Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Rule 4702 To Establish the “Midpoint Extended Life Order + Continuous Book” as a New Order Type, 28107-28110 [2019-12655]
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Federal Register / Vol. 84, No. 116 / Monday, June 17, 2019 / Notices
Congressional action will determine
whether the pay freeze continues
beyond that date. OPM guidance on the
2019 modified pay freeze for certain
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CPM 2019–14 at https://chcoc.gov/
content/modified-pay-freeze-certainsenior-political-officials.
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Office of Personnel Management.
Alexys Stanley,
Regulatory Affairs Analyst.
[FR Doc. 2019–12668 Filed 6–14–19; 8:45 am]
BILLING CODE 6325–39–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86083; File No. SR–
NASDAQ–2019–048]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Amend Rule 4702 To Establish the
‘‘Midpoint Extended Life Order +
Continuous Book’’ as a New Order
Type
June 11, 2019.
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 May 29,
2019, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 4702 to establish the ‘‘Midpoint
Extended Life Order + Continuous
Book’’ as a new Order Type.
The text of the proposed rule change
is available on the Exchange’s website 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.
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Fmt 4703
Sfmt 4703
28107
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to: (1) Amend
Rule 4702(b) to establish the ‘‘Midpoint
Extended Life Order + Continuous
Book’’ or ‘‘M–ELO+CB’’ as a new Order
Type on the Exchange; and (2) amend
Rule 4703(n) to permit midpoint orders
on the Continuous Book to execute
against M–ELO+CBs when the Midpoint
Trade Now Attribute is enabled on such
midpoint orders.
Midpoint Extended Life Orders With
Continuous Book
On March 7, 2018, the Commission
issued an order approving the
Exchange’s proposal to adopt the
Midpoint Extended Life Order or ‘‘M–
ELO’’ as a new Order Type.3 A M–ELO
is a non-displayed order that is available
to all members but interacts only with
other M–ELOs. It is priced at the
midpoint between the National Best Bid
and Offer (‘‘NBBO’’) and it does not
become eligible for execution until it
completes a one-half second holding
period (the ‘‘Holding Period’’).4 Once
the Holding Period elapses, a M–ELO
becomes eligible for execution against
other M–ELOs on a time-priority basis.5
Since its implementation the Midpoint
Extended Life Order Type has achieved
its design expectations. Approximately
12 million shares transact as Midpoint
Extended Life Orders a day, interacting
only with other Midpoint Extended Life
Orders thus avoiding interaction with
Intermarket Sweep Orders, IOC Orders
and other aggressively price Order
Types.
M–ELO+CB is a variation on the M–
ELO concept. That is, a M–ELO+CB is
an Order Type that has all of the
characteristics and attributes of a regular
M–ELO, except that, in addition to
executing against other M–ELO+CBs
and M–ELOs, it also may access
additional sources of ‘‘M–ELO-like’’
liquidity on the Exchange’s Continuous
Book.
Specifically, if a member enters a M–
ELO+CB, then the M–ELO+CB will be
subject to the same one-half second
3 See Securities Exchange Act Release No. 34–
82825 (Mar. 7, 2018), 83 FR 10937 (Mar. 13, 2018).
4 If a member modifies a M–ELO during the
Holding Period, other than to decrease the size of
the order or to modify the marking of a sell order
as long, short, or short exempt, then such
modification will cause the Holding Period to reset.
5 If a member modifies a M–ELO after the Holding
Period elapses, other than to decrease the size of the
order or to modify the marking of a sell order as
long, short, or short exempt, then such modification
will trigger a new Holding Period for the order.
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Holding Period as a regular M–ELO.
Upon expiration of the Holding Period,
the M–ELO+CB will become available
for execution, at the midpoint of the
NBBO, against other M–ELOs and M–
ELO+CBs. Additionally, it will become
eligible to execute, again at the
midpoint of the NBBO, against NonDisplayed Orders with Midpoint
Pegging and Midpoint Peg Post-Only
Orders (collectively, ‘‘Midpoint
Orders’’) if: (1) The Midpoint Orders
have the Midpoint Trade Now Attribute
enabled (as discussed below); (2) the
Midpoint Order has rested on the
Exchange’s Continuous Book for at least
one-half second; (3) no other order is
resting on the Continuous Book that has
a more aggressive price than the current
midpoint of the NBBO; and (4) the
resting Midpoint Order fulfills any
minimum quantity restriction that exists
for the M–ELO+CB. The execution
priority for the above orders will be
ranked based on the time at which such
orders become eligible to execute
against each other.
In all respects other than described
above, a M–ELO+CB will be identical to
an ordinary M–ELO. That is, a M–
ELO+CB may be assigned a limit price,
in which case it would be: (1) Eligible
for execution in time priority after
satisfying the Holding Period if upon
acceptance of the order by the system,
the midpoint price is within the limit
set by the participant; or (2) held until
the midpoint falls within the limit set
by the participant, at which time the
Holding Period would commence and
thereafter the system would make the
order eligible for execution in time
priority.
