Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rules 3301A and 3301B, 20533-20542 [2020-07653]
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Federal Register / Vol. 85, No. 71 / Monday, April 13, 2020 / Notices
offers the general public and other
federal agencies the opportunity to
comment on a revised information
collection request (ICR), Report of
Medical Examination of Person Electing
Survivor Benefits, OPM 1530.
DATES: Comments are encouraged and
will be accepted until June 12, 2020.
ADDRESSES: You may submit comments,
identified by docket number and/or
Regulatory Information Number (RIN)
and title, by the following method:
—Federal Rulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
All submissions received must
include the agency name and docket
number or RIN for this document. The
general policy for comments and other
submissions from members of the public
is to make these submissions available
for public viewing at https://
www.regulations.gov as they are
received without change, including any
personal identifiers or contact
information.
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FOR FURTHER INFORMATION CONTACT:
17:57 Apr 10, 2020
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U.S. Office of Personnel Management.
Alexys Stanley,
Regulatory Affairs Analyst.
[FR Doc. 2020–07633 Filed 4–10–20; 8:45 am]
A
copy of this ICR with applicable
supporting documentation, may be
obtained by contacting the Retirement
Services Publications Team, Office of
Personnel Management, 1900 E Street
NW, Room 3316–L, Washington, DC
20415, Attention: Cyrus S. Benson, or
sent via electronic mail to
Cyrus.Benson@opm.gov or faxed to
(202) 606–0910 or reached via telephone
at (202) 606–4808.
SUPPLEMENTARY INFORMATION: As
required by the Paperwork Reduction
Act of 1995 (Pub. L. 104–13, 44 U.S.C.
chapter 35) as amended by the ClingerCohen Act (Pub. L. 104–106), OPM is
soliciting comments for this collection
(OMB No. 3206–0162). The Office of
Management and Budget is particularly
interested in comments that:
1. Evaluate whether the proposed
collection of information is necessary
for the proper performance of functions
of the agency, including whether the
information will have practical utility;
2. Evaluate the accuracy of the
agency’s estimate of the burden of the
proposed collection of information,
including the validity of the
methodology and assumptions used;
3. Enhance the quality, utility, and
clarity of the information to be
collected; and
4. Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
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e.g., permitting electronic submissions
of responses.
OPM Form 1530 is used to collect
information regarding an annuitant’s
health so that OPM can determine
whether the insurable interest survivor
benefit election can be allowed.
Analysis:
Agency: Retirement Operations,
Retirement Services, Office of Personnel
Management.
Title: Report of Medical Examination
of Person Electing Survivor Benefits.
OMB Number: 3206–0162.
Frequency: On occasion.
Affected Public: Individuals or
Households.
Number of Respondents: 500.
Estimated Time per Respondent: 90
minutes.
Total Burden Hours: 750.
POSTAL SERVICE
Board of Governors; Sunshine Act
Meeting
April 8, 2020, at 9:00
a.m.
PLACE:
Washington, DC.
STATUS:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88583; File No. SR–Phlx–
2020–15]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Exchange
Rules 3301A and 3301B
April 7, 2020.
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 March 26,
2020, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by 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
BILLING CODE 6325–38–P
TIME AND DATE:
Closed.
MATTERS TO BE CONSIDERED:
1. Administrative Items.
2. Strategic Issues.
On April 1, 2020, a majority of the
members of the Board of Governors of
the United States Postal Service voted
unanimously to hold and to close to
public observation a special meeting in
Washington, DC, via teleconference. The
Board determined that no earlier public
notice was practicable.
General Counsel Certification: The
General Counsel of the United States
Postal Service has certified that the
meeting may be closed under the
Government in the Sunshine Act.
CONTACT PERSON FOR MORE INFORMATION:
Michael J. Elston, Secretary of the
Board, U.S. Postal Service, 475 L’Enfant
Plaza SW, Washington, DC 20260–1000.
Telephone: (202) 268–4800.
Michael J. Elston,
Secretary.
The Exchange proposes to amend
Exchange Rules 3301A and 3301B to
modify the behavior of Order Types and
Order Attributes in certain situations.
The Exchange intends to implement
its proposed rule change on or before
the end of the Second Quarter of 2020.
The Exchange will announce the new
implementation date by an Equity
Trader Alert, which shall be issued
prior to the implementation date.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqphlx.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.
[FR Doc. 2020–07782 Filed 4–9–20; 11:15 am]
1 15
BILLING CODE 7710–12–P
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 85, No. 71 / Monday, April 13, 2020 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Pursuant to Rule 3307, the Exchange
maintains discretion to execute Orders
in accordance with one of two execution
algorithms: ‘‘Price/Time’’ and ‘‘Pro
Rata.’’ Prior to November 1, 2019, the
Exchange executed Orders in
accordance with the Pro Rata Execution
Algorithm, which executes trading
interest in the following order of
priority: (1) Price; (2) Displayed interest
with a size of one round lot or more; (3)
Displayed odd-lot Orders; (4) NonDisplayed interest with a size of one
round lot or more; (5) Minimum
Quantity Orders; and (6) Non-Displayed
odd-lot Orders.3 However, as of
November 1, 2019,4 the Exchange
migrated to the Price/Time Execution
Algorithm, which executes trading
interest in order of: (1) Price; (2)
Displayed interest; and (3) NonDisplayed interest.5
In accordance with the Exchange’s
shift to the Price/Time Execution
Algorithm, the Exchange proposes to
adopt functionality that was unavailable
for use under the Pro Rata Execution
Algorithm, but which is common among
Price/Time exchanges, including the
Exchange’s affiliates, the Nasdaq Stock
Market, LLC (‘‘Nasdaq’’) and Nasdaq
BX, Inc. (‘‘BX’’).6
The Exchange also proposes to make
several non-substantive changes to
correct and conform the Exchange’s
Rules to corresponding rules of Nasdaq
and/or BX.7
Post-Only Orders
The Exchange proposes to amend
Rule 3301A to provide for additional
functionalities for Post-Only Orders.8
3 See
Rule 3307(b).
Equity Trader Alert 2019–77 (Sept. 27,
2019), at https://www.nasdaqtrader.com/
TraderNews.aspx?id=ETA2019-77.
5 See Rule 3307(a).
6 All of the proposed functionalities will apply
only to the extent that the Exchange continues to
operate on a Price/Time basis. They would not be
available if the Exchange was to revert to a Pro Rata
Execution Algorithm.
7 For example, at various points in the rule text
of Rule 3301A, the Exchange proposes to add the
word ‘‘Displayed’’ before the word ‘‘Order’’ to
conform that rule text to corresponding Nasdaq and
BX rule text (Nasdaq and BX Rule 4702). Also to
conform to corresponding Nasdaq and BX rule text,
the Exchange proposes, in Rule 3301A(b)(4)(C), to
add, to the paragraph describing the treatment of a
Post-Only Order designated as an ISO that locks or
crosses an Order on the PSX Book, language stating
that such an Order would either execute at time of
entry, ‘‘post at its limit price,’’ or would have its
price adjusted prior to posting.
8 A ‘‘Post-Only Order’’ is an Order Type designed
to have its price adjusted as needed to post to the
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One set of changes would provide
Participants with the option of
cancelling a Post-Only Order in
circumstances where currently, the
Exchange would adjust the price of such
an Order. The proposed functionality
will apply when: (1) An incoming PostOnly Order locks or crosses a Protected
Quotation; 9 (2) an adjusted Post-Only
Order locks or crosses a Displayed
Order at its displayed price on the
Exchange Book; or (3) a Post-Only Order
would not lock or cross a Protected
Quotation but would lock or cross a
Displayed Order at its displayed price
on the Exchange Book. This
functionality will be offered as a port
setting and may be applied to all Orders
entered under the same MPID for Orders
entered through RASH and FIX, or, in
the case of Participants using the OUCH
or FLITE order entry protocols, it may
be applied to all Orders entered through
a specific order entry port and under the
same MPID.10
The first of these changes relates to
incoming Post-Only Orders that lock or
cross a Protected Quotation. Currently,
Rule 3301A(b)(4)(A) states that, if a
Post-Only Order would lock or cross a
Protected Quotation, the price of the
Order will first be adjusted. If the Order
is Attributable,11 its adjusted price will
be one minimum price increment lower
than the current Best Offer (for bids) or
higher than the current Best Bid (for
offers). If the Order is not Attributable,
its adjusted price will be equal to the
current Best Offer (for bids) or the
current Best Bid (for offers). However,
the Order will not post or execute until
the Order, as adjusted, is evaluated with
PSX Book in compliance with Rule 610(d) under
Regulation NMS by avoiding the display of
quotations that lock or cross any Protected
Quotation in a System Security during Market
Hours, or to execute against locking or crossing
quotations in circumstances where economically
beneficial to the Participant entering the Post-Only
Order. See Rule 3301A(b)(4)(A).
