Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4702 (Order Types) and Rule 4703 (Order Attributes), 21860-21863 [2017-09422]
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Federal Register / Vol. 82, No. 89 / Wednesday, May 10, 2017 / Notices
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) of the Act and Rule 19b–
4(f)(6) thereunder.12
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 13 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 14
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay. The Exchange states
that the proposal supplements the
recently-approved changes to Orders
with Midpoint Pegging, and that it
intends to implement these previouslyapproved changes shortly (and no later
than May 31, 2017).15 Waiver of the 30day operative delay would allow the
Exchange to implement the previouslyapproved changes concurrently with the
supplemental changes in this proposal.
The Commission believes that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest. Therefore, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change to be operative
upon filing.16
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or 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
change should be approved or
disapproved.
jstallworth on DSK7TPTVN1PROD with NOTICES
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
12 17 CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
13 17 CFR 240.19b–4(f)(6).
14 17 CFR 240.19b–4(f)(6)(iii).
15 See supra note 9.
16 For purposes only of waiving the 30-day
operative delay, 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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change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80593; File No. SR–
NASDAQ–2017–042]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–BX–2017–021 on the
subject line.
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
4702 (Order Types) and Rule 4703
(Order Attributes)
Paper Comments
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 April 21,
2017, 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.
• 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–BX–2017–021. 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–BX–
2017–021 and should be submitted on
or before May 31, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–09423 Filed 5–9–17; 8:45 am]
May 4, 2017.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 4702 (Order Types) and Rule 4703
(Order Attributes) to specify the
behavior of Midpoint Peg Post-Only
Orders and Orders with Midpoint
Pegging after initial entry and posting to
the Nasdaq Book when the market is
crossed, or when there is no best bid
and/or offer. Nasdaq also proposes to
change certain references to cancelling
or rejecting orders in Rule 4702 and
Rule 4703.
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.
BILLING CODE 8011–01–P
1 15
17 17
PO 00000
CFR 200.30–3(a)(12).
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2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 82, No. 89 / Wednesday, May 10, 2017 / Notices
jstallworth on DSK7TPTVN1PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq proposes to amend Rule 4702
(Order Types) and Rule 4703 (Order
Attributes) to specify the behavior of
Midpoint Peg Post-Only Orders and
Orders with Midpoint Pegging that are
cancelled or rejected when the market is
crossed, or when there is no best bid
and/or offer after initial entry and
posting to the Nasdaq Book. Nasdaq also
proposes to change certain references to
cancelling or rejecting orders in Rule
4702 and Rule 4703.
Rule 4702(b)(5) describes the
Midpoint Peg Post-Only Order. Among
other things, the Rule states that the
Midpoint Peg Post-Only Order is an
Order Type with a Non-Display Order
Attribute that is priced at the midpoint
between the National Best Bid and Offer
(‘‘NBBO’’) and that will execute upon
entry only in circumstances where
economically beneficial to the party
entering the Order. The Midpoint Peg
Post-Only Order is available during
Market Hours only.
Rule 4703(d) describes the Pegging
Order Attribute, including Midpoint
Pegging. Pegging is an Order Attribute
that allows an Order to have its price
automatically set with reference to the
NBBO. Midpoint Pegging means Pegging
with reference to the midpoint between
the Inside Bid and the Inside Offer (the
‘‘Midpoint’’).3 An Order with Midpoint
Pegging is not displayed.
Nasdaq recently proposed changes to
Midpoint Peg Post-Only Orders and
Orders with Midpoint Pegging, which
were approved by the SEC on November
10, 2016.4 With this change, if the
NBBO is crossed or if there is no NBBO,
any existing Midpoint Peg Post-Only
Order would be cancelled and any new
Midpoint Peg Post-Only Order would be
rejected. Similarly, if the Inside Bid and
Inside Offer are crossed, any existing
Order with Midpoint Pegging would be
cancelled and any new Order with
Midpoint Pegging would be rejected.5
Nasdaq now proposes to add language
to Rule 4702(b)(5)(B) to specify the
treatment of a Midpoint Peg Post-Only
Order after initial entry and posting to
the Nasdaq Book when the NBBO is
subsequently crossed, or when there is
subsequently no NBBO. Specifically, for
3 Thus, if the Inside Bid was $11 and the Inside
Offer was $11.06, an Order with Midpoint Pegging
would be priced at $11.03.