Also like an ordinary M–ELO, if a M–
ELO+CB is modified by a member (other
than to decrease the size of the order or
to modify the marking of a sell order as
long, short, or short exempt) during the
Holding Period, the system would
restart the Holding Period. Movements
in the NBBO while a MELO+CB is in the
Holding Period would not reset the
Holding Period, even if, as a result of
the NBBO move, the MELO+CB’s limit
price is less aggressive than the NBBO
midpoint. Also, if a MELO+CB has met
the Holding Period, but the NBBO
midpoint is no longer within its limit,
it would nonetheless be ranked in time
priority among other M–ELOs and M–
ELO+CBs if the NBBO later moves such
that the midpoint is within the order’s
limit price (i.e., no new Holding Period).
MELO+CB Orders may be entered via
any of the Exchange’s order entry
protocols (other than QIX). If there is no
NBB or NBO, the Exchange would
accept M–ELO+CBs but would not
allow M–ELO+CB executions until there
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is an NBBO. M–ELO+CBs would be
eligible to execute if the NBBO is
locked. If the NBBO is crossed, M–
ELO+CBs would be held by the system
until such time that the NBBO is no
longer crossed, at which time they
would be eligible to trade. M–ELO+CBs
may be cancelled at any time, including
during the Holding Period.
M–ELO+CBs would be active only
during Market Hours. M–ELO+CBs
entered during Pre-Market Hours would
be held by the system in time priority
until Market Hours. M–ELO+CBs
entered during Post-Market Hours
would not be accepted by the system,
and M–ELO+CBs remaining unexecuted
after 4:00 p.m. ET would be cancelled
by the system. M–ELO+CB Orders
would not be eligible for the Exchange’s
Opening, Halt, and Closing Crosses.
M–ELO+CBs must be entered with a
size of at least one round lot, and any
shares of a M–ELO+CB remaining after
an execution that are less than one
round lot would be cancelled.6 M–
ELO+CBs may have a minimum
quantity order attribute. M–ELO+CBs
may not be designated with a time-inforce of immediate or cancel and are
ineligible for routing. They also may not
have the discretion, reserve size,
attribution, intermarket sweep order,
display, or trade now order attributes.
M–ELO+CB executions would be
reported to Securities Information
Processors and provided in the
Exchange’s proprietary data feed
without any new or special indication.
The Exchange would, however, include
in its existing volume reports delayed
weekly aggregated statistics, as well as
delayed monthly aggregated block-sized
trading statistics, for M–ELO+CB
executions. Specifically, the Exchange
would add to the existing reports it
publishes on Nasdaqtrader.com weekly
aggregated statistics showing the
number of shares and transactions of M–
ELO+CBs executed on the Exchange by
security. This information would be
published with a two-week delay for
NMS stocks in Tier 1 of the LULD Plan,
and a four-week delay for all other NMS
stocks. The Exchange also would add to
the existing reports it publishes on
Nasdaqtrader.com monthly aggregated
block-sized trading statistics of total
shares and total transactions of M–
ELO+CBs executed on the Exchange.
This information would be published no
earlier than one month following the
end of the month for which trading was
6 The Exchange notes that it recently filed a
proposal to allow for odd-lot sized orders to be
eligible for M–ELOs. See SR–NASDAQ–2019–044
(May 20, 2019). If and when the SEC approves this
filing, the Exchange intends for it to also apply to
M–ELO+CBs.
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
aggregated. Under the proposal, a
transaction would be considered ‘‘blocksized’’ if it meets any of the following
criteria: (1) 10,000 or more shares; (2)
$200,000 or more in value; (3) 10,000 or
more shares and $200,000 or more in
value; (4) 2,000 to 9,999 shares; (5)
$100,000 to $199,999 in value; or (6)
2,000 to 9,999 shares and $100,000 to
$199,999 in value.
As part of the surveillance the
Exchange currently performs, M–
ELO+CBs would be subject to real-time
surveillance to determine if they are
being abused by market participants. In
addition, as is the case for ordinary M–
ELOs, the Exchange will monitor the
use of M–ELO+CBs with the intent to
apply additional measures, as necessary,
to ensure their usage is appropriately
tied to the intent of the Order Type.
This monitoring may include metrics
tied to participant behavior, such as the
percentage of M–ELO+CBs that are
cancelled prior to the completion of the
Holding Period, the average duration of
M–ELO+CBs, and the percentage of M–
ELO+CBs where the NBBO midpoint is
within the limit price when received.
