Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the Operation of the Nasdaq Opening, Halt and Closing Crosses, 50521-50525 [2019-20710]
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Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
When the Exchange migrates to the
same technology as that of the other
Cboe Affiliated Exchanges, Users of the
Exchange will have access to similar
functionality on all Cboe Affiliated
Exchanges. As such, the proposed rule
change would foster cooperation and
coordination with persons engaged in
facilitating transactions in securities and
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system.
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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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange reiterates that the proposed
rule change is being proposed in the
context of the technology integration of
the Cboe Affiliated Exchanges. Thus, the
Exchange believes this proposed rule
change is necessary to permit fair
competition among national securities
exchanges. In addition, the Exchange
believes the proposed rule change will
benefit Exchange participants in that it
will provide a consistent technology
offering for Users by the Cboe Affiliated
Exchanges.
The Exchange does not believe that
the proposed rule change will impose
any burden on intramarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
The general framework and primary
features of the Exchange’s complex
order functionality is not changing, and
will continue to protect orders,
including Priority Customer orders,
resting in the Book. Therefore, the
electronic processing of complex orders
will occur in a substantially similar
manner as it does today. The System’s
electronic processing of complex orders
of all Users will apply in the same
manner. Use of complex order
functionality and the various complex
order instructions will continue to be
voluntary and within the discretion of
Users.
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
As discussed above, the basis for the
majority of the proposed rule changes in
this filing are based on C2 Rule 6.13 and
EDGX Options Rule 21.20, and thus
have previously been filed with the
Commission.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not:
A. Significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. 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 98 and Rule 19b–4(f)(6) 99
thereunder. At any time within 60 days
of the filing of the proposed rule change,
the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is 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 will institute proceedings
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–
CBOE–2019–060 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–CBOE–2019–060. 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–CBOE–2019–060 and
should be submitted on or before
October 16, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.100
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–20711 Filed 9–24–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87031; File No. SR–
NASDAQ–2019–073]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Concerning the
Operation of the Nasdaq Opening, Halt
and Closing Crosses
September 19, 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
September 5, 2019, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
100 17
98 15
U.S.C. 78s(b)(3)(A).
99 17 CFR 240.19b–4(f)(6).
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Sfmt 4703
50521
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
New Rules 4752(d)(2)(G), 4753(b)(2)(E)
and 4754(b)(2)(F)
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 clarify its
rules concerning the operation of the
Nasdaq Opening, Halt and Closing
Crosses, and to make certain corrective
changes to Rules 4702, 4703, 4752,
4753, 4754, and 4763.
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
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1. Purpose
The Exchange is proposing to amend
Rules 4752, 4753 and 4754, concerning
the operation of the Nasdaq Opening,
Halt and Closing Crosses, respectively,
to make them more efficient, and to
make corrective and clarifying changes.
The Exchange is also making a related
change to Rule 4763(e)(2) concerning
the repricing of short sale Orders that
are Limit-on-Open (‘‘LOO’’),3 Marketon-Open (‘‘MOO’’),4 Limit-on-Close
(‘‘LOC’’),5 or Market-on-Close
(‘‘MOC’’).6 Last, the Exchange is making
corrective changes to Rules 4702(b) and
4703(l).
3 See
Rule 4752(a)(3).
Rule 4752(a)(4).
5 See Rule 4754(a)(4).
6 See Rule 4754(a)(5).
4 See
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Rules 4752(d)(2), 4753(b)(2) and
4754(b)(2) describe the steps followed in
establishing the prices in the Nasdaq
Opening, Halt and Closing Crosses,
respectively. A Post-Only Order is an
Order Type designed to have its price
adjusted as needed to post to the Nasdaq
Book in compliance with Rule 610(d)
under Regulation NMS by avoiding the
display of quotations that lock or cross
any Protected Quotation 7 in a System
Security 8 during Market Hours,9 or to
execute against locking or crossing
quotations in circumstances where
economically beneficial to the
Participant 10 entering the Post-Only
Order.11 A Post-Only Order may
participate in the Nasdaq Opening
Cross, Nasdaq Halt Cross and/or the
Nasdaq Closing Cross.12
The Exchange is adopting new rule
text under Rules 4752(d)(2)(G),
4753(b)(2)(E) and 4754(b)(2)(F) that
describes how the Exchange prices the
Nasdaq Opening, Halt and Closing
Crosses when the Cross would
otherwise be priced by a partial
execution of an Order deemed to have
a price at one minimum increment away
from a Post-Only Order pursuant to Rule
4703(l). Rule 4703(l) describes the Order
Attribute that allows an Order to
participate in the Nasdaq Opening, Halt
or Closing Crosses,13 including the
process for pricing an Order that is
locked or crossed at its non-displayed
price by a Post-Only Order. Specifically,
an Order to buy (sell) that is locked or
crossed at its non-displayed price by a
Post-Only Order on the Nasdaq Book
shall be deemed to have a price at one
minimum price increment 14 below
(above) the price of the Post-Only Order
for the purposes of the Cross price
calculation.
7 See
Rule 4701(j).
Rule 4701(b).
9 See Rule 4701(g).
10 See Rule 4701(c).
11 See Rule 4702(b)(4).
12 See Rule 4702(b)(4)(C). The Exchange is
proposing to eliminate text from the rule that states
that only Post-Only Orders entered through OUCH
and FLITE protocols may participate in the Nasdaq
Opening and/or Closing Crosses. This rule text was
mistakenly adopted when amendments were made
to the rule. See Securities Exchange Act Release No.
75252 (June 22, 2015), 80 FR 36865 (June 26, 2015)
(SR–NASDAQ–2015–024). Any of the Order entry
protocols may be used to enter Post-Only Orders
eligible to participate in the Nasdaq Opening and/
or Closing Crosses.
13 The Exchange is proposing to correct Rule
4703(l) by including the Nasdaq Halt Cross in the
rule. As described in the proposal, the Nasdaq Halt
Cross was erroneously omitted from the rule.