9 The term ‘‘Protected Quotation’’ has the
meaning assigned to it under Rule 600 of Regulation
National Market System. See Rule 3301(j). Unless
otherwise stated, it refers to a quotation of a market
center other than PSX. Id.
10 RASH and FIX are order entry protocols to
enter orders into RASH, and RASH is a system
separate from the matching system. Because of that,
the granular detail around the specific ports going
into the RASH system is not available to the
matching system, and thus the setting can only be
available at the MPID level for these protocols. By
contrast, OUCH and FLITE are order entry protocols
for the matching system itself, and so that level of
detail is available.
11 As set forth in Rule 3301B(i), an Order with
‘‘Attribution’’ is referred to as an ‘‘Attributable
Order’’ and an Order without attribution is referred
to as a ‘‘Non-Attributable Order.’’ Rule 3301B(i)
defines Attribution as an Order Attribute that
permits a Participant to designate that the price and
size of the Order will be displayed next to the
Participant’s MPID in market data disseminated by
the Exchange.
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respect to Orders on the Exchange Book.
The Exchange proposes to amend the
behavior for both incoming NonAttributable and Attributable Post-Only
Orders that lock or cross a Protected
Quotation on an away market center. In
both cases, the Post-Only Order may be
either adjusted or cancelled back to the
Participant, depending on the
Participant’s choice. However, the PostOnly Order will execute if (i) it is priced
below $1.00 and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds the
sum of fees charged for such execution
and the value of any rebate that would
be provided if the Order posted to the
Exchange Book and subsequently
provided liquidity, or (ii) it is priced at
$1.00 or more and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds
$0.01 per share. As with the current rule
text, the price of the Order will first be
adjusted if the Participant elects to have
the Post-Only Order adjusted (instead of
being cancelled). Similarly, if the Order
is Attributable, its adjusted price will be
one minimum price increment lower
than the current Best Offer (for bids) or
higher than the current Best Bid (for
offers). If the Order is not Attributable,
its adjusted price will be equal to the
current Best Offer (for bids) or the
current Best Bid (for offers). However,
the Order will not post or execute until
the Order, as adjusted, is evaluated with
respect to Orders on the Exchange Book.
In addition to offering the new cancel
functionality where an incoming PostOnly Order locks or crosses a Protected
Quotation on an away market center, the
Exchange proposes to amend Rule
3301A(b)(4)(A) to state when that Order
would execute, as described above. The
Exchange proposes this change because
it believes that the instances pursuant to
which a locking or crossing Post-Only
order will execute in other scenarios
(such as a Post-Only Order that locks or
crosses a Displayed Order at its
displayed price on the Exchange Book)
also apply here, e.g., the execution of
the Post-Only Order would be
economically beneficial to the
Participant that entered the Order while
contributing to the price discovery
process.
The second change relates to the
adjusted price of the Post-Only Order if
that price would lock or cross an Order
on the Exchange Book. Currently, Rule
3301A(b)(4)(A) states that, if the
adjusted price of the Post-Only Order
would lock or cross an Order on the
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Federal Register / Vol. 85, No. 71 / Monday, April 13, 2020 / Notices
Exchange Book, then the Post Only
Order will be repriced, ranked, and
displayed at one minimum price
increment below the current best price
to sell on the Exchange Book (for bids)
or above the current best price to buy on
the Exchange Book (for offers).
However, the Post-Only Order will
execute if: (i) It is priced below $1.00
and the value of price improvement
associated with executing against an
Order on the Exchange Book (as
measured against the original limit price
of the Order) equals or exceeds the sum
of fees charged for such execution and
the value of any rebate that would be
provided if the Order posted to the
Exchange Book and subsequently
provided liquidity, or (ii) it is priced at
$1.00 or more and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds
$0.01 per share.
The Exchange proposes to amend this
provision to apply to a scenario in
which the adjusted price of the PostOnly Order would lock or cross a
Displayed Order at its displayed price
on the Exchange Book. The proposal
would also allow the Post-Only Order to
either be adjusted or be cancelled back
to the Participant in this scenario,
depending on the Participant’s choice.
As with the current language of this
section, however, the Post-Only Order
will execute if: (i) It is priced below
$1.00 and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds the
sum of fees charged for such execution
and the value of any rebate that would
be provided if the Order posted to the
Exchange Book and subsequently
provided liquidity, or (ii) it is priced at
$1.00 or more and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds
$0.01 per share. If the Participant elects
to have the Post-Only Order adjusted,
the Order will continue to be treated as
specified today in the Rule, so that the
Post- Only Order will be repriced,
ranked, and displayed at one minimum
price increment below the current best
displayed price to sell on the Exchange
Book (for bids) or above the current best
displayed price to buy on the Exchange
Book (for offers).
The third change relates to a PostOnly Order that would not lock or cross
a Protected Quotation but would lock or
cross an Order on the Exchange Book.
Currently, Rule 3301A(b)(4)(A) states
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that such an Order will be repriced,
ranked, and displayed at one minimum
price increment below the current bestpriced Order to sell on the Exchange
Book (for bids) or above the current
best-priced Order to buy on the
Exchange Book (for offers). However,
the Post-Only Order will execute if: (i)
It is priced below $1.00 and the value
of price improvement associated with
executing against an Order on the
Exchange Book equals or exceeds the
sum of fees charged for such execution
and the value of any rebate that would
be provided if the Order posted to the
Exchange Book and subsequently
provided liquidity, or (ii) it is priced at
$1.00 or more and the value of price
improvement associated with executing
against an Order on the Exchange Book
equals or exceeds $0.01 per share.
The Exchange proposes to amend this
provision so that it applies where a
Post-Only Order would not lock or cross
a Protected Quotation but would lock or
cross a Displayed Order at its displayed
price on the Exchange Book. The
Exchange proposes that, in this
scenario, the Order may either be
adjusted or be cancelled back to the
Participant, depending on the
Participant’s choice. However, the PostOnly Order will execute if: (i) It is
priced below $1.00 and the value of
price improvement associated with
executing against an Order on the
Exchange Book (as measured against the
original limit price of the Order) equals
or exceeds the sum of fees charged for
such execution and the value of any
rebate that would be provided if the
Order posted to the Exchange Book and
subsequently provided liquidity, or (ii)
it is priced at $1.00 or more and the
value of price improvement associated
with executing against an Order on the
Exchange Book (as measured against the
original limit price of the Order) equals
or exceeds $0.01 per share. If the
Participant elects to have the Post OnlyOrder adjusted, the Post-Only Order
will be repriced, ranked, and displayed
at one minimum price increment below
the current best-priced Displayed Order
to sell on the Exchange Book (for bids)
or above the current best-priced
Displayed Order to buy on the Exchange
Book (for offers).12
12 The
Exchange proposes to make a
corresponding change to Rule 3301A(b)(4)(A). The
Exchange proposes to amend a provision of the
Rule relating to the treatment of Post-Only Orders
during the Pre-Market and Post-Market Hours.