The Exchange is committed to
determining whether there is
opportunity or prevalence of behavior
that is inconsistent with normal risk
management behavior. Manipulative
abuse is subject to potential disciplinary
action under the Exchange’s Rules, and
other behavior that is not necessarily
manipulative but nonetheless frustrates
the purposes of the M–ELO+CB Order
Type may be subject to penalties or
other participant requirements to
discourage such behavior, should it
occur.
Amending the Midpoint Trade Now
Attribute To Enable Execution Against
M–ELO+CB
To facilitate the establishment of the
M–ELO+CB Order Type, the Exchange
concurrently proposes to amend the
Midpoint Trade Now Attribute, at Rule
4703(n), such that if a participant opts
to enable Midpoint Trade Now on a
Midpoint Order, then in addition to the
normal functionality that the Attribute
provides,7 the Attribute would also
permit the Midpoint Order to execute
against a M–ELO+CB (provided that the
Midpoint Order meets the eligibility
7 The Midpoint Trade Now Order Attribute
presently allows a resting Order that becomes
locked at its non-displayed price by an incoming
Midpoint Peg Post-Only Order to automatically
execute against crossing or locking interest,
including potentially against the Midpoint Peg PostOnly Order that locked the resting Order, as a
liquidity taker. See Rule 4703(n); Securities
Exchange Act Release No. 84621 (Nov. 19, 2018),
83 FR 60514 (Nov. 26, 2018) (SR–NASDAQ–2018–
090).
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requirements for doing so). In other
words, a Midpoint Order with the
Midpoint Trade Now Attribute enabled
would become eligible to execute
against a marketable M–ELO+CB only if
it does not first execute against another
order on the Continuous Book within
one-half second of its entry. Executions
with M–ELO+CB orders will be trade
reported like any other time they
remove liquidity.
Example of Use of M–ELO+CB
The following example demonstrates
how the M–ELO+CB will operate in
practice. Assume for purposes of this
example that the NBBO remains
constant at $84.00 x $86.00, such that
the midpoint is $85.00. At 10:05:27:00
a.m., Participant A enters a Midpoint
Order on the Continuous Book with the
Midpoint Trade Now Attribute enabled.
The Midpoint Order is to sell 1,000
shares with a limit price of $85.00. The
Midpoint Order posts to the Continuous
Order Book at $85.00. At 10:05:37:00
a.m., Participant B enters a M–ELO+CB
to buy 1,000 shares at $85.00. After the
Holding Period expires, the M–ELO+CB
posts to the M–ELO Order Book at
$85.00. No other M–ELOs or M–
ELO+CBs are available to execute
against the M–ELO+CB at the time it
becomes marketable. Because the
Midpoint Order with Midpoint Trade
Now has rested on the Continuous
Order Book for more than one-half
second, it becomes eligible to match
against the M–ELO+CB, which
continues to rest on the M–ELO Book.
Because no other orders are resting on
the Continuous Book with a price more
aggressive than the NBBO, the M–
ELO+CB will execute in full against the
Midpoint Order at $85.00.
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Implementation
The Exchange plans to implement M–
ELO+CB within thirty days after
Commission approval of the proposal.
The Exchange will make the M–
ELO+CB available to all members and to
all securities upon implementation. The
Exchange will announce the
implementation date by Equity Trader
Alert.8
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,9 in general, and furthers the
objectives of Section 6(b)(5) of the Act,10
in particular, in that it is designed to
promote just and equitable principles of
8 The Exchange plans to propose a fee structure
for the M–ELO+CB in a subsequent Commission
rule filing.
9 15 U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(5).
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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 reasons why the M–ELO+CB
Order Type is consistent with the Act
are generally the same as those that the
Commission identified in its order
approving the M–ELO Order Type.11
The Exchange does not believe that the
design of the M–ELO+CB presents
concerns that are unique or materially
different from those that the M–ELO
presents.
For example, just as the Commission
determined that the M–ELO ‘‘could
create additional and more efficient
trading opportunities on the Exchange
for investors with longer investment
time horizons, including institutional
investors, and provide these investors
with an ability to limit their information
leakage and the market impact that
could result from their orders,’’ 12 so too
will the M–ELO+CB do so. By proposing
to add M–ELO+CB as a new Order Type,
the Exchange intends to enhance the
utility of the M–ELO concept to
investors by providing them with
opportunities to execute M–ELOs where
they cannot do so now. Indeed, a M–
ELO+CB will have all of the
characteristics and offer all of the
benefits of an ordinary M–ELO, except
that it will also afford M–ELO investors
the ability to accomplish their
investment strategies by sourcing
liquidity from the Nasdaq Continuous
Book, where approximately 55 million
shares trade at Midpoint a day.