4 See Securities Exchange Act Release No. 79290
(November 10, 2016), 81 FR 81184 (November 17,
2016) (SR–NASDAQ–2016–111).
5 Id.
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Midpoint Peg Post-Only Orders entered
through RASH, QIX or FIX, if the Order
is on the Nasdaq Book and subsequently
the NBBO is crossed, or if there is
subsequently no NBBO, the Order will
be removed from the Nasdaq Book and
will be re-entered at the new midpoint
once there is a valid NBBO that is not
crossed.
Similarly, Nasdaq proposes to add
language to Rule 4703(d) to specify the
treatment of Orders with Midpoint
Pegging after initial entry and posting to
the Nasdaq Book when the Inside Bid
and Inside Offer are subsequently
crossed, or if there is subsequently no
Inside Bid and/or Inside Offer.
Specifically, for Orders with Midpoint
Pegging entered through RASH, QIX or
FIX, if the Order is on the Nasdaq Book
and subsequently the Inside Bid and
Inside Offer become crossed, or if there
is no Inside Bid and/or Inside Offer, the
Order will be removed from the Nasdaq
Book and will be re-entered at the new
midpoint once there is a valid Inside
Bid and Inside Offer that is not crossed.
As stated in the filing proposing the
new functionality for Midpoint Peg
Post-Only Orders and Orders with
Midpoint Pegging, Nasdaq believes that
the midpoint of a crossed market, or
where there is no NBBO, is not a clear
and accurate indication of a valid price,
and may produce sub-optimal execution
prices for members and investors.6 Prior
to this change, Midpoint Peg Post-Only
Orders entered through RASH, QIX or
FIX would have been nevertheless
repriced to the midpoint of the NBBO if
the NBBO subsequently became crossed,
or would have been cancelled if there
was subsequently no NBBO. Nasdaq is
proposing to re-enter such Orders at the
new midpoint once there is a NBBO that
is not crossed because the new NBBO is
indicative of a valid price.
Similarly, prior to this change, Orders
with Midpoint Pegging entered through
RASH, QIX or FIX would have been
nevertheless repriced to the midpoint of
the Inside Bid and Inside Offer if the
Inside Bid and Inside Offer
subsequently became crossed, or would
have been cancelled if there was
subsequently no Inside Bid and/or
Inside Offer. As with the change to
Midpoint Peg Post-Only Orders, Nasdaq
is therefore proposing to re-enter such
Orders at the new midpoint once there
is an Inside Bid and Inside Offer that is
not crossed because the new Inside Bid
and Inside Offer is indicative of a valid
price. Nasdaq is proposing to re-enter
Orders submitted through RASH, QIX or
6 See Securities Exchange Act Release No. 78908
(September 22, 2016), 81 FR 66702 (September 28,
2016) (SR–NASDAQ–2016–111).
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21861
FIX because Nasdaq typically assumes a
more active role in managing the order
flow submitted by users of these
protocols, and this functionality reflects
the order flow management practices of
these participants.
While Nasdaq is only proposing to
adopt this re-entry functionality for
Orders that are entered through RASH,
QIX or FIX, Nasdaq believes that it is
appropriate to also modify the treatment
of Midpoint Peg Post-Only Orders and
Orders with Midpoint Pegging entered
through OUCH or FLITE where the
NBBO subsequently becomes crossed, or
there is subsequently no NBBO or Inside
Bid and/or Offer. Accordingly, Nasdaq
is also proposing to amend Rule
4702(b)(5)(B) to state that if, after a
Midpoint Peg Post-Only Order entered
through OUCH or FLITE is posted to the
Nasdaq Book, the NBBO changes so that
the NBBO is crossed, or there is no
NBBO, the Midpoint Peg Post-Only
Order will be cancelled back to the
Participant. Similarly, Nasdaq will
amend Rule 4703(d) to state that if, after
an Order with Midpoint Pegging is
entered through OUCH or FLITE, the
Inside Bid and Inside Offer changes so
that the Midpoint is lower than (higher
than) the price of an Order to buy (sell),
the Inside Bid and Inside Offer are
crossed or if there is no Inside Bid and/
or Inside Offer, the Pegged Order will be
cancelled back to the Participant.7
Finally, Nasdaq is proposing to
change certain instances in Rule 4702
and Rule 4703 that describe the
cancellation or rejection of an Order.