Currently, that provision states that, during PreMarket and Post-Market Hours, a Post-Only Order
will be processed in a manner identical to Market
Hours with respect to locking or crossing Orders on
the Exchange Book, but will not have its price
adjusted with respect to locking or crossing the
quotations of other market centers. The Exchange
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The Exchange believes that the
foregoing proposals will benefit
liquidity providers and the market in
general by, among other things,
providing Participants with greater
flexibility when managing their order
flow, and thereby promoting the more
efficient execution of Orders. In some
circumstances, a market maker may
have its order price adjusted due to
locking or crossing an away market
price (i.e., the displayed NBBO without
the Exchange) or it may have its order
price adjusted due to locking or crossing
a Displayed Order on the Exchange
Book. In many cases, these liquidity
providers do not want to have their
price adjusted and would rather have
their order cancelled so that they can
reevaluate the market conditions at the
time. The Exchange believes that
providing market makers with flexibility
to cancel in this circumstance will
increase efficiency and reduce message
traffic both internal to the Exchange and
for external data feed consumers.
The Exchange also proposes to add a
provision to Rule 3301A(b)(4) that
addresses the treatment of Post-Only
Orders that would not lock or cross a
Protected Quotation but would lock or
cross a Non-Displayed Order on the
Exchange Book. In that circumstance,
the Exchange proposes that the PostOnly Order will be posted, ranked, and
displayed at its limit price. Once again,
however, the Post-Only Order will
execute in this instance if: (i) It is priced
below $1.00 and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds the
sum of fees charged for such execution
and the value of any rebate that would
be provided if the Order posted to the
Exchange Book and subsequently
provided liquidity, or (ii) it is priced at
$1.00 or more and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds
$0.01 per share.
By allowing a Post-Only Order that is
entered with a price equal to a resting
Non-Display Order to be posted at its
proposes to amend this language to provide that a
Post-Only Order that locks or crosses the quotation
of another market center during the Pre-Market and
Post-Market Hours will not be cancelled or have its
price adjusted. The purpose of the proposed
functionality is to allow a Participant to cancel its
Post-Only Order in various circumstances rather
than have that Order adjusted. To the extent that
a Post-Only Order will not have its price adjusted
if it locks or crosses the quotation of another market
center during the Pre-Market or Post-Market Hours,
there is not a need to offer the corresponding cancel
functionality.
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limit price rather than being re-priced,
the Exchange will allow the Post Only
Order to lock the resting Non-Display
Order.13 Both the Displayed Post-Only
Order and the resting Non-Display
Order will remain available for
execution at the locking price. In this
way, neither Order will be
disadvantaged and the Exchange’s bid/
offer spread will be tightened. In this
scenario, efficacy will be maintained or
enhanced for both the Participant
entering the Post-Only Order and the
Participant entering the Non-Displayed
Order.
In addition to the above, the Exchange
proposes to add a provision to Rule
3301A(b)(4) to address the scenario in
which the adjusted price of a Post-Only
Order would lock or cross a NonDisplayed 14 price on the Exchange
Book. The proposal would specify that
in that circumstance, the Post-Only
Order will be posted in the same
manner as a Price to Comply Order.15
However, the Post-Only Order will
13 The Exchange believes that this condition is
consistent with the Regulation NMS prohibition on
locked and crossed markets because the Exchange
will not be displaying a locked market.
14 A ‘‘Non-Displayed Order’’ is an Order Type
that is not displayed to other Participants, but
nevertheless remains available for potential
execution against incoming Orders until executed
in full or cancelled. In addition to the NonDisplayed Order Type, there are other Order Types
that are not displayed on the PSX Book. Thus,
‘‘Non-Display’’ is both a specific Order Type and an
Order Attribute of certain other Order Types. See
Rule 3301A(b)(3)(A).
15 Pursuant to Rule 3301A(b)(1), a ‘‘Price to
Comply Order’’ is an Order Type designed to
comply with Rule 610(d) under Regulation NMS by
avoiding the display of quotations that lock or cross
any Protected Quotation in a System Security
during Market Hours. The Price to Comply Order
is also designed to provide potential price
improvement. When a Price to Comply Order is
entered, the Price to Comply Order will be executed
against previously posted Orders on the Exchange
Book that are priced equal to or better than the price
of the Price to Comply Order, up to the full amount
of such previously posted Orders, unless such
executions would trade through a Protected
Quotation. Any portion of the Order that cannot be
executed in this manner will be posted on the
Exchange Book (and/or routed if it has been
designated as routable). During Market Hours, the
price at which a Price to Comply Order is posted
is determined in the following manner. If the
entered limit price of the Price to Comply Order
would lock or cross a Protected Quotation and the
Price to Comply Order could not execute against an
Order on the Exchange Book at a price equal to or
better than the price of the Protected Quotation, the
Price to Comply Order will be displayed on the PSX
Book at a price one minimum price increment
lower than the current Best Offer (for a Price to
Comply Order to buy) or higher than the current
Best Bid (for a Price to Comply Order to sell) but
will also be ranked on the Exchange Book with a
Non-Displayed price equal to the current Best Offer
(for a Price to Comply Order to buy) or to the
current Best Bid (for a Price to Comply Order to
sell). During Pre-Market Hours and Post-Market
Hours, a Price to Comply Order will be ranked and
displayed at its entered limit price without
adjustment.
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execute in this instance if: (i) It is priced
below $1.00 and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds the
sum of fees charged for such execution
and the value of any rebate that would
be provided if the Order posted to the
Exchange Book and subsequently
provided liquidity, or (ii) it is priced at
$1.00 or more and the value of price
improvement associated with executing
against an Order on the Exchange Book
(as measured against the original limit
price of the Order) equals or exceeds
$0.01 per share. This provision, which
exists on Nasdaq and BX,16 will help to
reduce the information leakage that
would otherwise occur when a PostOnly Order re-prices to avoid locking or
crossing the price of a Non-Displayed
Order resting on the Exchange’s book.
The Exchange notes that the foregoing
proposals add functionalities to the
Post-Only Order that are currently
offered by other exchanges, including
the Exchange’s affiliates, Nasdaq and
BX. Indeed, the proposed changes to
Rule 3301A(b)(4) mirror language that
currently exists in both Nasdaq and BX
Rules 4702(b)(4) and the rationales that
the Exchange puts forth for those
changes mirror those proffered by
Nasdaq and BX.17
Minimum Quantity
As set forth in Rule 3301B(e),
‘‘Minimum Quantity’’ is an Order
Attribute that allows a Participant to
provide that an Order will not execute
unless a specified minimum quantity of
shares can be obtained. Thus, the
functionality serves to allow a
Participant that may wish to buy or sell
a large amount of a security to avoid
signaling its trading interest unless it
can purchase a certain minimum
amount. An Order with a ‘‘Minimum
Quantity’’ Order Attribute may be
referred to as a ‘‘Minimum Quantity
Order.’’
The Exchange proposes to amend
Rule 3301B(e) to provide a Participant
with two choices as to how the
Exchange will process a Minimum
Quantity Order at the time of entry.
First, the Exchange proposes that the
Participant may specify that the
Minimum Quantity condition may be
16 See Nasdaq Rule 4702(b)(4)(A), BX Rule
4702(b)(4)(A).
17 See Securities Exchange Act Release No. 34–
79290 (Nov. 10, 2016), 81 FR 81184 (Nov. 17, 2016)
(SR–NASDAQ–2016–111); Securities Exchange Act
Release No. 34–80630 (May 9, 2017), 82 FR 22364
(May 15, 2017) (SR–NASDAQ–2017–043);
Securities Exchange Act Release No. 79290
(November 10, 2016), 81 FR 81184 (November 17,
2016) (SR–BX–2016–046).
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satisfied by execution against multiple
Orders. In that case, upon entry, the
Exchange’s System would determine
whether there were one or more posted
Orders executable against the incoming
Order with an aggregate size of at least
the minimum quantity. If there were
not, the Order would post on the
Exchange Book in accordance with the
characteristics of its underlying Order
Type.
Second, the Exchange proposes that
Participant may specify that the
Minimum Quantity condition must be
satisfied by execution against one or
more Orders, each of which must have
a size that satisfies the Minimum
Quantity condition. If there are such
Orders but there are also other Orders
that do not satisfy the Minimum
Quantity condition, the Minimum
Quantity Order will execute against
Orders on the PSX Book in accordance
with Rule 3307(a) (pertaining to
execution priority) until it reaches an
Order that does not satisfy the minimum
quantity condition, and then the
remainder of the Order will be
cancelled. For example, if a Participant
entered an Order to buy at $11 with a
size of 1,500 shares and a minimum
quantity condition of 500 shares, and
there were three Orders to sell at $11 on
the PSX Book, two with a size of 500
shares each and one with a size of 200
shares, with the 200 share Order ranked
in time priority between the 500 share
Orders, the 500 share Order with the
first time priority would execute and the
remainder of the Minimum Quantity
Order would be cancelled.