The proposal would remain
consistent with the underlying purpose
of a M–ELO, which is to enable
investors to source liquidity on the
Exchange by limiting interaction with
intermarket sweep orders or other
aggressively priced order types. By
allowing M–ELO+CBs to access
liquidity in the Continuous Book, the
Exchange would not dilute the purpose
of the M–ELO because the Exchange
would only permit the M–ELO+CB to
access liquidity on the Continuous Book
that resembles M–ELOs—including
because eligible orders must have rested
on the Book for at least one-half second
and because they must be non-displayed
orders and execute at the midpoint of
the NBBO. In addition, the option to
access qualified midpoint liquidity on
the continuous book is purely
voluntary.
The proposal would also benefit those
participants with Midpoint Orders
11 See Securities Exchange Act Release No. 34–
82825, supra, 83 FR at 10938–41.
12 See id. at 10938–39.
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28109
resting on the Exchange’s Continuous
Book, insofar as the proposal would
provide additional opportunities for
such Midpoint Orders to execute against
M–ELO+CBs if the Midpoint Order user
voluntarily chooses to do so.
Like the M–ELO, the M–ELO+CB will
not discriminate unfairly against other
market participants because it will be
available for voluntary use by all
Exchange members. Moreover, the
proposal is not unfairly discriminatory
against participants that enter Midpoint
Orders that have not rested for at least
one-half second because imposition of
this resting condition is necessary to
ensure that M–ELO+CBs fulfill their
purpose without the transitory risk of a
change to the NBBO that may have the
effect of an adverse execution. And
again, participants will have a choice as
to whether they wish for their Midpoint
Orders to interact with M–ELO+CBs.
Like all M–ELOs and all other orders
entered into Nasdaq, the Exchange will
conduct real-time surveillance to
monitor the use of M–ELO+CBs to
ensure that such usage is appropriately
tied to the intent of the Order Type.
Also like the M–ELO, transactions in
M–ELO+CB will be reported to the
Securities Information Processor and
will be provided in Nasdaq’s proprietary
data feed in the same manner as all
other transactions occurring on Nasdaq
are done currently, namely, without any
new or special indication that it is a M–
ELO+CB execution. The Exchange
believes that doing so is important to
ensuring that investors are protected
from any market impact that may occur
if M–ELO or M–ELO+CB executions
were reported with a special indication.
The Exchange does not believe that
the proposed M–ELO+CB will
negatively affect the quality of the
market. To the contrary, the Exchange
believes that the addition of M–ELO+CB
will draw new market participants to
the Exchange’s transparent and wellregulated market, including participants
that were previously not utilizing M–
ELO orders. Moreover, like the M–ELO,
the M–ELO+CB will allow longer term
investors an opportunity to find likeminded counterparties at the midpoint
on Nasdaq. It will also allow
participants with Midpoint Orders the
option to choose for their Orders to
interact with M–ELO+CBs, and if so, to
execute in circumstances where they
would not otherwise. Thus, the proposal
would enhance liquidity opportunities
of midpoint executions on the
Exchange.
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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 Exchange believes that the
introduction of the M–ELO+CB will
only boost the utility of the M–ELO
among market participants who want
the benefits of M–ELO but require
additional trading flexibility.
Accordingly, the Exchange expects that
its proposal will draw new market
participants to Nasdaq and increase the
extent to which existing participants
utilize the M–ELO concept. To the
extent the proposed change is successful
in attracting additional market
participants, Nasdaq believes that the
proposed change will promote
competition among trading venues by
making Nasdaq a more attractive trading
venue for long-term investors and
therefore capital formation.
Additionally, adoption of M–ELO+CB
will not burden any market participants.
Just as with an ordinary M–ELOs, the
M–ELO+CB will be available to all
Nasdaq members and it will be available
on an optional basis. Thus, any member
that seeks to avail itself of the benefits
of a M–ELO+CB can choose accordingly.
Although the proposal provides
potential benefits for investors that
select the M–ELO+CB order type, the
Exchange believes that all market
participants will benefit to the extent
that this proposal contributes to a
healthy and attractive market that is
attentive to the needs of all types of
investors.
The proposal also will not adversely
impact market participants that choose
not to use this M–ELO+CB because no
changes need to be made to participants’
systems to account for it. As discussed
above, M–ELO+CB executions will be
reported the same as other executions,
without any new or special indicator.
Similarly, the proposal will benefit
members that enter Midpoint Orders on
the Continuous by providing them with
flexibility to have their orders execute
in situations where they would not do
so now. Again, however, this flexibility
will be optional. Any member that
wants its Midpoint Orders to interact
with M–ELO+CBs can choose
accordingly.
In any event, the Exchange notes that
it operates in a highly competitive
market in which market participants can
readily choose between competing
venues if they deem participation in
Nasdaq’s market is no longer desirable.