For example, Rule 4702(b)(5)(A)
currently states that, if the NBBO is
locked when a Midpoint Peg Post-Only
Order is entered, the Midpoint Peg PostOnly Order will be priced at the locking
price, and if the NBBO is crossed or if
there is no NBBO, the Order will be
cancelled or rejected. Rule 4702(b)(5)(A)
also provides that a Midpoint Peg PostOnly Order that would be assigned a
price of $1 or less per share will be
rejected or cancelled, as applicable.
Similarly, Rule 4703(d) states that, in
the case of an Order with Midpoint
Pegging, if the Inside Bid and Inside
Offer are locked, the Order will be
priced at the locking price, and if the
Inside Bid and Inside Offer are crossed
or if there is no Inside Bid and/or Inside
Offer, the Order will be cancelled or
rejected.
Nasdaq proposes to change references
to cancelling or rejecting an order to
‘‘not accepting’’ an Order. Depending on
7 Nasdaq is proposing to change the reference in
this sentence from NBBO to Inside Bid and Inside
Offer to make this sentence more consistent with
the rest of Rule 4703, which uses the concept of the
Inside Bid and Insider Offer rather than the NBBO.
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Federal Register / Vol. 82, No. 89 / Wednesday, May 10, 2017 / Notices
the context, the reference to rejecting an
order may have one of two meanings.8
Nasdaq believes that changing
references from rejecting or cancelling
an Order to not accepting an Order is
appropriate because the proposed
language resolves the ambiguity that
may arise when referring to an Order
rejection, and is sufficiently broad to
encompass the contexts in which the
concept of Order rejection or
cancellation may be used.
This proposed change supplements
the recently-approved changes to
Midpoint Peg Post-Only Orders and
Orders with Midpoint Pegging, and the
resulting modifications to Nasdaq
systems.9
jstallworth on DSK7TPTVN1PROD with NOTICES
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,10 in general, and furthers the
objectives of Section 6(b)(5) of the Act,11
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 proposed change is consistent
with the Act because it supplements the
recently-approved changes to Midpoint
Peg Post-Only Orders and Orders with
Midpoint Pegging and the resulting
modifications to Nasdaq systems, and
reflects the Exchange’s belief that the
midpoint of a crossed market, or where
there is no NBBO or Inside Bid and/or
Inside Offer, is not a clear and accurate
indication of a valid price, and may
produce sub-optimal execution prices
for members and investors. The
8 Specifically, an Order may be referred to as
‘‘rejected’’ if it is not initially accepted by the
customer-facing Nasdaq interface. Alternatively,
after an Order has been initially accepted by the
customer-facing interface, and is being transmitted
from one Nasdaq interface to another, it may be
‘‘rejected’’ if the Order is not accepted by another
part of the Nasdaq system for various reasons.
9 See Securities Exchange Act Release No. 79290
(November 10, 2016), 81 FR 81184 (November 17,
2016) (SR–NASDAQ–2016–111). Nasdaq initially
proposed to implement the new functionality for
Midpoint Peg Post-Only Orders and Orders with
Midpoint Pegging on November 21, 2016. See
Equity Trader Alert #2016–291. However, following
testing, Nasdaq has decided to delay the
implementation of this new functionality to provide
additional time for systems testing. The new
functionality shall be implemented no later than
May 31, 2017. See Securities Exchange Act Release
No. 80045 (February 15, 2017), 82 FR 11389
(February 22, 2017) (SR–NASDAQ–2017–013)
(extending the implementation date to no later than
March 31, 2017); Securities Exchange Act Release
No. 80391 (April 6, 2017), 82 FR 17714 (April 12,
2017) (SR–NASDAQ–2017–034) (extending the
implementation date to no later than May 31, 2017).