Alternatively, if the Order would lock or
cross Orders on the PSX Book but none
of the resting Orders would satisfy the
minimum quantity condition, an Order
with a minimum quantity condition to
buy (sell) will be repriced to one
minimum price increment lower than
(higher than) the lowest price (highest
price) of such Orders. For example, if
there was an Order to buy at $11 with
a minimum quantity condition of 500
shares, and there were resting Orders on
the PSX Book to sell 200 shares at
$10.99 and 300 shares at $11, the Order
would be repriced to $10.98 and ranked
at that price.
Again, the foregoing proposed
changes to Rule 3301B(e) mirror
language that exists for the same Order
Attribute in the Nasdaq and BX
rulebooks.18
18 See Securities Exchange Act Release No. 34–
75252 (June 22, 2015), 80 FR 36865 (June 26, 2015)
(SR–NASDAQ–2015–024); Securities Exchange Act
Release No. 34–84012 (August 31, 2018), 83 FR
45476 (September 7, 2018) (SR–BX–2018–040).
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Trade Now
The Exchange proposes to amend
Rules 3301A and 3301B to add a ‘‘Trade
Now’’ instruction to certain order types.
The Exchange will offer this
functionality—which is presently
available on Nasdaq and BX 19—through
its OUCH, RASH, FLITE, and FIX
protocols. This instruction will provide
resting Orders with a greater ability to
receive an execution when that resting
Order is locked by a Displayed Order.
The Trade Now instruction will allow
participants to enter an instruction to
have a locked or crossed resting buy
(sell) Order execute against the locking
or crossing sell (buy) order as a liquidity
taker. Depending on the protocol used
by the participant to access the
Exchange’s system, the participant may
either specify that the Order execute
against locking interest automatically, or
the participant may be required to send
a Trade Now instruction to the
Exchange once the Order has become
locked. The Exchange is offering the
Trade Now instruction for all Orders
that may be sent to and may be locked
or crossed by a Displayed Order on the
continuous Exchange book, and will not
offer the instruction for Orders that do
not execute and will not be locked by
a Displayed Order on the continuous
book.20
When a Trade Now instruction is
applied to a resting buy (sell) Order, the
Order will execute against the available
size of the locking or crossing sell (buy)
Order as the liquidity taker. The
following example illustrates this
scenario:
• Participant A enters a Non-Display
buy order for 200 shares at $10, and
specifies the Trade Now instruction;
• Participant B enters a Post Only sell
Order for 100 shares at $10;
• The Post Only Order is posted at
$10 and locks the Non-Display Order;
• The buy Order will execute for 100
shares at $10 as the remover of liquidity.
If a buy (sell) Order with the Trade
Now instruction is only partially
executed, the unexecuted portion of that
19 See Nasdaq Rules 4702(b) and 4703(m) and BX
Rules 4702(b) and 4703(l).
20 The Exchange proposes to amend Rule
3301A(b) to specify that Trade Now functionality is
available for Price to Comply Orders, NonDisplayed Orders, Post-Only Orders, and Midpoint
Peg Post-Only Orders. The Exchange notes that it
does not intend to make Trade Now Available for
Price to Display Orders or Market Maker Peg
Orders, as it is presently on Nasdaq and BX,
because Trade Now functionality is intended to
apply to non-displayed Orders only, and would not
be invoked for Price to Display and Market Maker
Peg Orders, which are displayed order types.
Nasdaq and BX plan to separately propose to amend
their respective rules to remove Trade Now
functionality from their Price to Display and Market
Maker Peg order types.
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Order remains on the Exchange book
and maintains its priority.
Depending on the interface being used
by the participant, the Trade Now
attribute may either allow the order to
execute against locking or crossing
interest automatically (‘‘Reactive Trade
Now’’), or the participant may be
required to send a Trade Now
instruction to the Exchange once the
Order has become locked (‘‘NonReactive Trade Now’’). All Orders that
are entered through the RASH and FIX
protocols with a Trade Now Order
Attribute will be Reactive Trade Now,
and those Orders shall execute against
locking interest automatically.
The Reactive Trade Now instruction
will be available on an Order-by-Order
basis, and will also be available as an
optional port level setting. If the
Reactive Trade Now setting is enabled
on a specific port, all Orders entered via
the specific port will, by default, be
designated with the Reactive Trade Now
instruction. If the Reactive Trade Now
setting is enabled on a specific port,
participants will have the ability to
designate on an Order-by-Order basis
that a particular Order entered via the
specific port will not be designated with
the Reactive Trade Now instruction,
thereby overriding the port level setting
for the Order. If the Reactive Trade Now
instruction is specified for an Order for
which the Trade Now instruction does
not apply, the system will not invoke
the Trade Now instruction for that
Order.
In contrast, Orders entered through
the OUCH and FLITE protocols will use
the Non-Reactive Trade Now
functionality, and participants must
send the Trade Now instruction after the
order becomes locked. If a participant
enters a Non-Reactive Trade Now
instruction when there is no locking or
crossing interest, the instruction will be
ignored by the System and the order
will remain on the Exchange Book with
the same priority.
The Non-Reactive Trade Now
instruction will be available to
participants on an Order-by-Order basis.
If the Non-Reactive Trade Now
instruction is entered for an Order for
which the Trade Now instruction does
not apply, the System will not invoke
the Trade Now instruction for that
Order.
The Exchange is offering two different
variations of the Trade Now instruction
to reflect the differences in behavior
among participants who use the
different Exchange protocols. For
example, the Exchange typically
assumes a more active role in managing
the order flow submitted by users of the
RASH and FIX protocols. Allowing
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20537
these participants to use the Reactive
Trade Now instruction at the time of
Order entry will allow for the automatic
execution of Orders, and reflects the
order flow management practices of
these participants. In contrast, users of
the OUCH and FLITE protocols
generally assume a more active role in
managing their Order flow. Offering the
Non-Reactive Trade Now instruction for
these protocols, and its requirement that
the instruction must be sent after the
Order becomes locked or crossed,
reflects the order flow management
practices of these participants.
Midpoint Peg Post-Only Orders and
Orders With Midpoint Pegging
The Exchange proposes to amend
Rule 3301A and Rule 3301B to
discontinue executing Orders with
Midpoint Pegging when the NBBO is
crossed, as well as to specify the
behavior of Midpoint Peg Post-Only
Orders and Orders with Midpoint
Pegging when the market is crossed or
when there is no best bid and/or offer.
The Exchange also proposes to change
certain references to cancelling or
rejecting orders in Rule 3301A and Rule
3301B.
Today, the Exchange executes Orders
with Midpoint Pegging when the NBBO
is locked by executing at the locking
price and when the NBBO is crossed by
executing at the midpoint of the crossed
price.21 Based on feedback from
members and the practice of other
exchanges,22 the Exchange has
determined that its current practice of
executing Orders with Midpoint Pegging
during such crossed markets produces
sub-optimal execution prices for
members and investors. The midpoint of
a crossed market is not a clear and
accurate indication of a valid price, nor
is it indicative of a fair and orderly
market. The better practice is to simply
not execute Midpoint Orders during
crossed markets. To accomplish this, the
Exchange proposes to add language to
Rule 3301A(b)(6)(B) for Midpoint Peg
Post-Only Orders entered through RASH
or FIX, whereby, if the Order is on the
System Book and subsequently the
NBBO is crossed, or if there is
subsequently no NBBO, the Order will
be removed from the System Book and
will be reentered at the new Midpoint
once there is a valid NBBO that is not
21 See
Rule 3301B(d).
e.g., Cboe BZX Rule 11.9(c)(9) (no
midpoint execution during crossed market); NYSE
Arca Rule 7.31–E(d)(3) (no midpoint execution
when the market is locked or crossed); Nasdaq Rule
4703(d).