14 See Rule 4701(k).
8 See
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Currently, if the Opening, Halt 15 or
Closing Cross would otherwise occur at
the ‘‘deemed price’’ of an Order that is
locked or crossed at its non-displayed
price by a Post-Only Order pursuant to
Rule 4703(l), and that Order would not
execute in full during the Cross, then
Cross price is instead adjusted to the
price of the Order’s original ranked
price. The new rule text clarifies the
current approach to setting the Cross
price in situations where there is a
partial execution of an Order that is
deemed to have a price at one minimum
price increment away from a Post-Only
Order. Consider an example where the
NBBO is $10.00 × $10.01 and resting on
the Nasdaq book are Order #1, a MOC
Order to buy 500 shares, Order #2, a
MOC Order to sell 300 shares, Order #3,
a Non-Displayed Order to sell 100
shares at $10.01, and Order #4 a NonDisplayed Order to sell 300 shares at
$10.00. If Order #4 is subsequently
locked by Order #5, a Post-Only Order
to buy 100 shares at $10.00, then for
purposes of the Cross price calculation,
Order #4 would be deemed to have a
price of $10.01, where it is presented for
execution ahead of Order #3, reflecting
its price priority on the Nasdaq book.16
Per Nasdaq’s Cross calculation
language,17 $10.01 would be selected as
the Cross price as it maximizes paired
shares (i.e., Orders #1 and #2 are
executed in full and Order #4 is
executed partially). But because Order
#4 would not execute in full at this
price, the Cross price is instead adjusted
to $10.00. The Cross would execute 500
shares at a price of $10.00, with Order
#1 and Order #2 receiving full
executions, and Order #4 receiving a
partial execution of 200 shares.
This approach to setting the Cross
price is consistent with Nasdaq Cross
price tiebreaker rules regarding
unexecuted shares 18 and ensures that
15 See
supra note 13.
#4 has price priority over Order #3
because Order #3[sic] is deemed to be $10.01 for
purposes of the Cross price calculation, but for
purposes of execution priority it is ranked behind
all orders priced at $10.
17 See Rules 4752(d)(2)(A), 4753(b)(2)(A), and
4754(b)(2)(A).
18 Rule 4754(b)(2)(C) concerns the tiebreaker
criteria for selecting the Closing Cross price when
paired shares are maximized and imbalance is
minimized: ‘‘shall occur at the entered price at
which shares will remain unexecuted in the cross.’’
Had Nasdaq selected a Cross price of $10.01, the
participant behind Order #4 would perceive that its
Order was traded through or was otherwise not
represented in the Cross, which is inconsistent with
the purpose of the tiebreaker language (i.e., the
Cross price is $10.01, but the shares remaining in
the cross are priced is $10.00). The Order Imbalance
Indicator provides the current state of interest in
designated for participation in the Closing Cross,
including the adjusted price of the Cross. See Rule
16 Order
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Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
the original ranked price of the Order is
reflected, since the remaining
unexecuted shares of the Order are
ranked in time priority behind all orders
at the price at which the Order was
posted on the Nasdaq Book and no other
interest ranked at a less aggressive price
would execute in the Cross.19 Pricing
such an Order to its original ranked
price is consistent with the participant’s
expectations and the pricing of Nasdaq
Crosses,20 since the participant would
otherwise perceive that its Order was
traded through or not represented in the
Cross. In the example above, a
participant would not expect to receive
an execution in the cross at $10.01,
while leaving unexecuted shares of its
sell Order on the Nasdaq Book at a more
aggressive price of 10.00.
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Changes to Rule 4763(e)(2)
Rule 4763 provides the Exchange’s
rules concerning the Short Sale Price
Test of Rule 201 of Regulation SHO. If
the Short Sale Price Test is triggered,
paragraph (e) of Rule 4763 provides the
process for re-pricing of Orders during
the Short Sale Period, when the Short
Sale Price Test is in effect. Rule 4703(l)
states that, for purposes of the Nasdaq
Opening or Closing Cross,21 an Order to
buy (sell) that is locked or crossed at its
non-displayed price by a Post-Only
Order on the Nasdaq Book shall be
deemed to have a price at one minimum
price increment below (above) the price
of the Post-Only Order.
Currently, short sale LOO, MOO, LOC
and MOC Orders are re-priced during
the Short Sale Period to the Permitted
Price, unless the NBBO spread is $.01 in
which case such orders will be priced
to the midpoint. As a consequence of
the Cross price adjustment explained
above, in rare cases short sale LOO,
MOO, LOC and MOC Orders re-priced
to the midpoint would be required for
completion of the Nasdaq Opening and
Closing Crosses but would not be able
to execute at the Cross price due to the
Short Sale Price Test, notwithstanding
the fact that it had been already adjusted
to the midpoint (i.e., the short sale LOO,
MOO, LOC and MOC Orders included
4754(a)(7)(A). Thus, adjustment of the Closing Cross
price is reflected in the Order Imbalance Indicator.
19 This occurs because the Order is meant to cede
priority to all other Orders at its original price, but
retain priority over all Orders at a less aggressive
price.
20 See supra note 18.
21 Rule 4703(l) concerns the Order Attribute that
permits an Order to participate in the Nasdaq
Crosses. As described below, the rule currently only
discusses the Nasdaq Opening and Closing Crosses,
however, the rule should also include the Nasdaq
Halt Cross. The Exchange is proposing to correct
Rule 4703(l) and to make related changes to Order
Types under Rule 4702(b).
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in the price calculation but would not
be executable at the Cross price). This
would occur if, in a security subject to
the Short Sale Price Test and a NBBO
one minimum price increment wide, the
Cross price would be adjusted to the
National Best Bid due to the partial
execution of a sell Order deemed to
have a price at the National Best Offer
pursuant to Rule 4703(l). Consider the
same example given previously with
two changes: The security is subject to
a Short Sale Price Test, and Order #2 is
now a MOC to sell short. Under the
current rule, Order #2 would be
repriced to $10.005, a Cross price of
$10.01 would be selected, and, because
Order #4 would receive a partial
execution in the cross, the cross price
would be adjusted to $10.00. The Cross
would attempt to execute Order #1,
Order #2, and Order #4 as in above, but
because of the Short Sale Price Test,
$10.00 is an impermissible execution
price for Order #2, notwithstanding the
fact that it had been already adjusted to
the midpoint.22
To resolve this issue, Nasdaq is
proposing to amend Rule 4763(e)(2) to
add a condition stating that the repricing of short sale LOO, MOO, LOC
and MOC Orders to the midpoint in lieu
of the Permitted Price will not occur
when a resting non-displayed Order is
deemed to have a price at one minimum
increment away from a Post-Only Order
pursuant to Rule 4703(l), at the time of
the Nasdaq Opening Cross or the
Nasdaq Closing Cross. This change will
prevent short sale LOO, MOO, LOC and
MOC Orders subject to the Short Sale
Price Test from being presented for
execution at an ineligible price when
the Nasdaq Opening and Closing Cross
price is adjusted pursuant to proposed
Rules 4752(d)(2)(G), 4753(b)(2)(E) and
4754(b)(2)(F). Thus under the proposed
rule, if at the time of the Nasdaq
Opening Cross or the Nasdaq Closing
Cross the Short Sale Price Test is in
effect and there is a resting nondisplayed Order deemed to have a price
at one minimum increment away from
a Post-Only Order, pursuant to Rule
4703(l), short sale Orders that are LOO,
MOO, LOC, or MOC will be re-priced to
the Permitted Price instead of the
midpoint. Re-pricing of short sale
Orders in this manner ensures they are
ranked behind 23 such non-displayed
22 Although Order #2 has been converted to an
Order with a midpoint pegging attribute, the System
nevertheless attempts to execute Order #2 ahead of
Order #4 because it remains a MOC Order.