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
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proposal adopts a functionality for
Midpoint Peg Post-Only Orders and
Orders with Midpoint Pegging after
initial entry and posting to the Nasdaq
Book where the NBBO or Inside Bid and
Inside Offer subsequently becomes
crossed, or where there is subsequently
no NBBO or Inside Bid and/or Inside
Offer, that reflects the order flow
management practices of the
participants that use those protocols,
e.g., re-submitting such Orders that are
entered through RASH, QIX or FIX, and
cancelling such Orders that are
submitted through OUCH or FLITE.
The proposal to replace certain
references to rejecting or cancelling an
order to ‘‘not accepting’’ an order is
consistent with the Act because the
proposed language encompasses the
contexts in which the concept of order
rejection or cancellation may be used
and resolves any ambiguity that may
arise when referring to an order
rejection.
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 change supplements the
recently-approved changes to Midpoint
Peg Post-Only Orders and Orders with
Midpoint Pegging and the resulting
modifications to Nasdaq systems by
adopting a functionality for Midpoint
Peg Post-Only Orders and Orders with
Midpoint Pegging after initial entry and
posting to the Nasdaq Book where the
NBBO subsequently becomes crossed, or
where there is subsequently no NBBO or
Inside Bid and/or Inside Offer, that
reflects the order flow management
practices of the participants that use
those protocols. Moreover, the use of
Exchange Order types and attributes is
voluntary, and no member is required to
use any specific Order type or attribute
or even to use any Exchange Order type
or attribute or any Exchange
functionality at all. If an Exchange
member believes for any reason that the
proposed rule change will be
detrimental, that perceived detriment
can be avoided by choosing not to enter
or interact with the Order type modified
by this proposed rule change. Finally,
the proposal will apply equally to all
Orders that meet its criteria.
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.
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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) of the Act and Rule 19b–
4(f)(6) thereunder.12
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 13 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 14
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay. The Exchange states
that the proposal supplements the
recently-approved changes to Midpoint
Peg Post-Only Orders and Orders with
Midpoint Pegging, and that it intends to
implement these previously-approved
changes shortly (and no later than May
31, 2017).15 Waiver of the 30-day
operative delay would allow the
Exchange to implement the previouslyapproved changes concurrently with the
supplemental changes in this proposal.
The Commission believes that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest. Therefore, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change to be operative
upon filing.16
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
12 17 CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
13 17 CFR 240.19b–4(f)(6).
14 17 CFR 240.19b–4(f)(6)(iii).
15 See supra note 9.
16 For purposes only of waiving the 30-day
operative delay, 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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Federal Register / Vol. 82, No. 89 / Wednesday, May 10, 2017 / Notices
to determine whether the proposed rule
change 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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–09422 Filed 5–9–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80597; File No. SR–NSCC–
2017–001]
• 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–2017–042 on the subject line.
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Order Approving
Proposed Rule Change To Describe
the Illiquid Charge That May Be
Imposed on Members
Paper Comments
May 4, 2017.
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
jstallworth on DSK7TPTVN1PROD with NOTICES
Electronic Comments
On March 13, 2017, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
proposed rule change SR–NSCC–2017–
001, pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder.2
The proposed rule change was
published for comment in the Federal
Register on March 22, 2017.3 The
Commission did not receive any
comment letters on the proposed rule
change. For the reasons discussed
below, the Commission is granting
approval of the proposed rule change.
All submissions should refer to File
Number SR–NASDAQ–2017–042. 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–2017–042 and should be
submitted on or before May 31, 2017.
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I. Description of the Proposed Rule
Change
NSCC proposes to amend its Rules &
Procedures (‘‘Rules’’) 4 in order to
provide transparency to an existing
margin charge (i.e., the ‘‘Illiquid
Charge’’) and to codify NSCC’s current
practices with respect to the assessment
and collection of the Illiquid Charge, as
described below.5 Separately, NSCC
also proposes to amend Procedure XV of
the Rules to define the ‘‘Market Maker
Domination Charge,’’ also described
below.
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 80260
(March 16, 2017), 82 FR 14781 (March 22, 2017)
(SR–NSCC–2017–001) (‘‘Notice’’).