22 See,
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crossed.23 At present, Midpoint Peg
Post-Only Orders entered through RASH
or FIX are repriced to the Midpoint of
the NBBO if the NBBO subsequently
becomes crossed or are cancelled if
there is subsequently no NBBO. The
Exchange is proposing to re-enter such
Orders at the new Midpoint once there
is a NBBO that is not crossed because
the new NBBO is indicative of a valid
price.
Similarly, the Exchange proposes to
add language to Rule 3301B(d) 24 for
Orders entered through RASH or FIX
with Midpoint Pegging, whereby, if the
Order is on the System Book and the
Inside Bid and Inside Offer are
subsequently crossed, or if there is
subsequently no Inside Bid and/or
Inside Offer, the Order will be removed
from the System Book and will be
reentered at the new Midpoint once
there is a valid Inside Bid and Inside
Offer that is not crossed. At present,
Midpoint Pegged Orders entered
through RASH or FIX are repriced to the
Midpoint of the Inside Bid and Inside
Offer if the Inside Bid and Inside Offer
subsequently becomes crossed or are
cancelled if there is subsequently no
Inside Bid and/or Inside Offer. As with
the change to Midpoint Peg Post-Only
Orders, the Exchange is proposing to reenter such Orders at the new Midpoint
once there is an Inside Bid and Inside
Offer that is not crossed because the
new Midpoint of the Inside Bid and
Inside Offer is indicative of a valid
price.
The Exchange is proposing to re-enter
Orders submitted through RASH or FIX
because the Exchange typically assumes
a more active role in managing the order
flow submitted by users of these
protocols, and this functionality reflects
the order flow management practices of
these participants.
While the Exchange is only proposing
to adopt this re-entry functionality for
Orders that are entered through RASH
or FIX, the Exchange believes that it is
appropriate to also modify the treatment
23 The Exchange proposes to amend Rule
3301A(b)(6)(A) to specify that it will not accept new
Midpoint Peg Post-Only Orders while the NBBO is
crossed or there is no NBBO.
24 Also in Rule 3301B(d), the Exchange proposes
to clarify that, even if the Inside Bid and Inside
Offer are locked, an Order with Midpoint Pegging
that locked an Order on the PSX Book would
execute ‘‘(provided, however, that a Midpoint Peg
Post-Only Order would execute or post as described
in Rule 3301A(b)(6)(A)).’’ This clarification avoids
confusion as to circumstances in which an Order
with Midpoint Pegging would execute. The
proposal also would conform the Exchange’s Rule
with the corresponding Nasdaq Rule 4703(d).
The Exchange furthermore proposes to amend
Rule 3301B(d) to specify that it will not accept new
Midpoint Peg Post-Only Orders while the NBBO is
crossed or there is no NBBO.
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of Midpoint Peg Post-Only Orders and
Orders with Midpoint Pegging entered
through OUCH or FLITE where the
NBBO subsequently becomes crossed, or
there is subsequently no NBBO or Inside
Bid and/or Offer.
Accordingly, the Exchange proposes
to amend Rule 3301A(b)(6)(B) to state
that if, after a Midpoint Peg Post-Only
Order entered through OUCH or FLITE
is posted to the System Book, the
Midpoint Peg Post-Only Order will be
cancelled back to the Participant if any
of the following conditions are met:
• There is no National Best Bid and/
or National Best Offer;
• The Order to buy (sell) is entered
with a limit price above (below) the
Midpoint of the NBBO and is ranked at
the Midpoint of the NBBO; thereafter,
the NBBO changes so that the Midpoint
changes and the Order is no longer at
the NBBO Midpoint;
• The Order to buy (sell) is entered at
a limit price that is equal to or less than
(greater than) the Midpoint of the NBBO
and is ranked at its limit price and
thereafter, the NBBO changes so that the
Midpoint of the NBBO is lower (higher)
than the limit price of the Order;
• The Order to buy (sell) is entered at
a limit price that is equal to or less than
(greater than) the Midpoint of the NBBO
and is ranked at its limit price,
thereafter the NBBO becomes crossed,
such that the Midpoint of the crossed
NBBO remains equal to or higher
(lower) than the limit price of the Order,
and then a new sell (buy) Order is
received at a price that locks or crosses
the limit price of the resting Midpoint
Peg Post-Only Order; or
• The Order to buy (sell) is entered at
a limit price that is greater than (less
than) the Midpoint of the NBBO and is
therefore ranked at the Midpoint of the
NBBO, thereafter the NBBO becomes
crossed but the Midpoint does not
change, and then a new sell (buy) Order
is received at a price that locks or
crosses the Midpoint of the NBBO.
The Exchange believes that the
proposed language captures the new
System behavior and further clarifies
the current behavior as described in
Rule 3301A(b)(6)(B) by the language:
If, after being posted to the System book,
the NBBO changes so that midpoint between
the NBBO is lower than (higher than) the
price of a Midpoint Peg Post-Only Order to
buy (sell), the Midpoint Peg Post-Only Order
will be cancelled back to the Participant.
The proposed language is more precise
than the existing language because it
draws specific attention to a Midpoint
Peg Post-Only Order that posts to the
System Book at its limit price verses a
Midpoint Peg Post-Only Order with a
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Sfmt 4703
limit price that is adjusted to post to the
System Book at the Midpoint of the
NBBO. Where the NBBO shifts after an
Order to buy (sell) posts at its limit such
that the Midpoint of the NBBO remains
or becomes higher (lower) than the limit
price of that Order, cancellation of the
Order is unnecessary because the Order
can simply remain on the Exchange
Book at its limit price, while an Order
that has posted at a price lower (higher)
than its limit price will be cancelled
following any change to the Midpoint of
the NBBO.
Likewise, the new proposed language
specifies the context under which a
Midpoint Peg Post-Only Order will be
cancelled when the NBBO subsequently
becomes crossed. Specifically, when a
Midpoint Peg Post-Only Order to buy
(sell) posts at its limit price, then the
NBBO subsequently becomes crossed
but the Midpoint of the crossed NBBO
remains equal to or higher (lower) than
the limit price of the Order to buy (sell),
the Order will only be cancelled if a
new sell (buy) Order is received at a
price that locks or crosses the limit price
of the resting Order. Furthermore, the
proposed language specifies that when
the limit price of a Midpoint Peg PostOnly Order to buy (sell) is greater than
(less than) the Midpoint of the NBBO
and therefore posts at the Midpoint of
the NBBO, then the NBBO subsequently
becomes crossed but the Midpoint of the
crossed NBBO does not change, the
Exchange will only cancel the Order if
the Exchange receives a new sell (buy)
Order at a price that locks or crosses the
Midpoint of the NBBO. Other than in
these two circumstances, cancellation of
an Order simply because the NBBO
crosses is unnecessary. When an Order
to buy (sell) is ranked at its limit price,
and the NBBO becomes crossed while
the Midpoint remains above (below) the
limit price, the crossed market does not
impact the Order, which can still rest on
the Exchange Book at its limit price
because the NBBO could uncross prior
to the Order executing. Likewise, when
an Order to buy (sell) is ranked at the
Midpoint of the NBBO, then the NBBO
becomes crossed but the Midpoint does
not change, the crossed market also does
not impact the Order, which can
continue to rest on the Exchange Book
at the Midpoint because the NBBO
could uncross (with the Midpoint still
remaining unchanged) prior to the
Order executing.