23 The Exchange notes that, although this
proposal changes the ranking of short sale LOO,
MOO, LOC and MOC Orders so that such Orders
lose priority as described herein, these Orders are
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Fmt 4703
Sfmt 4703
50523
Orders, thereby preventing the inclusion
of ineligible short sale Orders in the
event the Cross price is adjusted,24 or in
some cases, preventing the adjustment
from occurring at all.25 Using the
example above, at the time of the
Closing Cross, Order #2 would be
repriced to the Permitted Price of $10.01
instead of the midpoint, where it is now
ranked behind Order #4 in execution
priority.26 As a result of this reordering,
Order #4 would now receive a full
execution, preventing the Cross price
adjustment clause that would occur
with a partial execution. The Cross
would be priced at $10.01, and the
System would execute Order #1 in full
for 500 shares, Order #4 in full for 300
shares, and Order #2 for 200 shares.
The Exchange notes that this change
in no way allows for execution of a
short sale Order subject to the Short
Sale Price Test at an impermissible
price. Moreover, pricing such an Order
to the Permitted Price is consistent with
the participant’s expectations of short
sale executability and the pricing of
Nasdaq Crosses, since the participant
would not expect its short sale Orders
to participate in the Cross if the Cross
were to be priced to the National Best
Bid during the Short Sale Price Test.
Last, the Exchange is correcting a
citation in the rule concerning the
description of the Pegging Order
Attribute, which was in former Rule
4751(f)(4) but was moved to Rule
4703(d).27
Changes to Rules 4752(d)(3)(B),
4753(b)(3) and 4754(b)(3)(B)
The Exchange is proposing to make a
corrective change to Rules 4752(d)(3)(B),
4753(b)(3) and 4754(b)(3)(B), which
provide the processes followed when
the Nasdaq Cross price is selected and
fewer than all shares of Cross eligible
Orders that are available in the Nasdaq
Market Center would be executed. In
2017, the Exchange clarified Rules 4752,
4753 and 4754 to specify the execution
priority of an Order that has been locked
or crossed at its non-displayed price by
a Post-Only Order and re-priced for
not disadvantaged in so doing because they would
not execute at their original ranked price.
24 Adjusting the price of these Orders would
result in the short sale LOO, MOO, LOC and MOC
Orders to not be included in the Cross price
calculation.
25 The adjustment will not occur at all because
either the non-displayed Order executed in full, or
the non-displayed Order executed in full and the
short sale Order received a partial execution.
26 Even though Order #2 is technically a MOC
Order, it will be ranked behind Order #4 because
it is no longer treated as a MOC Order but rather
it is prioritized at the repriced price level.
27 See Securities Exchange Act Release No. 75252
(June 22, 2015), 80 FR 36865 (June 26, 2015) (SR–
NASDAQ–2015–024).
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Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
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purposes of the Opening, Halt and
Closing Crosses.28 In making the
clarifying changes, the Exchange
amended Rules 4752(d)(3)(B), 4753(b)(3)
and 4754(b)(3)(B) to add the following
text: 29 ‘‘An Order to buy (sell) that is
locked or crossed at its non-displayed
price by a Post-Only Order on the
Nasdaq Book, and which has been
deemed to have a price at one minimum
price increment below (above) the price
of the Post-Only Order, shall be ranked
in time priority ahead of all orders one
minimum price increment below
(above) the price of the Post-Only Order
but behind all orders at the price at
which the Order was posted to the
Nasdaq Book.’’ 30 The text stating
‘‘ahead of all orders one minimum price
increment below (above) the price of the
Post-Only Order’’ is incorrect with
respect to Orders covered by the Cross
rules,31 specifically midpoint Orders
when the NBBO is one minimum price
increment wide. In these cases, an Order
to buy (sell) that is locked or crossed at
its non-displayed price by a Post-Only
Order on the Nasdaq Book, and which
has been deemed to have a price at one
minimum price increment below
(above) the price of the Post-Only Order,
is ranked in time priority behind all
Orders at the price at which the Order
was posted to the Nasdaq Book, without
regard to all Orders that are one
minimum price increment below
(above) the price of the Post-Only Order.
This is because the Order is meant to
cede priority to all other Orders at its
original price, but retains priority over
all Orders at a less aggressive price. For
example, consider a scenario in which
the NBBO is $10.00 × $10.01 and resting
on the Nasdaq Book are Order #1, a
midpoint Order to sell at $10.005, and
Order #2, a non-displayed Order to sell
at $10.00. If Order #2 were to be
subsequently locked at $10.00 by a Post
Only Order to buy, then Order #2 would
28 See Securities Exchange Act Release No. 80425
(April 11, 2017), 82 FR 18196 (April 17, 2017) (SR–
NASDAQ–2017–031).
29 The change to Rule 4752(d)(3)(B) made it clear
that the locking or crossing would occur during
Early Market Hours.
30 See supra note 28.
31 Rule 4752(d)(3)(B) concerns LOO orders, Early
Market Hours limit orders, OIO orders, SDAY limit
orders, SGTC limit orders, GTMC limit orders,
SHEX limit orders, displayed quotes and reserve
interest priced more aggressively than the Nasdaq
Opening Cross price based on limit price with time
as the secondary priority. Rule 4753(b)(3) concerns
Eligible Interest, which is any quotation or any
order that has been entered into the system and
designated with a time-in-force that would allow
the order to be in force at the time of the Halt Cross.
