
the filing.
---------------------------------------------------------------------------

    \24\ Id.
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Exchange notes the proposed rule is intended to clarify the 
differences in the handling of certain orders entered into the system 
by different protocols. The Exchange notes that orders will be treated 
as consistently as possible across the Test Groups and the Control 
Group while complying with each grouping's varied quoting and trading 
requirements. Additionally, the Exchange proposed to remove Commentary 
.14 because it is no longer necessary.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposal clarifies the Exchange's rules and provides 
transparency to members with regards to the handling of certain orders 
entered via OUCH and FLITE as well as RASH, QIX, or FIX protocols for 
locked or crossed orders in Test Group Three Pilot Securities. The 
Commission notes that the Exchange proposed to remove the functionality 
described in Commentary .14 and make the necessary corresponding 
systems changes in Partial Amendment No. 2 to Nasdaq-2016-126, which 
the Commission approved.\26\ The Exchange notes that it was able to 
implement the systems changes and that they became fully operational on 
the December 14, 2016. Therefore, the Commission hereby waives the 30-
day operative delay and designates the proposed rule change to be 
operative on December 14, 2016.\27\
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    \26\ See supra note 5.
    \27\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2016-171 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-171. 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 (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 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-2016-171 and should 
be submitted on or before January 17, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31108 Filed 12-23-16; 8:45 am]
 BILLING CODE 8011-01-P
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