Similarly, the Exchange proposes to
amend Rule 3301B(d) to state that, after
an Order with Midpoint Pegging entered
through OUCH or FLITE is posted to the
System Book, the Order with Midpoint
Pegging will be cancelled back to the
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participant if any of the following
conditions are met:
• There is no Inside Bid and/or Inside
Offer;
• The Order to buy (sell) is entered
with a limit price above (below) the
Midpoint and is ranked at the Midpoint;
thereafter the Inside Bid and/or Inside
Offer change so that the Midpoint
changes and the Order is no longer at
the Midpoint;
• The Order to buy (sell) is entered at
a limit price that is equal to or less than
(greater than) the Midpoint and is
ranked at its limit price; thereafter, the
Inside Bid and/or Inside Offer change so
that the Midpoint is lower (higher) than
the limit price of the Order;
• The Order to buy (sell) is entered at
a limit price that is equal to or less than
(greater than) the Midpoint and is
ranked at its limit price, then the Inside
Bid and Inside Offer become crossed,
such that the Midpoint of the crossed
Quotation remains equal to or higher
(lower) than the limit price of the Order,
and then a new sell (buy) Order is
received at a price that locks or crosses
the limit price of the resting Order
marked for Midpoint Pegging;
• The Order to buy (sell) is entered at
a limit price that is greater than (less
than) the Midpoint and is therefore
ranked at the Midpoint, then the Inside
Bid and Inside Offer become crossed but
the Midpoint does not change, and then
a new sell (buy) Order is received at a
price that locks or crosses the Midpoint
of the Inside Bid and Inside Offer.
Again, the Exchange believes that the
proposed language captures the new
System behavior and further clarifies
the current behavior as described in
Rule 3301B(d) by the language:
Thereafter, if the NBBO changes so that the
Midpoint is lower than (higher than) the
price of an Order to buy (sell), the Pegged
Order will be cancelled back to the
Participant.25
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The Exchange intends for the proposed
amendment to ensure consistency in the
rationale and language between Rule
3301B(d) and the amended Rule
3301A(b)(6)(B) described above.26
The Exchange also proposes to delete
the following language from Rule
3301A(b)(3)(B), which describes the
Non-Display Order Type:
If a Non-Displayed Order entered through
OUCH or FLITE is assigned a Midpoint
Pegging Order Attribute, and if, after being
25 To enhance the consistency of the Rule, the
Exchange proposes to change references from the
term ‘‘NBBO’’ to ‘‘Inside Bid and Inside Offer.’’
26 Additionally, to avoid confusion, the Exchange
proposes to amend Rule 3301A(b)(6)(A) to clarify
that a Midpoint Peg Post-Only Order in the Rule’s
example is an Order to buy.
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posted to the PSX Book, the NBBO changes
so that the Non-Displayed Order is no longer
at the Midpoint between the NBBO, the NonDisplayed Order will be cancelled back to the
Participant. In addition, if a Non-Displayed
Order entered through OUCH or FLITE is
assigned a Midpoint Pegging Attribute and
also has a limit price that is lower than the
midpoint between the NBBO for an Order to
buy (higher than the midpoint between the
NBBO for an Order to sell), the Order will
nevertheless be accepted at its limit price and
will be cancelled if the midpoint between the
NBBO moves lower than (higher than) the
price of an Order to buy (sell).
This language describes the behavior
of a Non-Displayed Order with a
Midpoint Pegging Attribute enabled,
which is duplicative of the general
description of the behavior of a
Midpoint Pegging Attribute in Rule
3301B(d). The Exchange believes that
the concept described in these two
Rules is best stated only once to avoid
unintended discrepancies. In this
instance, the Exchange believes that the
language is most appropriate for
inclusion in Rule 3301B(d).
Examples
Below are examples of the operation
of the proposed amendments to Rules
3301B(d) and 3301A(b)(6)(B) with
respect to the cancellation of Midpoint
Peg Post-Only Orders and Orders with
Midpoint Pegging entered through
OUCH or FLITE.
1. There is no National Best Bid and/
or National Best Offer.
The National Best Bid (‘‘NBB’’) is
$11.00 and the National Best Offer
(‘‘NBO’’) is $11.06. A Midpoint Peg
Post-Only Order to buy is posted at the
Midpoint between the NBBO, at $11.03.
At this point, all displayed liquidity on
the sell side is reported to be removed
by all Market Centers, such that an NBO
no longer exists. In this circumstance,
the Midpoint Peg Post-Only Order will
be cancelled back to the Participant.
1. The Order to buy (sell) is entered
with a limit price above (below) the
Midpoint of the NBBO and is ranked at
the Midpoint of the NBBO; thereafter,
the NBBO changes so that the Order is
no longer at the NBBO Midpoint.
The NBB is $11.00 and the NBO is
$11.06. A Midpoint Peg Post-Only Order
to buy is entered with a limit price of
$11.04 and it posts at the Midpoint
between the NBBO, at $11.03. If the
NBO later shifts to $11.08, such that the
Midpoint between the NBBO becomes
$11.04, then the Midpoint Peg PostOnly Order will be cancelled back to the
Participant.
2. The Order to buy (sell) is entered
at a limit price that is equal to or less
than (greater than) the Midpoint of the
NBBO and is ranked at its limit price;
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20539
thereafter, the NBBO changes so that the
Midpoint of the NBBO is lower (higher)
than the limit price of the Order.
The NBB is $11.00 and the NBO is
$11.06. A Midpoint Peg Post-Only Order
to buy is entered with a limit price of
$11.03 and it posts at the Midpoint
between the NBBO, at $11.03. If the
NBO shifts thereafter to $11.08, such
that the Midpoint between the NBBO
becomes $11.04, then the Midpoint Peg
Post-Only Order will remain on the
Exchange Book unchanged. If, however,
the NBO later shifts to $11.04, such that
the Midpoint between the NBBO
becomes $11.02, then the Midpoint Peg
Post-Only Order will be cancelled back
to the Participant.
3. The Order to buy (sell) is ranked at
its limit price and the NBBO becomes
crossed, such that the Midpoint of the
crossed NBBO remains equal to or
higher (lower) than the limit price of the
Order, and a new sell (buy) Order is
received at a price that locks or crosses
the limit price of the resting Midpoint
Peg Post-Only Order.
The NBB is $11.00 and the NBO is
$11.06. A Midpoint Peg Post-Only Order
to buy is entered with a limit price of
$11.03 and it posts at the Midpoint
between the NBBO, at $11.03.
Subsequently, if the NBB shifts to
$11.04, such that the Midpoint between
the NBBO becomes $11.05, then the
Midpoint Peg Post-Only Order will
remain on the Exchange Book at its limit
price of $11.03. If the NBO later shifts
to cross the market at $11.02, then the
Midpoint between the crossed NBBO
will become $11.03 and the Midpoint
Peg Post Only Order will remain on the
Exchange Book unchanged. If, however,
a new sell Order is received at $11.03
while the market is still crossed, then
the Midpoint Peg Post Only Order will
be cancelled back to the participant
without execution.
4. The Order to buy (sell) is ranked at
the Midpoint of the NBBO because the
limit price of the Order is greater (less
than) the Midpoint and the NBBO
becomes crossed but the Midpoint does
not change, then a new sell (buy) Order
is received at a price that locks or
crosses the Midpoint of the NBBO.
The NBB is $11.00 and the NBO is
$11.06. A Midpoint Peg Post-Only Order
to buy is entered with a limit price of
$11.04 and it posts at the Midpoint
between the NBBO, at $11.03.
Subsequently, if the NBB shifts to
$11.04 and the NBO simultaneously
shifts to $11.02, thus instantaneously
crossing the market, then the Midpoint
between the crossed NBBO will remain
at $11.03 and the Midpoint Peg Post
Only Order will remain on the Exchange
Book unchanged. If, however, a new sell
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Order is received at $11.03 while the
market is still crossed, then the
Midpoint Peg Post Only Order will be
cancelled back to the Participant
without execution.
Finally, the Exchange is proposing to
change certain instances in Rule 3301A
and Rule 3301B that describe the
cancellation or rejection of an Order.
For example, Rule 3301A(b)(6)(A)
currently states that, if the NBBO is
locked when a Midpoint Peg Post-Only
Order is entered, the Midpoint Peg PostOnly Order will be priced at the locking
price, if the NBBO is crossed, it will
nevertheless be priced at the midpoint
between the NBBO, and if there is no
NBBO, the Order will be rejected. Rule
3301A(b)(6)(A) also provides that a
Midpoint Peg Post-Only Order that
would be assigned a price of $1 or less
per share will be rejected or cancelled,
as applicable. Similarly, Rule 3301B(d)
states that, in the case of an Order with
Midpoint Pegging, if the Inside Bid and
Inside Offer are locked, the Order will
be priced at the locking price, if the
Inside Bid and Inside Offer are crossed,
the Order will nevertheless be priced at
the midpoint between the Inside Bid
and Inside Offer, and if there is no
Inside Bid and/or Inside Offer, the
Order will be rejected.