In such an environment, the Exchange
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must carefully consider the impact that
any change it proposes may have on its
participants, understanding that it will
likely lose participants to the extent a
change is viewed as unfavorable by
them. Because competitors are free to
modify the incentives and structure of
their markets, the Exchange believes
that the degree to which modifying the
market structure of an individual market
may impose any burden on competition
is limited. Last, to the extent the
proposed change is successful in
attracting additional market
participants, Nasdaq also believes that
the proposed change will promote
competition among trading venues by
making Nasdaq a more attractive trading
venue for long-term investors and
therefore capital formation.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
All submissions should refer to File
Number SR–NASDAQ–2019–048. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2019–048, and
should be submitted on or before July 8,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–12655 Filed 6–14–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–86085; File No. SR–
CboeBZX–2019–050]
• 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–2019–048 on the subject line.
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Adopt Limit-on-Close (‘‘LOC’’) and
Market-on-Close (‘‘MOC’’) Orders
Paper Comments
June 11, 2019.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
PO 00000
Frm 00111
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Sfmt 4703
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 84, Number 116 (Monday, June 17, 2019)]
[Notices]
[Pages 28107-28110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12655]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86083; File No. SR-NASDAQ-2019-048]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 4702 To
Establish the ``Midpoint Extended Life Order + Continuous Book'' as a
New Order Type
June 11, 2019.
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 May 29, 2019, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 4702 to establish the
``Midpoint Extended Life Order + Continuous Book'' as a new Order Type.
The text of the proposed rule change is available on the Exchange's
website 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
The Exchange proposes to: (1) Amend Rule 4702(b) to establish the
``Midpoint Extended Life Order + Continuous Book'' or ``M-ELO+CB'' as a
new Order Type on the Exchange; and (2) amend Rule 4703(n) to permit
midpoint orders on the Continuous Book to execute against M-ELO+CBs
when the Midpoint Trade Now Attribute is enabled on such midpoint
orders.
Midpoint Extended Life Orders With Continuous Book
On March 7, 2018, the Commission issued an order approving the
Exchange's proposal to adopt the Midpoint Extended Life Order or ``M-
ELO'' as a new Order Type.\3\ A M-ELO is a non-displayed order that is
available to all members but interacts only with other M-ELOs. It is
priced at the midpoint between the National Best Bid and Offer
(``NBBO'') and it does not become eligible for execution until it
completes a one-half second holding period (the ``Holding Period'').\4\
Once the Holding Period elapses, a M-ELO becomes eligible for execution
against other M-ELOs on a time-priority basis.\5\ Since its
implementation the Midpoint Extended Life Order Type has achieved its
design expectations. Approximately 12 million shares transact as
Midpoint Extended Life Orders a day, interacting only with other
Midpoint Extended Life Orders thus avoiding interaction with
Intermarket Sweep Orders, IOC Orders and other aggressively price Order
Types.
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\3\ See Securities Exchange Act Release No. 34-82825 (Mar. 7,
2018), 83 FR 10937 (Mar. 13, 2018).
\4\ If a member modifies a M-ELO during the Holding Period,
other than to decrease the size of the order or to modify the
marking of a sell order as long, short, or short exempt, then such
modification will cause the Holding Period to reset.
\5\ If a member modifies a M-ELO after the Holding Period
elapses, other than to decrease the size of the order or to modify
the marking of a sell order as long, short, or short exempt, then
such modification will trigger a new Holding Period for the order.
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M-ELO+CB is a variation on the M-ELO concept. That is, a M-ELO+CB
is an Order Type that has all of the characteristics and attributes of
a regular M-ELO, except that, in addition to executing against other M-
ELO+CBs and M-ELOs, it also may access additional sources of ``M-ELO-
like'' liquidity on the Exchange's Continuous Book.
Specifically, if a member enters a M-ELO+CB, then the M-ELO+CB will
be subject to the same one-half second
[[Page 28108]]
Holding Period as a regular M-ELO. Upon expiration of the Holding
Period, the M-ELO+CB will become available for execution, at the
midpoint of the NBBO, against other M-ELOs and M-ELO+CBs. Additionally,
it will become eligible to execute, again at the midpoint of the NBBO,
against Non-Displayed Orders with Midpoint Pegging and Midpoint Peg
Post-Only Orders (collectively, ``Midpoint Orders'') if: (1) The
Midpoint Orders have the Midpoint Trade Now Attribute enabled (as
discussed below); (2) the Midpoint Order has rested on the Exchange's
Continuous Book for at least one-half second; (3) no other order is
resting on the Continuous Book that has a more aggressive price than
the current midpoint of the NBBO; and (4) the resting Midpoint Order
fulfills any minimum quantity restriction that exists for the M-ELO+CB.
The execution priority for the above orders will be ranked based on the
time at which such orders become eligible to execute against each
other.
In all respects other than described above, a M-ELO+CB will be
identical to an ordinary M-ELO. That is, a M-ELO+CB may be assigned a
limit price, in which case it would be: (1) Eligible for execution in
time priority after satisfying the Holding Period if upon acceptance of
the order by the system, the midpoint price is within the limit set by
the participant; or (2) held until the midpoint falls within the limit
set by the participant, at which time the Holding Period would commence
and thereafter the system would make the order eligible for execution
in time priority.
