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]
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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
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provisions of 5 U.S.C. 552, will be
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should refer to File Number SR–BX–
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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
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notice to solicit comments on the
proposed rule change from interested
persons.
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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.
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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).
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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
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Fmt 4703
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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.
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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.
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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.
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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
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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).
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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
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25 17
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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\
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\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.
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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\
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\17\ Nasdaq notes that a Post-Only Order will always be adjusted
in this scenario, regardless of its port setting.
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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.
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\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.
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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.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
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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.
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\21\ 15 U.S.C. 78k-1.
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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.
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\24\ Id.
\25\ 17 CFR 240.19b-4(f)(6)(iii).
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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