Rule 4754(b)(3)(B) concerns LOC orders, limit
orders, IO orders, displayed quotes and reserve
interest priced more aggressively than the Nasdaq
Closing Cross price based on price with time as the
secondary priority.
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Jkt 247001
be deemed to have a price of $10.01 for
the purposes of the Cross price
calculation. However, if a cross price of
$10.005 was selected, Order #2 would
be presented for execution at its ranked
price of $10.00—not at its deemed price
of $10.01—ahead of the midpoint order
ranked $10.005. Accordingly, the
Exchange is deleting the inaccurate text
from Rules 4752(d)(3)(B), 4753(b)(3) and
4754(b)(3)(B), which states that the
locked or crossed Order would be
ranked in time priority ahead of all
orders one minimum price increment
below (above) the price of the Post-Only
Order but behind all orders at the price
at which the Order was posted to the
Nasdaq Book.
Changes to Rules 4702(b) and 4703(l)
As noted above, Rule 4703(l) concerns
the Order Attribute that permits an
Order to participate in the Nasdaq
Crosses. Currently, the rule only
discusses the Nasdaq Opening and
Closing Crosses. This was an omission
occurring when the Exchange adopted
the rule in 2015.32 Any resting Order on
the Nasdaq Book that may participate in
the Nasdaq Opening and Closing
Crosses may also participate in a Nasdaq
Halt Cross.33 Accordingly, the Exchange
is proposing to correct Rule 4703(l) by
including the Nasdaq Halt Cross in the
rule. The Exchange is proposing to make
related changes to affected Order Types
under Rule 4702(b) to now include
participation in the Nasdaq Halt Cross
as an Order Attribute. Last, the
Exchange is amending Rule
4702(b)(4)(C) to correct text in the rule
that currently states that the Post-Only
Order may only participate in the
Nasdaq Opening and Closing Crosses
only if it is entered through an OUCH
or FLITE port. The Exchange has never
limited participation of Post-Only
Orders in the Nasdaq Opening and
Closing Crosses if they are entered
through OUCH or FLITE ports
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,34 in general, and furthers the
objectives of Section 6(b)(5) of the Act,35
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
32 See
supra note 12.
MOO, LOO, OIO, MOC, LOC and OI
Orders are not affected, since they are only
designated to operate in the Nasdaq Opening or
Closing Cross. See Rule 4702(b).
34 15 U.S.C. 78f(b).
35 15 U.S.C. 78f(b)(5).
33 Thus,
PO 00000
Frm 00154
Fmt 4703
Sfmt 4703
investors and the public interest, by
making the Nasdaq Crosses operate
more efficiently by preventing the
inclusion of short sale Orders that
would be unable to execute in a Nasdaq
Cross, due to the Cross price selected.
Moreover, new Rules 4752(d)(2)(G),
4753(b)(2)(E) and 4754(b)(2)(F) address
how the Exchange sets the Nasdaq
Opening, Halt and Closing Cross prices
when there is a partial execution of an
Order that is deemed to have a price at
one minimum price increment away
from a Post-Only Order, which is
consistent with the Act because it
ensures that the original ranked price of
the Order is reflected. As noted above,
the remaining unexecuted shares of the
Order is ranked in time priority behind
all Orders at the price at which the
Order was posted on the Nasdaq Book
and no other interest would execute at
a less aggressive price. Thus, the new
rule text allowing pricing such an Order
to its original ranked price is consistent
with Nasdaq Cross price tiebreaker rules
regarding unexecuted shares, as well as
the participant’s expectations
concerning execution in the Cross, since
the participant would otherwise receive
an execution at what would appear to be
a partial execution of their Order at a
price inferior to the Cross price. As
noted above, such an execution would
appear to the participant as though its
Order was traded through or was
otherwise not represented in the Cross.
The proposed change to Rule
4763(e)(2) to add a condition stating that
the re-pricing of short sale Orders to the
midpoint—in lieu of the Permitted
Price—will not be permitted when a
resting non-displayed Order is locked or
crossed at its non-displayed price by a
Post-Only Order on the Nasdaq Book at
the time of the Nasdaq Opening Cross or
the Nasdaq Closing Cross is consistent
with the Act because it will ensure such
short sale Orders are ranked behind any
Orders adjusted pursuant to Rule
4703(l), which, for the reasons stated
above, would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system. As noted above, this change is
necessary to ensure that short sale
Orders subject to the Short Sale Price
Test are prevented from being included,
but unable to be executed, when the
Nasdaq Opening or Closing Cross price
is adjusted pursuant to the new rules
being added in Rules 4752(d)(2)(G),
4753(b)(2)(E) and 4754(b)(2)(F). The
Exchange notes that this change in no
way allows for execution of a short sale
Order subject to the Short Sale Price
Test an impermissible price.
Consequently, the proposed change will
E:\FR\FM\25SEN1.SGM
25SEN1
Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
promote the efficient operation of the
market.
The proposed changes to Rules
4752(d)(3)(B), 4753(b)(3) and
4754(b)(3)(B) delete inaccurate text from
these rules concerning ranking of Orders
in the Crosses that are locked or crossed
at their non-displayed price by a PostOnly Order. The deletions from these
rules reflect the current operation of
these rules, which is consistent with the
Act because the crossed or locked Order
is meant to cede priority to all other
Orders at its original price. The
proposed changes to Rule 4703(l)
corrects the rule to reflect that a member
may also designate an Order to
participate in the Nasdaq Halt Cross in
addition to the Nasdaq Opening and
Closing Crosses, which will reflect the
current operation of the Exchange as
described above. The Exchange is
consequently updating Order Types
under Rule 4702(b) that may also
participate in a Nasdaq Halt Cross. The
Exchange is also making a corrective
change to Rule 4702(b)(4)(C) to correct
text in the rule that currently states that
the Post-Only Order may only
participate in the Nasdaq Opening and
Closing Crosses only if it is entered
through an OUCH or FLITE port. The
Exchange has never limited
participation of Post-Only Orders in the
Nasdaq Opening and Closing Crosses if
they are entered through OUCH or
FLITE ports. In sum, the proposed
changes further perfect the operation of
the Nasdaq Crosses, and protect
investors by avoiding confusion that
may be caused by inaccurate rules.
jbell on DSK3GLQ082PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed changes are not being done for
competitive purposes, but rather to
make the processing of the Nasdaq
Opening and Closing Crosses more
efficient by preventing short sale Orders
from being included in the Nasdaq
Opening and Closing Crosses, since
these Orders may be unable to execute
because of the Cross price selected if
included therein. Moreover, the
proposed changes correct inaccuracies
in the rules, which do not affect
competition whatsoever.