Also like an ordinary M-ELO, if a M-ELO+CB is modified by a member
(other than to decrease the size of the order or to modify the marking
of a sell order as long, short, or short exempt) during the Holding
Period, the system would restart the Holding Period. Movements in the
NBBO while a MELO+CB is in the Holding Period would not reset the
Holding Period, even if, as a result of the NBBO move, the MELO+CB's
limit price is less aggressive than the NBBO midpoint. Also, if a
MELO+CB has met the Holding Period, but the NBBO midpoint is no longer
within its limit, it would nonetheless be ranked in time priority among
other M-ELOs and M-ELO+CBs if the NBBO later moves such that the
midpoint is within the order's limit price (i.e., no new Holding
Period).
MELO+CB Orders may be entered via any of the Exchange's order entry
protocols (other than QIX). If there is no NBB or NBO, the Exchange
would accept M-ELO+CBs but would not allow M-ELO+CB executions until
there is an NBBO. M-ELO+CBs would be eligible to execute if the NBBO is
locked. If the NBBO is crossed, M-ELO+CBs would be held by the system
until such time that the NBBO is no longer crossed, at which time they
would be eligible to trade. M-ELO+CBs may be cancelled at any time,
including during the Holding Period.
M-ELO+CBs would be active only during Market Hours. M-ELO+CBs
entered during Pre-Market Hours would be held by the system in time
priority until Market Hours. M-ELO+CBs entered during Post-Market Hours
would not be accepted by the system, and M-ELO+CBs remaining unexecuted
after 4:00 p.m. ET would be cancelled by the system. M-ELO+CB Orders
would not be eligible for the Exchange's Opening, Halt, and Closing
Crosses.
M-ELO+CBs must be entered with a size of at least one round lot,
and any shares of a M-ELO+CB remaining after an execution that are less
than one round lot would be cancelled.\6\ M-ELO+CBs may have a minimum
quantity order attribute. M-ELO+CBs may not be designated with a time-
in-force of immediate or cancel and are ineligible for routing. They
also may not have the discretion, reserve size, attribution,
intermarket sweep order, display, or trade now order attributes.
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\6\ The Exchange notes that it recently filed a proposal to
allow for odd-lot sized orders to be eligible for M-ELOs. See SR-
NASDAQ-2019-044 (May 20, 2019). If and when the SEC approves this
filing, the Exchange intends for it to also apply to M-ELO+CBs.
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M-ELO+CB executions would be reported to Securities Information
Processors and provided in the Exchange's proprietary data feed without
any new or special indication. The Exchange would, however, include in
its existing volume reports delayed weekly aggregated statistics, as
well as delayed monthly aggregated block-sized trading statistics, for
M-ELO+CB executions. Specifically, the Exchange would add to the
existing reports it publishes on Nasdaqtrader.com weekly aggregated
statistics showing the number of shares and transactions of M-ELO+CBs
executed on the Exchange by security. This information would be
published with a two-week delay for NMS stocks in Tier 1 of the LULD
Plan, and a four-week delay for all other NMS stocks. The Exchange also
would add to the existing reports it publishes on Nasdaqtrader.com
monthly aggregated block-sized trading statistics of total shares and
total transactions of M-ELO+CBs executed on the Exchange. This
information would be published no earlier than one month following the
end of the month for which trading was aggregated. Under the proposal,
a transaction would be considered ``block-sized'' if it meets any of
the following criteria: (1) 10,000 or more shares; (2) $200,000 or more
in value; (3) 10,000 or more shares and $200,000 or more in value; (4)
2,000 to 9,999 shares; (5) $100,000 to $199,999 in value; or (6) 2,000
to 9,999 shares and $100,000 to $199,999 in value.
As part of the surveillance the Exchange currently performs, M-
ELO+CBs would be subject to real-time surveillance to determine if they
are being abused by market participants. In addition, as is the case
for ordinary M-ELOs, the Exchange will monitor the use of M-ELO+CBs
with the intent to apply additional measures, as necessary, to ensure
their usage is appropriately tied to the intent of the Order Type. This
monitoring may include metrics tied to participant behavior, such as
the percentage of M-ELO+CBs that are cancelled prior to the completion
of the Holding Period, the average duration of M-ELO+CBs, and the
percentage of M-ELO+CBs where the NBBO midpoint is within the limit
price when received. The Exchange is committed to determining whether
there is opportunity or prevalence of behavior that is inconsistent
with normal risk management behavior. Manipulative abuse is subject to
potential disciplinary action under the Exchange's Rules, and other
behavior that is not necessarily manipulative but nonetheless
frustrates the purposes of the M-ELO+CB Order Type may be subject to
penalties or other participant requirements to discourage such
behavior, should it occur.