4 Available at https://www.dtcc.com/en/legal/
rules-and-procedures.
5 Specifically, NSCC proposes to amend Rule 1
(Definitions and Descriptions) to add certain
defined terms associated with the Illiquid Charge,
and amend Procedure XV (Clearing Fund Formula
and Other Matters) to clarify the circumstances and
manner in which NSCC calculates and imposes the
Illiquid Charge.
1 15
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A. The Illiquid Charge
NSCC states that it designed the
Illiquid Charge to mitigate the market
risk that NSCC faces when liquidating
securities that lack marketability, based
on insufficient access to a trading
venue, and may have low and volatile
share prices (‘‘Illiquid Securities’’),6
following a member default.7 In such a
situation, the liquidation of Illiquid
Securities could be difficult or delayed
due to a lack of interest in the securities
or limitations on the share price of the
securities.8
NSCC calculates an Illiquid Charge for
each net unsettled position in an
Illiquid Security (i.e., an ‘‘Illiquid
Position’’) that exceeds applicable
volume thresholds. Following is a
description of (i) the volume thresholds
that must be met in order for the Illiquid
Charge to be applied, (ii) the
methodology for calculating the Illiquid
Charge, and (iii) the exceptions to and
application of the Illiquid Charge.
1. Net Buy Illiquid Positions and Net
Sell Illiquid Positions
Depending on whether the Illiquid
Positon is a net buy or a net sell
position, NSCC applies different volume
thresholds and calculation methods for
establishing the Illiquid Charge. The
purpose of this is to address the
different risk profiles presented by such
net buy and net sell positions.9
a. Net Buy Illiquid Positions
The Illiquid Charge only applies to a
member’s net buy Illiquid Position if the
position meets a specific volume
threshold. For an NSCC member with a
strong credit rating, the net buy Illiquid
Position must meet a volume threshold
of greater than 100 million shares.10 For
6 More specifically, NSCC proposes to define
Illiquid Security to mean a security, other than a
family-issued security as defined in Procedure XV
of the Rules, that either (i) is not traded on or
subject to the rules of a national securities exchange
registered under the Act, or (ii) is an OTC Bulletin
Board or OTC Link issue.
7 Notice, 82 FR at 14781.
8 Id.
9 In the event of a Member default, NSCC would
complete the liquidation of an Illiquid Position by
buying or selling that position into the market.
Notice, 82 FR at 14783. According to NSCC, the
different risk profiles of net buy positions and net
sell positions are based on, in part, the difference
in the potential responsiveness of prices change to
quantity that may occur when NSCC is liquidating
a net buy position in an Illiquid Security, compared
to when it is liquidating a net sell position in an
Illiquid Security. Id.
10 Credit ratings are established through NSCC’s
credit risk rating matrix (‘‘CRRM’’). See Rule 2B,
Section 4, supra note 4; see also Securities
Exchange Act Release No. 80381 (April 5, 2017), 82
FR 17475 (April 11, 2017) (SR–NSCC–2017–002)
(NSCC proposed rule change to modify the CRRM
E:\FR\FM\10MYN1.SGM
Continued
10MYN1
]]>Agencies
[Federal Register Volume 82, Number 89 (Wednesday, May 10, 2017)]
[Notices]
[Pages 21860-21863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09422]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80593; File No. SR-NASDAQ-2017-042]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 4702 (Order Types) and Rule 4703 (Order Attributes)
May 4, 2017.
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 April 21, 2017, 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 4702 (Order Types) and Rule
4703 (Order Attributes) to specify the behavior of Midpoint Peg Post-
Only Orders and Orders with Midpoint Pegging after initial entry and
posting to the Nasdaq Book when the market is crossed, or when there is
no best bid and/or offer. Nasdaq also proposes to change certain
references to cancelling or rejecting orders in Rule 4702 and Rule
4703.
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.
[[Page 21861]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq proposes to amend Rule 4702 (Order Types) and Rule 4703
(Order Attributes) to specify the behavior of Midpoint Peg Post-Only
Orders and Orders with Midpoint Pegging that are cancelled or rejected
when the market is crossed, or when there is no best bid and/or offer
after initial entry and posting to the Nasdaq Book. Nasdaq also
proposes to change certain references to cancelling or rejecting orders
in Rule 4702 and Rule 4703.