The Exchange proposes to change
references to cancelling or rejecting an
Order to ‘‘not accepting’’ an Order.
Depending on the context, the reference
to rejecting an Order may have one of
two meanings.27 The Exchange believes
that changing references from rejecting
or cancelling an Order to not accepting
an Order is appropriate because the
proposed language resolves the
ambiguity that may arise when referring
to an Order rejection, and is sufficiently
broad to encompass the contexts in
which the concept of Order rejection or
cancellation may be used.
The foregoing proposed changes to
Rule 3301A and 3301B mirror language
that exists for the same Order Types and
Order Attribute in the Nasdaq
rulebook.28
*
*
*
*
*
27 Specifically, an Order may be referred to as
‘‘rejected’’ if it is not initially accepted by the
customer-facing Exchange interface. Alternatively,
after an Order has been initially accepted by the
customer-facing interface and is being transmitted
from one Exchange interface to another, it may be
‘‘rejected’’ if the Order is not accepted by another
part of the Exchange System for various reasons.
28 See Securities Exchange Act Release No. 34–
78908 (Sep 22, 2016), 81 FR 66702 (Sept 28, 2016)
(SR–NASDAQ–2016–111); Securities Exchange Act
Release No. 34–80593 (May 4, 2017), 82 FR 21860
(May 10, 2017) (SR–NASDAQ–2017–042);
Securities Exchange Act Release No. 34–86774 (Aug
27, 2019), 84 FR 46075 (Sept 3, 2019) (SR–
NASDAQ–2019–065).
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The Exchange intends to implement
its proposed rule change on or before
the end of the Second Quarter of 2020.
The Exchange will announce the new
implementation date by an Equity
Trader Alert, which shall be issued
prior to the implementation date.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,29 in general, and furthers the
objectives of Section 6(b)(5) of the Act,30
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.
Post-Only Orders
The Exchange is proposing to add a
new functionality (cancelling a PostOnly Order instead of adjusting its
price) that is not currently available on
the Exchange, and that is consistent
with functionalities that are currently
offered by other exchanges. The
Exchange believes that this new
functionality is consistent with the Act
because, as discussed above, it will
provide Participants with greater
flexibility when managing their order
flow, which will promote the more
efficient execution of Orders. The
proposal is also consistent with the
stated intent of the Post-Only Order,
which is to avoid the display of
quotations that would lock or cross a
Protected Quotation. The Exchange
believes that amending Rule
3301A(b)(4) to specify when an
incoming Post-Only Order that locks or
crosses a Protected Quotation on an
away market center would execute is
consistent with the Act because, as with
other the instances pursuant to which a
locking or crossing Post-Only Order will
execute, the execution of the Post-Only
Order would be economically beneficial
to the Participant that entered the Order
while contributing to the price
discovery process.
Additionally, the proposal to allow
Post-Only Orders to lock Non-Display
Orders under certain circumstances will
benefit investors and Participants by
tightening bid/offer spreads, thereby
enhancing execution quality on the
Exchange. Second, Participants entering
Post-Only Orders will be able to execute
liquidity providing strategies more
efficiently as the Order will, in most
cases, only be subjected to price-sliding
due to to a Protected Quotation on an
29 15
30 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00074
Fmt 4703
Sfmt 4703
away market center or Displayed Orders
on the Exchange Book, and not due to
Non-Displayed Orders, and not due to
Non-Displayed Orders. Third, the
proposed changes—including the
provision stating that the adjusted price
of Post-Only Orders that would lock or
cross a Non-Displayed price will post in
the same manner as a Price to Comply
Order—will improve the interaction of
Post-Only and Non-Display Orders as
both Orders will be eligible for
execution and the information leakage
created due to the current interaction
will be reduced. The Exchange believes
the proposed changes will have no
detrimental impact on any Participant
or class of Participants, or on users of
the Post-Only or Non-Display Order
types or on users of other order types
offered by the Exchange.
Minimum Quantity
The proposal will provide
Participants, including institutional
firms that ultimately represent
individual retail investors in many
cases, with better control over their
Orders, thereby providing them with
greater potential to improve the quality
of their Order executions. Currently,
Rule 3301B(e) allows a Participant to
designate a minimum quantity on an
Order that, upon entry, may aggregate
multiple executions to meet the
minimum quantity requirement. Once
posted to the Exchange book, however,
the minimum quantity requirement is
equivalent to a minimum execution size
requirement. The Exchange now
proposes to provide a Participant with
control over the execution of their Order
with Minimum Quantity by giving them
an option to designate the minimum
individual execution size upon entry.
The control offered by the proposed
change is consistent with the various
types of control currently provided by
exchange order types. For example, the
Exchange, Nasdaq, BX and other
exchanges offer limit orders, which
allow a Participant to control the price
it will pay or receive for a stock.
Similarly, exchanges offer order types
that allow market participants to
structure their trading activity in a
manner that is more likely avoid certain
transaction cost-related economic
outcomes. Moreover, as noted above,
other trading venues provide the very
same functionality that the Exchange is
proposing.
Additionally, the Exchange notes that
this functionality is one that
Participants—and in particular large
institutional firms—have requested to
avoid transacting with smaller Orders
that they believe ultimately increase the
cost of their transaction. The Exchange
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Federal Register / Vol. 85, No. 71 / Monday, April 13, 2020 / Notices
notes that proposed new optional
functionality may improve the Exchange
market by attracting more Order flow,
which is currently trading on less
transparent venues that contribute less
to price discovery and price competition
than executions and quotes that occur
on lit exchanges. Such new Order flow
will further enhance the depth and
liquidity on the Exchange, which
supports just and equitable principles of
trade. Furthermore, the proposed
modification to the Minimum Quantity
Order Attribute is consistent with
providing market participants greater
control over the nature of their
executions so that they may achieve
their trading goals and improve the
quality of their executions.
khammond on DSKJM1Z7X2PROD with NOTICES
Trade Now
The Exchange’s proposal to offer
Trade Now functionality is consistent
with the Act because Trade Now is an
additional functionality that will
facilitate the execution of locked or
crossed Orders, thereby increasing the
efficient functioning of the Exchange’s
market. The Trade Now functionality is
an optional feature, and is designed to
reflect both the objectives of the
Exchange’s market, and the order flow
management practices of various market
participants. For these reasons, the
Trade Now functionality will only be
made available for Orders that are
entered in and may be locked or crossed
by a Displayed Order on the continuous
book, and, depending on the protocol,
will be offered as either the Reactive
Trade Now or Non-Reactive Trade Now
functionality.
Midpoint Peg Post-Only Orders and
Orders With Midpoint Pegging
The Exchange believes that the
midpoint of a crossed market, or where
there is no NBBO (or Inside Bid and/or
Inside Offer), is not a clear and accurate
indication of a valid price and may
produce sub-optimal execution prices
for members and investors. As such,
preventing the execution of MidpointPegged Orders when the NBBO is
crossed or where there is no NBBO (or
Inside Bid and/or Inside Offer) will
result in higher overall execution
quality for members. The proposal
adopts new functionality for Midpoint
Peg Post-Only Orders and Orders with
Midpoint Pegging, after initial entry and
posting to the System Book and where
the NBBO (or Inside Bid and Inside
Offer) subsequently becomes crossed or
where there is subsequently no NBBO
(or Inside Bid and/or Inside Offer).
Furthermore, the amendments reflect
the order flow management practices of
participants who have selected from the
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17:57 Apr 10, 2020
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available order submission protocols,
e.g., cancelling and re-submitting such
Orders that are entered through RASH
or FIX; cancelling Orders that are
submitted through OUCH or FLITE in
the case of no NBBO (or Inside Bid and/
or Inside Offer); or canceling Orders that
are submitted through OUCH or FLITE
when the NBBO (or Inside Bid and
Inside Offer) becomes crossed and a
new Order is received that locks or
crosses the price at which the Midpoint
Pegged Order is resting.