Amending the Midpoint Trade Now Attribute To Enable Execution Against
M-ELO+CB
To facilitate the establishment of the M-ELO+CB Order Type, the
Exchange concurrently proposes to amend the Midpoint Trade Now
Attribute, at Rule 4703(n), such that if a participant opts to enable
Midpoint Trade Now on a Midpoint Order, then in addition to the normal
functionality that the Attribute provides,\7\ the Attribute would also
permit the Midpoint Order to execute against a M-ELO+CB (provided that
the Midpoint Order meets the eligibility
[[Page 28109]]
requirements for doing so). In other words, a Midpoint Order with the
Midpoint Trade Now Attribute enabled would become eligible to execute
against a marketable M-ELO+CB only if it does not first execute against
another order on the Continuous Book within one-half second of its
entry. Executions with M-ELO+CB orders will be trade reported like any
other time they remove liquidity.
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\7\ The Midpoint Trade Now Order Attribute presently allows a
resting Order that becomes locked at its non-displayed price by an
incoming Midpoint Peg Post-Only Order to automatically execute
against crossing or locking interest, including potentially against
the Midpoint Peg Post-Only Order that locked the resting Order, as a
liquidity taker. See Rule 4703(n); Securities Exchange Act Release
No. 84621 (Nov. 19, 2018), 83 FR 60514 (Nov. 26, 2018) (SR-NASDAQ-
2018-090).
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Example of Use of M-ELO+CB
The following example demonstrates how the M-ELO+CB will operate in
practice. Assume for purposes of this example that the NBBO remains
constant at $84.00 x $86.00, such that the midpoint is $85.00. At
10:05:27:00 a.m., Participant A enters a Midpoint Order on the
Continuous Book with the Midpoint Trade Now Attribute enabled. The
Midpoint Order is to sell 1,000 shares with a limit price of $85.00.
The Midpoint Order posts to the Continuous Order Book at $85.00. At
10:05:37:00 a.m., Participant B enters a M-ELO+CB to buy 1,000 shares
at $85.00. After the Holding Period expires, the M-ELO+CB posts to the
M-ELO Order Book at $85.00. No other M-ELOs or M-ELO+CBs are available
to execute against the M-ELO+CB at the time it becomes marketable.
Because the Midpoint Order with Midpoint Trade Now has rested on the
Continuous Order Book for more than one-half second, it becomes
eligible to match against the M-ELO+CB, which continues to rest on the
M-ELO Book. Because no other orders are resting on the Continuous Book
with a price more aggressive than the NBBO, the M-ELO+CB will execute
in full against the Midpoint Order at $85.00.
Implementation
The Exchange plans to implement M-ELO+CB within thirty days after
Commission approval of the proposal. The Exchange will make the M-
ELO+CB available to all members and to all securities upon
implementation. The Exchange will announce the implementation date by
Equity Trader Alert.\8\
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\8\ The Exchange plans to propose a fee structure for the M-
ELO+CB in a subsequent Commission rule filing.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ 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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The reasons why the M-ELO+CB Order Type is consistent with the Act
are generally the same as those that the Commission identified in its
order approving the M-ELO Order Type.\11\ The Exchange does not believe
that the design of the M-ELO+CB presents concerns that are unique or
materially different from those that the M-ELO presents.
---------------------------------------------------------------------------
\11\ See Securities Exchange Act Release No. 34-82825, supra, 83
FR at 10938-41.
---------------------------------------------------------------------------
For example, just as the Commission determined that the M-ELO
``could create additional and more efficient trading opportunities on
the Exchange for investors with longer investment time horizons,
including institutional investors, and provide these investors with an
ability to limit their information leakage and the market impact that
could result from their orders,'' \12\ so too will the M-ELO+CB do so.
By proposing to add M-ELO+CB as a new Order Type, the Exchange intends
to enhance the utility of the M-ELO concept to investors by providing
them with opportunities to execute M-ELOs where they cannot do so now.
Indeed, a M-ELO+CB will have all of the characteristics and offer all
of the benefits of an ordinary M-ELO, except that it will also afford
M-ELO investors the ability to accomplish their investment strategies
by sourcing liquidity from the Nasdaq Continuous Book, where
approximately 55 million shares trade at Midpoint a day.
---------------------------------------------------------------------------
\12\ See id. at 10938-39.
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The proposal would remain consistent with the underlying purpose of
a M-ELO, which is to enable investors to source liquidity on the
Exchange by limiting interaction with intermarket sweep orders or other
aggressively priced order types. By allowing M-ELO+CBs to access
liquidity in the Continuous Book, the Exchange would not dilute the
purpose of the M-ELO because the Exchange would only permit the M-
ELO+CB to access liquidity on the Continuous Book that resembles M-
ELOs--including because eligible orders must have rested on the Book
for at least one-half second and because they must be non-displayed
orders and execute at the midpoint of the NBBO. In addition, the option
to access qualified midpoint liquidity on the continuous book is purely
voluntary.