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.
VerDate Sep<11>2014
18:25 Sep 24, 2019
Jkt 247001
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 36 and Rule 19b–
4(f)(6) thereunder.37
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is 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.
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–2019–073 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–2019–073. 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
36 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and 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. The Exchange
has satisfied this requirement.
37 17
PO 00000
Frm 00155
Fmt 4703
Sfmt 4703
50525
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–2019–073 and
should be submitted on or before
October 16, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–20710 Filed 9–24–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87021; File No. 4–753]
Self-Regulatory Organizations; LongTerm Stock Exchange, Inc.; Notice of
Filing of Proposed Minor Rule
Violation Plan
September 19, 2019.
Pursuant to Section 19(d)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19d–1(c)(2)
thereunder,2 notice is hereby given that
on August 23, 2019, Long-Term Stock
Exchange, Inc. (‘‘LTSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) a proposed minor rule
violation plan (‘‘MRVP’’) with sanctions
not exceeding $2,500 which would not
be subject to the provisions of Rule 19d–
38 17
CFR 200.30–3(a)(12).
U.S.C. 78s(d)(1).
2 17 CFR 240.19d–1(c)(2).
1 15
E:\FR\FM\25SEN1.SGM
25SEN1
]]>Agencies
[Federal Register Volume 84, Number 186 (Wednesday, September 25, 2019)]
[Notices]
[Pages 50521-50525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20710]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87031; File No. SR-NASDAQ-2019-073]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Concerning the Operation of the Nasdaq Opening, Halt and Closing
Crosses
September 19, 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 September 5, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'')
[[Page 50522]]
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 clarify its rules concerning the operation
of the Nasdaq Opening, Halt and Closing Crosses, and to make certain
corrective changes to Rules 4702, 4703, 4752, 4753, 4754, and 4763.
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 is proposing to amend Rules 4752, 4753 and 4754,
concerning the operation of the Nasdaq Opening, Halt and Closing
Crosses, respectively, to make them more efficient, and to make
corrective and clarifying changes. The Exchange is also making a
related change to Rule 4763(e)(2) concerning the repricing of short
sale Orders that are Limit-on-Open (``LOO''),\3\ Market-on-Open
(``MOO''),\4\ Limit-on-Close (``LOC''),\5\ or Market-on-Close
(``MOC'').\6\ Last, the Exchange is making corrective changes to Rules
4702(b) and 4703(l).
---------------------------------------------------------------------------
\3\ See Rule 4752(a)(3).
\4\ See Rule 4752(a)(4).
\5\ See Rule 4754(a)(4).
\6\ See Rule 4754(a)(5).
---------------------------------------------------------------------------
New Rules 4752(d)(2)(G), 4753(b)(2)(E) and 4754(b)(2)(F)
Rules 4752(d)(2), 4753(b)(2) and 4754(b)(2) describe the steps
followed in establishing the prices in the Nasdaq Opening, Halt and
Closing Crosses, respectively. A Post-Only Order is an Order Type
designed to have its price adjusted as needed to post to the Nasdaq
Book in compliance with Rule 610(d) under Regulation NMS by avoiding
the display of quotations that lock or cross any Protected Quotation
\7\ in a System Security \8\ during Market Hours,\9\ or to execute
against locking or crossing quotations in circumstances where
economically beneficial to the Participant \10\ entering the Post-Only
Order.\11\ A Post-Only Order may participate in the Nasdaq Opening
Cross, Nasdaq Halt Cross and/or the Nasdaq Closing Cross.\12\
---------------------------------------------------------------------------
\7\ See Rule 4701(j).
\8\ See Rule 4701(b).
\9\ See Rule 4701(g).
\10\ See Rule 4701(c).
\11\ See Rule 4702(b)(4).
\12\ See Rule 4702(b)(4)(C). The Exchange is proposing to
eliminate text from the rule that states that only Post-Only Orders
entered through OUCH and FLITE protocols may participate in the
Nasdaq Opening and/or Closing Crosses. This rule text was mistakenly
adopted when amendments were made to the rule. See Securities
Exchange Act Release No. 75252 (June 22, 2015), 80 FR 36865 (June
26, 2015) (SR-NASDAQ-2015-024). Any of the Order entry protocols may
be used to enter Post-Only Orders eligible to participate in the
Nasdaq Opening and/or Closing Crosses.
---------------------------------------------------------------------------
The Exchange is adopting new rule text under Rules 4752(d)(2)(G),
4753(b)(2)(E) and 4754(b)(2)(F) that describes how the Exchange prices
the Nasdaq Opening, Halt and Closing Crosses when the Cross would
otherwise be priced by a partial execution of an Order deemed to have a
price at one minimum increment away from a Post-Only Order pursuant to
Rule 4703(l). Rule 4703(l) describes the Order Attribute that allows an
Order to participate in the Nasdaq Opening, Halt or Closing
Crosses,\13\ including the process for pricing an Order that is locked
or crossed at its non-displayed price by a Post-Only Order.
Specifically, an Order to buy (sell) that is locked or crossed at its
non-displayed price by a Post-Only Order on the Nasdaq Book shall be
deemed to have a price at one minimum price increment \14\ below
(above) the price of the Post-Only Order for the purposes of the Cross
price calculation.
---------------------------------------------------------------------------
\13\ The Exchange is proposing to correct Rule 4703(l) by
including the Nasdaq Halt Cross in the rule. As described in the
proposal, the Nasdaq Halt Cross was erroneously omitted from the
rule.
\14\ See Rule 4701(k).