Rule 4702(b)(5) describes the Midpoint Peg Post-Only Order. Among
other things, the Rule states that the Midpoint Peg Post-Only Order is
an Order Type with a Non-Display Order Attribute that is priced at the
midpoint between the National Best Bid and Offer (``NBBO'') and that
will execute upon entry only in circumstances where economically
beneficial to the party entering the Order. The Midpoint Peg Post-Only
Order is available during Market Hours only.
Rule 4703(d) describes the Pegging Order Attribute, including
Midpoint Pegging. Pegging is an Order Attribute that allows an Order to
have its price automatically set with reference to the NBBO. Midpoint
Pegging means Pegging with reference to the midpoint between the Inside
Bid and the Inside Offer (the ``Midpoint'').\3\ An Order with Midpoint
Pegging is not displayed.
---------------------------------------------------------------------------
\3\ Thus, if the Inside Bid was $11 and the Inside Offer was
$11.06, an Order with Midpoint Pegging would be priced at $11.03.
---------------------------------------------------------------------------
Nasdaq recently proposed changes to Midpoint Peg Post-Only Orders
and Orders with Midpoint Pegging, which were approved by the SEC on
November 10, 2016.\4\ With this change, if the NBBO is crossed or if
there is no NBBO, any existing Midpoint Peg Post-Only Order would be
cancelled and any new Midpoint Peg Post-Only Order would be rejected.
Similarly, if the Inside Bid and Inside Offer are crossed, any existing
Order with Midpoint Pegging would be cancelled and any new Order with
Midpoint Pegging would be rejected.\5\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 79290 (November 10,
2016), 81 FR 81184 (November 17, 2016) (SR-NASDAQ-2016-111).
\5\ Id.
---------------------------------------------------------------------------
Nasdaq now proposes to add language to Rule 4702(b)(5)(B) to
specify the treatment of a Midpoint Peg Post-Only Order after initial
entry and posting to the Nasdaq Book when the NBBO is subsequently
crossed, or when there is subsequently no NBBO. Specifically, for
Midpoint Peg Post-Only Orders entered through RASH, QIX or FIX, if the
Order is on the Nasdaq Book and subsequently the NBBO is crossed, or if
there is subsequently no NBBO, the Order will be removed from the
Nasdaq Book and will be re-entered at the new midpoint once there is a
valid NBBO that is not crossed.
Similarly, Nasdaq proposes to add language to Rule 4703(d) to
specify the treatment of Orders with Midpoint Pegging after initial
entry and posting to the Nasdaq Book when the Inside Bid and Inside
Offer are subsequently crossed, or if there is subsequently no Inside
Bid and/or Inside Offer. Specifically, for Orders with Midpoint Pegging
entered through RASH, QIX or FIX, if the Order is on the Nasdaq Book
and subsequently the Inside Bid and Inside Offer become crossed, or if
there is no Inside Bid and/or Inside Offer, the Order will be removed
from the Nasdaq Book and will be re-entered at the new midpoint once
there is a valid Inside Bid and Inside Offer that is not crossed.
As stated in the filing proposing the new functionality for
Midpoint Peg Post-Only Orders and Orders with Midpoint Pegging, Nasdaq
believes that the midpoint of a crossed market, or where there is no
NBBO, is not a clear and accurate indication of a valid price, and may
produce sub-optimal execution prices for members and investors.\6\
Prior to this change, Midpoint Peg Post-Only Orders entered through
RASH, QIX or FIX would have been nevertheless repriced to the midpoint
of the NBBO if the NBBO subsequently became crossed, or would have been
cancelled if there was subsequently no NBBO. Nasdaq is proposing to re-
enter such Orders at the new midpoint once there is a NBBO that is not
crossed because the new NBBO is indicative of a valid price.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 78908 (September 22,
2016), 81 FR 66702 (September 28, 2016) (SR-NASDAQ-2016-111).