The proposal would also benefit those participants with Midpoint
Orders resting on the Exchange's Continuous Book, insofar as the
proposal would provide additional opportunities for such Midpoint
Orders to execute against M-ELO+CBs if the Midpoint Order user
voluntarily chooses to do so.
Like the M-ELO, the M-ELO+CB will not discriminate unfairly against
other market participants because it will be available for voluntary
use by all Exchange members. Moreover, the proposal is not unfairly
discriminatory against participants that enter Midpoint Orders that
have not rested for at least one-half second because imposition of this
resting condition is necessary to ensure that M-ELO+CBs fulfill their
purpose without the transitory risk of a change to the NBBO that may
have the effect of an adverse execution. And again, participants will
have a choice as to whether they wish for their Midpoint Orders to
interact with M-ELO+CBs.
Like all M-ELOs and all other orders entered into Nasdaq, the
Exchange will conduct real-time surveillance to monitor the use of M-
ELO+CBs to ensure that such usage is appropriately tied to the intent
of the Order Type. Also like the M-ELO, transactions in M-ELO+CB will
be reported to the Securities Information Processor and will be
provided in Nasdaq's proprietary data feed in the same manner as all
other transactions occurring on Nasdaq are done currently, namely,
without any new or special indication that it is a M-ELO+CB execution.
The Exchange believes that doing so is important to ensuring that
investors are protected from any market impact that may occur if M-ELO
or M-ELO+CB executions were reported with a special indication.
The Exchange does not believe that the proposed M-ELO+CB will
negatively affect the quality of the market. To the contrary, the
Exchange believes that the addition of M-ELO+CB will draw new market
participants to the Exchange's transparent and well-regulated market,
including participants that were previously not utilizing M-ELO orders.
Moreover, like the M-ELO, the M-ELO+CB will allow longer term investors
an opportunity to find like-minded counterparties at the midpoint on
Nasdaq. It will also allow participants with Midpoint Orders the option
to choose for their Orders to interact with M-ELO+CBs, and if so, to
execute in circumstances where they would not otherwise. Thus, the
proposal would enhance liquidity opportunities of midpoint executions
on the Exchange.
[[Page 28110]]
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 Exchange believes that the introduction of the M-ELO+CB will
only boost the utility of the M-ELO among market participants who want
the benefits of M-ELO but require additional trading flexibility.
Accordingly, the Exchange expects that its proposal will draw new
market participants to Nasdaq and increase the extent to which existing
participants utilize the M-ELO concept. To the extent the proposed
change is successful in attracting additional market participants,
Nasdaq believes that the proposed change will promote competition among
trading venues by making Nasdaq a more attractive trading venue for
long-term investors and therefore capital formation.
Additionally, adoption of M-ELO+CB will not burden any market
participants. Just as with an ordinary M-ELOs, the M-ELO+CB will be
available to all Nasdaq members and it will be available on an optional
basis. Thus, any member that seeks to avail itself of the benefits of a
M-ELO+CB can choose accordingly. Although the proposal provides
potential benefits for investors that select the M-ELO+CB order type,
the Exchange believes that all market participants will benefit to the
extent that this proposal contributes to a healthy and attractive
market that is attentive to the needs of all types of investors.
The proposal also will not adversely impact market participants
that choose not to use this M-ELO+CB because no changes need to be made
to participants' systems to account for it. As discussed above, M-
ELO+CB executions will be reported the same as other executions,
without any new or special indicator.
Similarly, the proposal will benefit members that enter Midpoint
Orders on the Continuous by providing them with flexibility to have
their orders execute in situations where they would not do so now.
Again, however, this flexibility will be optional. Any member that
wants its Midpoint Orders to interact with M-ELO+CBs can choose
accordingly.
In any event, the Exchange notes that it operates in a highly
competitive market in which market participants can readily choose
between competing venues if they deem participation in Nasdaq's market
is no longer desirable. In such an environment, the Exchange must
carefully consider the impact that any change it proposes may have on
its participants, understanding that it will likely lose participants
to the extent a change is viewed as unfavorable by them. Because
competitors are free to modify the incentives and structure of their
markets, the Exchange believes that the degree to which modifying the
market structure of an individual market may impose any burden on
competition is limited. Last, to the extent the proposed change is
successful in attracting additional market participants, Nasdaq also
believes that the proposed change will promote competition among
trading venues by making Nasdaq a more attractive trading venue for
long-term investors and therefore capital formation.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2019-048 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2019-048. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2019-048, and should be submitted
on or before July 8, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12655 Filed 6-14-19; 8:45 am]
BILLING CODE 8011-01-P