---------------------------------------------------------------------------
Currently, if the Opening, Halt \15\ or Closing Cross would
otherwise occur at the ``deemed price'' of an Order that is locked or
crossed at its non-displayed price by a Post-Only Order pursuant to
Rule 4703(l), and that Order would not execute in full during the
Cross, then Cross price is instead adjusted to the price of the Order's
original ranked price. The new rule text clarifies the current approach
to setting the Cross price in situations where there is a partial
execution of an Order that is deemed to have a price at one minimum
price increment away from a Post-Only Order. Consider an example where
the NBBO is $10.00 x $10.01 and resting on the Nasdaq book are Order
#1, a MOC Order to buy 500 shares, Order #2, a MOC Order to sell 300
shares, Order #3, a Non-Displayed Order to sell 100 shares at $10.01,
and Order #4 a Non-Displayed Order to sell 300 shares at $10.00. If
Order #4 is subsequently locked by Order #5, a Post-Only Order to buy
100 shares at $10.00, then for purposes of the Cross price calculation,
Order #4 would be deemed to have a price of $10.01, where it is
presented for execution ahead of Order #3, reflecting its price
priority on the Nasdaq book.\16\ Per Nasdaq's Cross calculation
language,\17\ $10.01 would be selected as the Cross price as it
maximizes paired shares (i.e., Orders #1 and #2 are executed in full
and Order #4 is executed partially). But because Order #4 would not
execute in full at this price, the Cross price is instead adjusted to
$10.00. The Cross would execute 500 shares at a price of $10.00, with
Order #1 and Order #2 receiving full executions, and Order #4 receiving
a partial execution of 200 shares.
---------------------------------------------------------------------------
\15\ See supra note 13.
\16\ Order #4 has price priority over Order #3 because Order
#3[sic] is deemed to be $10.01 for purposes of the Cross price
calculation, but for purposes of execution priority it is ranked
behind all orders priced at $10.
\17\ See Rules 4752(d)(2)(A), 4753(b)(2)(A), and 4754(b)(2)(A).
---------------------------------------------------------------------------
This approach to setting the Cross price is consistent with Nasdaq
Cross price tiebreaker rules regarding unexecuted shares \18\ and
ensures that
[[Page 50523]]
the original ranked price of the Order is reflected, since the
remaining unexecuted shares of the Order are ranked in time priority
behind all orders at the price at which the Order was posted on the
Nasdaq Book and no other interest ranked at a less aggressive price
would execute in the Cross.\19\ Pricing such an Order to its original
ranked price is consistent with the participant's expectations and the
pricing of Nasdaq Crosses,\20\ since the participant would otherwise
perceive that its Order was traded through or not represented in the
Cross. In the example above, a participant would not expect to receive
an execution in the cross at $10.01, while leaving unexecuted shares of
its sell Order on the Nasdaq Book at a more aggressive price of 10.00.
---------------------------------------------------------------------------
\18\ Rule 4754(b)(2)(C) concerns the tiebreaker criteria for
selecting the Closing Cross price when paired shares are maximized
and imbalance is minimized: ``shall occur at the entered price at
which shares will remain unexecuted in the cross.'' Had Nasdaq
selected a Cross price of $10.01, the participant behind Order #4
would perceive that its Order was traded through or was otherwise
not represented in the Cross, which is inconsistent with the purpose
of the tiebreaker language (i.e., the Cross price is $10.01, but the
shares remaining in the cross are priced is $10.00). The Order
Imbalance Indicator provides the current state of interest in
designated for participation in the Closing Cross, including the
adjusted price of the Cross. See Rule 4754(a)(7)(A). Thus,
adjustment of the Closing Cross price is reflected in the Order
Imbalance Indicator.
\19\ This occurs because the Order is meant to cede priority to
all other Orders at its original price, but retain priority over all
Orders at a less aggressive price.
\20\ See supra note 18.
---------------------------------------------------------------------------
Changes to Rule 4763(e)(2)
Rule 4763 provides the Exchange's rules concerning the Short Sale
Price Test of Rule 201 of Regulation SHO. If the Short Sale Price Test
is triggered, paragraph (e) of Rule 4763 provides the process for re-
pricing of Orders during the Short Sale Period, when the Short Sale
Price Test is in effect. Rule 4703(l) states that, for purposes of the
Nasdaq Opening or Closing Cross,\21\ an Order to buy (sell) that is
locked or crossed at its non-displayed price by a Post-Only Order on
the Nasdaq Book shall be deemed to have a price at one minimum price
increment below (above) the price of the Post-Only Order.
---------------------------------------------------------------------------
\21\ Rule 4703(l) concerns the Order Attribute that permits an
Order to participate in the Nasdaq Crosses. As described below, the
rule currently only discusses the Nasdaq Opening and Closing
Crosses, however, the rule should also include the Nasdaq Halt
Cross. The Exchange is proposing to correct Rule 4703(l) and to make
related changes to Order Types under Rule 4702(b).
---------------------------------------------------------------------------
Currently, short sale LOO, MOO, LOC and MOC Orders are re-priced
during the Short Sale Period to the Permitted Price, unless the NBBO
spread is $.01 in which case such orders will be priced to the
midpoint. As a consequence of the Cross price adjustment explained
above, in rare cases short sale LOO, MOO, LOC and MOC Orders re-priced
to the midpoint would be required for completion of the Nasdaq Opening
and Closing Crosses but would not be able to execute at the Cross price
due to the Short Sale Price Test, notwithstanding the fact that it had
been already adjusted to the midpoint (i.e., the short sale LOO, MOO,
LOC and MOC Orders included in the price calculation but would not be
executable at the Cross price). This would occur if, in a security
subject to the Short Sale Price Test and a NBBO one minimum price
increment wide, the Cross price would be adjusted to the National Best
Bid due to the partial execution of a sell Order deemed to have a price
at the National Best Offer pursuant to Rule 4703(l). Consider the same
example given previously with two changes: The security is subject to a
Short Sale Price Test, and Order #2 is now a MOC to sell short. Under
the current rule, Order #2 would be repriced to $10.005, a Cross price
of $10.01 would be selected, and, because Order #4 would receive a
partial execution in the cross, the cross price would be adjusted to
$10.00. The Cross would attempt to execute Order #1, Order #2, and
Order #4 as in above, but because of the Short Sale Price Test, $10.00
is an impermissible execution price for Order #2, notwithstanding the
fact that it had been already adjusted to the midpoint.\22\
---------------------------------------------------------------------------
\22\ Although Order #2 has been converted to an Order with a
midpoint pegging attribute, the System nevertheless attempts to
execute Order #2 ahead of Order #4 because it remains a MOC Order.