---------------------------------------------------------------------------
Similarly, prior to this change, Orders with Midpoint Pegging
entered through RASH, QIX or FIX would have been nevertheless repriced
to the midpoint of the Inside Bid and Inside Offer if the Inside Bid
and Inside Offer subsequently became crossed, or would have been
cancelled if there was subsequently no Inside Bid and/or Inside Offer.
As with the change to Midpoint Peg Post-Only Orders, Nasdaq is
therefore proposing to re-enter such Orders at the new midpoint once
there is an Inside Bid and Inside Offer that is not crossed because the
new Inside Bid and Inside Offer is indicative of a valid price. Nasdaq
is proposing to re-enter Orders submitted through RASH, QIX or FIX
because Nasdaq typically assumes a more active role in managing the
order flow submitted by users of these protocols, and this
functionality reflects the order flow management practices of these
participants.
While Nasdaq is only proposing to adopt this re-entry functionality
for Orders that are entered through RASH, QIX or FIX, Nasdaq believes
that it is appropriate to also modify the treatment of Midpoint Peg
Post-Only Orders and Orders with Midpoint Pegging entered through OUCH
or FLITE where the NBBO subsequently becomes crossed, or there is
subsequently no NBBO or Inside Bid and/or Offer. Accordingly, Nasdaq is
also proposing to amend Rule 4702(b)(5)(B) to state that if, after a
Midpoint Peg Post-Only Order entered through OUCH or FLITE is posted to
the Nasdaq Book, the NBBO changes so that the NBBO is crossed, or there
is no NBBO, the Midpoint Peg Post-Only Order will be cancelled back to
the Participant. Similarly, Nasdaq will amend Rule 4703(d) to state
that if, after an Order with Midpoint Pegging is entered through OUCH
or FLITE, the Inside Bid and Inside Offer changes so that the Midpoint
is lower than (higher than) the price of an Order to buy (sell), the
Inside Bid and Inside Offer are crossed or if there is no Inside Bid
and/or Inside Offer, the Pegged Order will be cancelled back to the
Participant.\7\
---------------------------------------------------------------------------
\7\ Nasdaq is proposing to change the reference in this sentence
from NBBO to Inside Bid and Inside Offer to make this sentence more
consistent with the rest of Rule 4703, which uses the concept of the
Inside Bid and Insider Offer rather than the NBBO.
---------------------------------------------------------------------------
Finally, Nasdaq is proposing to change certain instances in Rule
4702 and Rule 4703 that describe the cancellation or rejection of an
Order. For example, Rule 4702(b)(5)(A) currently states that, if the
NBBO is locked when a Midpoint Peg Post-Only Order is entered, the
Midpoint Peg Post-Only Order will be priced at the locking price, and
if the NBBO is crossed or if there is no NBBO, the Order will be
cancelled or rejected. Rule 4702(b)(5)(A) also provides that a Midpoint
Peg Post-Only Order that would be assigned a price of $1 or less per
share will be rejected or cancelled, as applicable. Similarly, Rule
4703(d) states that, in the case of an Order with Midpoint Pegging, if
the Inside Bid and Inside Offer are locked, the Order will be priced at
the locking price, and if the Inside Bid and Inside Offer are crossed
or if there is no Inside Bid and/or Inside Offer, the Order will be
cancelled or rejected.
Nasdaq proposes to change references to cancelling or rejecting an
order to ``not accepting'' an Order. Depending on
[[Page 21862]]
the context, the reference to rejecting an order may have one of two
meanings.\8\ Nasdaq believes that changing references from rejecting or
cancelling an Order to not accepting an Order is appropriate because
the proposed language resolves the ambiguity that may arise when
referring to an Order rejection, and is sufficiently broad to encompass
the contexts in which the concept of Order rejection or cancellation
may be used.
---------------------------------------------------------------------------
\8\ Specifically, an Order may be referred to as ``rejected'' if
it is not initially accepted by the customer-facing Nasdaq
interface. Alternatively, after an Order has been initially accepted
by the customer-facing interface, and is being transmitted from one
Nasdaq interface to another, it may be ``rejected'' if the Order is
not accepted by another part of the Nasdaq system for various
reasons.