---------------------------------------------------------------------------
To resolve this issue, Nasdaq is proposing to amend Rule 4763(e)(2)
to add a condition stating that the re-pricing of short sale LOO, MOO,
LOC and MOC Orders to the midpoint in lieu of the Permitted Price will
not occur when a resting non-displayed Order is deemed to have a price
at one minimum increment away from a Post-Only Order pursuant to Rule
4703(l), at the time of the Nasdaq Opening Cross or the Nasdaq Closing
Cross. This change will prevent short sale LOO, MOO, LOC and MOC Orders
subject to the Short Sale Price Test from being presented for execution
at an ineligible price when the Nasdaq Opening and Closing Cross price
is adjusted pursuant to proposed Rules 4752(d)(2)(G), 4753(b)(2)(E) and
4754(b)(2)(F). Thus under the proposed rule, if at the time of the
Nasdaq Opening Cross or the Nasdaq Closing Cross the Short Sale Price
Test is in effect and there is a resting non-displayed Order deemed to
have a price at one minimum increment away from a Post-Only Order,
pursuant to Rule 4703(l), short sale Orders that are LOO, MOO, LOC, or
MOC will be re-priced to the Permitted Price instead of the midpoint.
Re-pricing of short sale Orders in this manner ensures they are ranked
behind \23\ such non-displayed Orders, thereby preventing the inclusion
of ineligible short sale Orders in the event the Cross price is
adjusted,\24\ or in some cases, preventing the adjustment from
occurring at all.\25\ Using the example above, at the time of the
Closing Cross, Order #2 would be repriced to the Permitted Price of
$10.01 instead of the midpoint, where it is now ranked behind Order #4
in execution priority.\26\ As a result of this reordering, Order #4
would now receive a full execution, preventing the Cross price
adjustment clause that would occur with a partial execution. The Cross
would be priced at $10.01, and the System would execute Order #1 in
full for 500 shares, Order #4 in full for 300 shares, and Order #2 for
200 shares.
---------------------------------------------------------------------------
\23\ The Exchange notes that, although this proposal changes the
ranking of short sale LOO, MOO, LOC and MOC Orders so that such
Orders lose priority as described herein, these Orders are not
disadvantaged in so doing because they would not execute at their
original ranked price.
\24\ Adjusting the price of these Orders would result in the
short sale LOO, MOO, LOC and MOC Orders to not be included in the
Cross price calculation.
\25\ The adjustment will not occur at all because either the
non-displayed Order executed in full, or the non-displayed Order
executed in full and the short sale Order received a partial
execution.
\26\ Even though Order #2 is technically a MOC Order, it will be
ranked behind Order #4 because it is no longer treated as a MOC
Order but rather it is prioritized at the repriced price level.
---------------------------------------------------------------------------
The Exchange notes that this change in no way allows for execution
of a short sale Order subject to the Short Sale Price Test at an
impermissible price. Moreover, pricing such an Order to the Permitted
Price is consistent with the participant's expectations of short sale
executability and the pricing of Nasdaq Crosses, since the participant
would not expect its short sale Orders to participate in the Cross if
the Cross were to be priced to the National Best Bid during the Short
Sale Price Test.
Last, the Exchange is correcting a citation in the rule concerning
the description of the Pegging Order Attribute, which was in former
Rule 4751(f)(4) but was moved to Rule 4703(d).\27\
---------------------------------------------------------------------------
\27\ See Securities Exchange Act Release No. 75252 (June 22,
2015), 80 FR 36865 (June 26, 2015) (SR-NASDAQ-2015-024).
---------------------------------------------------------------------------
Changes to Rules 4752(d)(3)(B), 4753(b)(3) and 4754(b)(3)(B)
The Exchange is proposing to make a corrective change to Rules
4752(d)(3)(B), 4753(b)(3) and 4754(b)(3)(B), which provide the
processes followed when the Nasdaq Cross price is selected and fewer
than all shares of Cross eligible Orders that are available in the
Nasdaq Market Center would be executed. In 2017, the Exchange clarified
Rules 4752, 4753 and 4754 to specify the execution priority of an Order
that has been locked or crossed at its non-displayed price by a Post-
Only Order and re-priced for
[[Page 50524]]
purposes of the Opening, Halt and Closing Crosses.\28\ In making the
clarifying changes, the Exchange amended Rules 4752(d)(3)(B),
4753(b)(3) and 4754(b)(3)(B) to add the following text: \29\ ``An Order
to buy (sell) that is locked or crossed at its non-displayed price by a
Post-Only Order on the Nasdaq Book, and which has been deemed to have a
price at one minimum price increment below (above) the price of the
Post-Only Order, shall be ranked in time priority ahead of all orders
one minimum price increment below (above) the price of the Post-Only
Order but behind all orders at the price at which the Order was posted
to the Nasdaq Book.'' \30\ The text stating ``ahead of all orders one
minimum price increment below (above) the price of the Post-Only
Order'' is incorrect with respect to Orders covered by the Cross
rules,\31\ specifically midpoint Orders when the NBBO is one minimum
price increment wide. In these cases, an Order to buy (sell) that is
locked or crossed at its non-displayed price by a Post-Only Order on
the Nasdaq Book, and which has been deemed to have a price at one
minimum price increment below (above) the price of the Post-Only Order,
is ranked in time priority behind all Orders at the price at which the
Order was posted to the Nasdaq Book, without regard to all Orders that
are one minimum price increment below (above) the price of the Post-
Only Order. This is because the Order is meant to cede priority to all
other Orders at its original price, but retains priority over all
Orders at a less aggressive price. For example, consider a scenario in
which the NBBO is $10.00 x $10.01 and resting on the Nasdaq Book are
Order #1, a midpoint Order to sell at $10.005, and Order #2, a non-
displayed Order to sell at $10.00. If Order #2 were to be subsequently
locked at $10.00 by a Post Only Order to buy, then Order #2 would be
deemed to have a price of $10.01 for the purposes of the Cross price
calculation. However, if a cross price of $10.005 was selected, Order
#2 would be presented for execution at its ranked price of $10.00--not
at its deemed price of $10.01--ahead of the midpoint order ranked
$10.005. Accordingly, the Exchange is deleting the inaccurate text from
Rules 4752(d)(3)(B), 4753(b)(3) and 4754(b)(3)(B), which states that
the locked or crossed Order would be ranked in time priority ahead of
all orders one minimum price increment below (above) the price of the
Post-Only Order but behind all orders at the price at which the Order
was posted to the Nasdaq Book.
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\28\ See Securities Exchange Act Release No. 80425 (April 11,
2017), 82 FR 18196 (April 17, 2017) (SR-NASDAQ-2017-031).
\29\ The change to Rule 4752(d)(3)(B) made it clear that the
locking or crossing would occur during Early Market Hours.
\30\ See supra note 28.
\31\ Rule 4752(d)(3)(B) concerns LOO orders, Early Market Hours
limit orders, OIO orders, SDAY limit orders, SGTC limit orders, GTMC
limit orders, SHEX limit orders, displayed quotes and reserve
interest priced more aggressively than the Nasdaq Opening Cross
price based on limit price with time as the secondary priority. Rule
4753(b)(3) concerns Eligible Interest, which is any quotation or any
order that has been entered into the system and designated with a
time-in-force that would allow the order to be in force at the time
of the Halt Cross. Rule 4754(b)(3)(B) concerns LOC orders, limit
orders, IO orders, displayed quotes and reserve interest priced more
aggressively than the Nasdaq Closing Cross price based on price with
time as the secondary priority.
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Changes to Rules 4702(b) and 4703(l)
As noted above, Rule 4703(l) concerns the Order Attribute that
permits an Order to participate in the Nasdaq Crosses. Currently, the
rule only discusses the Nasdaq Opening and Closing Crosses. This was an
omission occurring when the Exchange adopted the rule in 2015.\32\ Any
resting Order on the Nasdaq Book that may participate in the Nasdaq
Opening and Closing Crosses may also participate in a Nasdaq Halt
Cross.\33\ Accordingly, the Exchange is proposing to correct Rule
4703(l) by including the Nasdaq Halt Cross in the rule. The Exchange is
proposing to make related changes to affected Order Types under Rule
4702(b) to now include participation in the Nasdaq Halt Cross as an
Order Attribute. Last, the Exchange is amending Rule 4702(b)(4)(C) to
correct text in the rule that currently states that the Post-Only Order
may only participate in the Nasdaq Opening and Closing Crosses only if
it is entered through an OUCH or FLITE port. The Exchange has never
limited participation of Post-Only Orders in the Nasdaq Opening and
Closing Crosses if they are entered through OUCH or FLITE ports
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\32\ See supra note 12.
\33\ Thus, MOO, LOO, OIO, MOC, LOC and OI Orders are not
affected, since they are only designated to operate in the Nasdaq
Opening or Closing Cross. See Rule 4702(b).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\34\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\35\ 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, by making the Nasdaq Crosses operate more efficiently by
preventing the inclusion of short sale Orders that would be unable to
execute in a Nasdaq Cross, due to the Cross price selected. Moreover,
new Rules 4752(d)(2)(G), 4753(b)(2)(E) and 4754(b)(2)(F) address how
the Exchange sets the Nasdaq Opening, Halt and Closing Cross prices
when there is a partial execution of an Order that is deemed to have a
price at one minimum price increment away from a Post-Only Order, which
is consistent with the Act because it ensures that the original ranked
price of the Order is reflected. As noted above, the remaining
unexecuted shares of the Order is ranked in time priority behind all
Orders at the price at which the Order was posted on the Nasdaq Book
and no other interest would execute at a less aggressive price. Thus,
the new rule text allowing pricing such an Order to its original ranked
price is consistent with Nasdaq Cross price tiebreaker rules regarding
unexecuted shares, as well as the participant's expectations concerning
execution in the Cross, since the participant would otherwise receive
an execution at what would appear to be a partial execution of their
Order at a price inferior to the Cross price. As noted above, such an
execution would appear to the participant as though its Order was
traded through or was otherwise not represented in the Cross.
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\34\ 15 U.S.C. 78f(b).
\35\ 15 U.S.C. 78f(b)(5).
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The proposed change to Rule 4763(e)(2) to add a condition stating
that the re-pricing of short sale Orders to the midpoint--in lieu of
the Permitted Price--will not be permitted when a resting non-displayed
Order is locked or crossed at its non-displayed price by a Post-Only
Order on the Nasdaq Book at the time of the Nasdaq Opening Cross or the
Nasdaq Closing Cross is consistent with the Act because it will ensure
such short sale Orders are ranked behind any Orders adjusted pursuant
to Rule 4703(l), which, for the reasons stated above, would remove
impediments to and perfect the mechanism of a free and open market and
a national market system. As noted above, this change is necessary to
ensure that short sale Orders subject to the Short Sale Price Test are
prevented from being included, but unable to be executed, when the
Nasdaq Opening or Closing Cross price is adjusted pursuant to the new
rules being added in Rules 4752(d)(2)(G), 4753(b)(2)(E) and
4754(b)(2)(F). The Exchange notes that this change in no way allows for
execution of a short sale Order subject to the Short Sale Price Test an
impermissible price. Consequently, the proposed change will
[[Page 50525]]
promote the efficient operation of the market.
The proposed changes to Rules 4752(d)(3)(B), 4753(b)(3) and
4754(b)(3)(B) delete inaccurate text from these rules concerning
ranking of Orders in the Crosses that are locked or crossed at their
non-displayed price by a Post-Only Order. The deletions from these
rules reflect the current operation of these rules, which is consistent
with the Act because the crossed or locked Order is meant to cede
priority to all other Orders at its original price. The proposed
changes to Rule 4703(l) corrects the rule to reflect that a member may
also designate an Order to participate in the Nasdaq Halt Cross in
addition to the Nasdaq Opening and Closing Crosses, which will reflect
the current operation of the Exchange as described above. The Exchange
is consequently updating Order Types under Rule 4702(b) that may also
participate in a Nasdaq Halt Cross. The Exchange is also making a
corrective change to Rule 4702(b)(4)(C) to correct text in the rule
that currently states that the Post-Only Order may only participate in
the Nasdaq Opening and Closing Crosses only if it is entered through an
OUCH or FLITE port. The Exchange has never limited participation of
Post-Only Orders in the Nasdaq Opening and Closing Crosses if they are
entered through OUCH or FLITE ports. In sum, the proposed changes
further perfect the operation of the Nasdaq Crosses, and protect
investors by avoiding confusion that may be caused by inaccurate rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed changes are not
being done for competitive purposes, but rather to make the processing
of the Nasdaq Opening and Closing Crosses more efficient by preventing
short sale Orders from being included in the Nasdaq Opening and Closing
Crosses, since these Orders may be unable to execute because of the
Cross price selected if included therein. Moreover, the proposed
changes correct inaccuracies in the rules, which do not affect
competition whatsoever.
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 \36\ and Rule 19b-
4(f)(6) thereunder.\37\
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and 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.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is 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.
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-2019-073 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-2019-073. 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-2019-073 and should be submitted
on or before October 16, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20710 Filed 9-24-19; 8:45 am]
BILLING CODE 8011-01-P