---------------------------------------------------------------------------
This proposed change supplements the recently-approved changes to
Midpoint Peg Post-Only Orders and Orders with Midpoint Pegging, and the
resulting modifications to Nasdaq systems.\9\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 79290 (November 10,
2016), 81 FR 81184 (November 17, 2016) (SR-NASDAQ-2016-111). Nasdaq
initially proposed to implement the new functionality for Midpoint
Peg Post-Only Orders and Orders with Midpoint Pegging on November
21, 2016. See Equity Trader Alert #2016-291. However, following
testing, Nasdaq has decided to delay the implementation of this new
functionality to provide additional time for systems testing. The
new functionality shall be implemented no later than May 31, 2017.
See Securities Exchange Act Release No. 80045 (February 15, 2017),
82 FR 11389 (February 22, 2017) (SR-NASDAQ-2017-013) (extending the
implementation date to no later than March 31, 2017); Securities
Exchange Act Release No. 80391 (April 6, 2017), 82 FR 17714 (April
12, 2017) (SR-NASDAQ-2017-034) (extending the implementation date to
no later than May 31, 2017).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ 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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed change is consistent with the Act because it
supplements the recently-approved changes to Midpoint Peg Post-Only
Orders and Orders with Midpoint Pegging and the resulting modifications
to Nasdaq systems, and reflects the Exchange's belief that the midpoint
of a crossed market, or where there is no NBBO or Inside Bid and/or
Inside Offer, is not a clear and accurate indication of a valid price,
and may produce sub-optimal execution prices for members and investors.
The proposal adopts a functionality for Midpoint Peg Post-Only Orders
and Orders with Midpoint Pegging after initial entry and posting to the
Nasdaq Book where the NBBO or Inside Bid and Inside Offer subsequently
becomes crossed, or where there is subsequently no NBBO or Inside Bid
and/or Inside Offer, that reflects the order flow management practices
of the participants that use those protocols, e.g., re-submitting such
Orders that are entered through RASH, QIX or FIX, and cancelling such
Orders that are submitted through OUCH or FLITE.
The proposal to replace certain references to rejecting or
cancelling an order to ``not accepting'' an order is consistent with
the Act because the proposed language encompasses the contexts in which
the concept of order rejection or cancellation may be used and resolves
any ambiguity that may arise when referring to an order rejection.
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 change supplements
the recently-approved changes to Midpoint Peg Post-Only Orders and
Orders with Midpoint Pegging and the resulting modifications to Nasdaq
systems by adopting a functionality for Midpoint Peg Post-Only Orders
and Orders with Midpoint Pegging after initial entry and posting to the
Nasdaq Book where the NBBO subsequently becomes crossed, or where there
is subsequently no NBBO or Inside Bid and/or Inside Offer, that
reflects the order flow management practices of the participants that
use those protocols. Moreover, the use of Exchange Order types and
attributes is voluntary, and no member is required to use any specific
Order type or attribute or even to use any Exchange Order type or
attribute or any Exchange functionality at all. If an Exchange member
believes for any reason that the proposed rule change will be
detrimental, that perceived detriment can be avoided by choosing not to
enter or interact with the Order type modified by this proposed rule
change. Finally, the proposal will apply equally to all Orders that
meet its criteria.
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) of the Act and Rule 19b-
4(f)(6) thereunder.\12\
---------------------------------------------------------------------------
\12\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \13\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \14\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Exchange states that the proposal supplements the recently-approved
changes to Midpoint Peg Post-Only Orders and Orders with Midpoint
Pegging, and that it intends to implement these previously-approved
changes shortly (and no later than May 31, 2017).\15\ Waiver of the 30-
day operative delay would allow the Exchange to implement the
previously-approved changes concurrently with the supplemental changes
in this proposal. The Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change to be operative
upon filing.\16\
---------------------------------------------------------------------------
\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4(f)(6)(iii).
\15\ See supra note 9.
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings
[[Page 21863]]
to determine whether the proposed rule change 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-2017-042 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-2017-042. 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-2017-042 and should
be submitted on or before May 31, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Assistant Secretary.
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\17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-09422 Filed 5-9-17; 8:45 am]
BILLING CODE 8011-01-P