Furthermore, the proposal protects
investors by clearly describing the
circumstances in which the Exchange
will not cancel Midpoint-Pegged Orders
entered using OUCH or FLITE. That is,
the Exchange believes that the concept
of a limit price fairly implies that the
Exchange has no need to cancel a
Midpoint-Pegged Order to buy (sell)
when such an Order is posted at its
limit price and the NBBO (or Inside Bid
and Inside Offer) shifts thereafter but
the Midpoint remains above (below) the
limit price. The proposal explains that
the Exchange will cancel a MidpointPegged Order posted at its limit price if
the NBBO (or Inside Bid and Inside
Offer) shifts after entry such that the
Midpoint becomes lower (higher) than
the limit price. In this circumstance,
cancellation is warranted because the
Order would need to be re-priced, and
a Midpoint-Pegged Order entered using
OUCH or FLITE cannot be re-priced.
Similarly, the Exchange believes it is
helpful to investors to clarify the
circumstances in which the Exchange
does and does not cancel MidpointPegged Orders, entered using OUCH or
FLITE, when the market becomes
crossed. Although cancellation is
warranted to prevent Orders from
actually executing in a crossed market,
the Exchange does not believe
cancellation is warranted simply
because the markets cross so long as a
possibility remains for the markets to
become uncrossed again prior to an
execution occurring. Thus, the
Exchange proposes that it will not
cancel a Midpoint-Pegged Order to buy
(sell) when the Order is ranked at its
limit price and the NBBO (or Inside Bid
and Inside Offer) becomes crossed
thereafter while the Midpoint remains
equal to or more aggressive than its limit
price, so long as a new sell (buy) Order
is not received that locks or crosses the
limit price of the resting MidpointPegged Order. Likewise, as was also
discussed above, the Exchange proposes
that it will not cancel a MidpointPegged Order that is ranked at the
Midpoint of the NBBO (or Inside Bid
and Inside Offer) when the market
becomes crossed, provided that while
PO 00000
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Fmt 4703
Sfmt 4703
20541
the market is crossed, the Midpoint of
the crossed NBBO (or Inside Bid and
Inside Offer) does not change 31 and the
Exchange does not receive a new Order
that would lock or cross the Midpoint.
Cancellation is unnecessary in these
scenarios because the Midpoint-Pegged
Order can continue to rest at its limit
price or the Midpoint, respectively,
while the market is crossed and because
the market may become uncross again
without triggering a cancelation
condition.
The Exchange believes that the
proposed clarifying changes and revised
rule text under Rule 3301A(b)(6)(A) are
consistent with the Act because they
will help avoid investor confusion that
may be caused by not clarifying that a
Midpoint Peg Post-Only Order in the
Rule’s example is an Order to buy.
Finally, the proposal to remove
duplicative language from Rule
3301A(b)(3)(B), pertaining to NonDisplayed Orders with Midpoint
Pegging, is consistent with the Act
because the affected language is also
stated in Rule 3301B(d) and it will
reduce the possibility of future
inconsistencies. Also, replacing certain
references to rejecting or cancelling an
Order to ‘‘not accepting’’ an Order is
consistent with the Act because the
proposed language encompasses the
contexts in which the concept of order
rejection or cancellation may be used
and resolves any ambiguity that may
arise when referring to an Order
rejection.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Post-Only
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 PostOnly Order is an optional Order Type
that is available for entry through
multiple Exchange Order entry
protocols. No Participant is required to
use any specific Order Type or Attribute
or even to use any Exchange Order Type
or Attribute or any Exchange
functionality at all. If an Exchange
31 If at any point after the Midpoint-Pegged Order
posts to the Exchange Book at the Midpoint, the
NBBO (Inside Bid and Inside Offer) changes so that
the price of the Order is no longer at the Midpoint,
then the order must be cancelled because orders
entered through OUCH or FLITE cannot be repriced.
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Federal Register / Vol. 85, No. 71 / Monday, April 13, 2020 / Notices
Participant believes for any reason that
the proposed rule change will be
detrimental, that perceived detriment
can be avoided by choosing not to enter
or interact with the Order Types
modified by this proposed rule change.
The proposed changes are procompetitive, moreover, because they
will provide Participants with a
functionality that is not currently
available on the Exchange, and that is
consistent with functionalities that are
currently offered by other exchanges.
The proposed changes will apply
equally to all Orders that meet the
proposed criteria. This functionality
will facilitate the more efficient
execution of order flow, which could
increase the Exchange’s market quality
and thereby promote competition by
attracting additional liquidity to the
Exchange.
Minimum Quantity
The proposed change to the Minimum
Quantity Order Attribute will allow
Participants to condition the processing
of their Orders based on a minimum
execution size. The changes to the
Minimum Quantity Order Attribute will
enhance the functionality offered by the
Exchange to Participants, thereby
promoting its competitiveness with
other exchanges and non-exchange
trading venues that already offer the
same or similar functionality. As a
consequence, the proposed change will
promote competition among exchanges
and their peers, which, in turn, will
decrease the burden on competition
rather than place an unnecessary burden
thereon.
khammond on DSKJM1Z7X2PROD with NOTICES
Trade Now
The Exchange does not believe that its
proposal to adopt Trade Now
functionality will impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. This is an optional
functionality, and which may be used
equally by similarly-situated
participants. Although the functionality
of the Trade Now instruction will differ
depending upon the protocol that is
used to access the Exchange, the
Exchange believes that the difference in
functionality reflects the different ways
in which participants enter and manage
their order flow.
Midpoint Peg Post-Only Orders and
Orders With Midpoint Pegging
For similar reasons, the Exchange
does not believe that its proposals to
amend its rules regarding Midpoint Peg
Post-Only Orders and Orders with
Midpoint Pegging will impose an undue
burden on competition. To the contrary,
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17:57 Apr 10, 2020
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by clarifying the circumstances in
which such Orders will execute, cancel,
or be removed and re-entered on the
Exchange Book when the NBBO (or
Inside Bid and Inside Offer) becomes
crossed or when there is no NBBO (or
Inside Bid and/or Inside Offer), the
Exchange will bolster its
competitiveness vis-a`-vis other
exchanges. Indeed, the proposed
clarifications will help protect Exchange
participants from executing orders at
sub-optimal prices while also improving
the efficiency of their order flow
management processes. Moreover, the
proposals will render the Exchange’s
functionality for these Orders similar to
that of other exchanges, including
Nasdaq.
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 32 and Rule 19b–
4(f)(6) thereunder.33
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,
32 15
U.S.C. 78s(b)(3)(A).
33 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.
PO 00000
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Fmt 4703
Sfmt 9990
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–
Phlx–2020–15 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–Phlx–2020–15. 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–Phlx–2020–15, and should
be submitted on or before May 4, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–07653 Filed 4–10–20; 8:45 am]
BILLING CODE 8011–01–P
34 17
E:\FR\FM\13APN1.SGM
CFR 200.30–3(a)(12).
13APN1
]]>Agencies
[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20533-20542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07653]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88583; File No. SR-Phlx-2020-15]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Exchange
Rules 3301A and 3301B
April 7, 2020.
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 March 26, 2020, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rules 3301A and 3301B to
modify the behavior of Order Types and Order Attributes in certain
situations.
The Exchange intends to implement its proposed rule change on or
before the end of the Second Quarter of 2020. The Exchange will
announce the new implementation date by an Equity Trader Alert, which
shall be issued prior to the implementation date.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 20534]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Pursuant to Rule 3307, the Exchange maintains discretion to execute
Orders in accordance with one of two execution algorithms: ``Price/
Time'' and ``Pro Rata.'' Prior to November 1, 2019, the Exchange
executed Orders in accordance with the Pro Rata Execution Algorithm,
which executes trading interest in the following order of priority: (1)
Price; (2) Displayed interest with a size of one round lot or more; (3)
Displayed odd-lot Orders; (4) Non-Displayed interest with a size of one
round lot or more; (5) Minimum Quantity Orders; and (6) Non-Displayed
odd-lot Orders.\3\ However, as of November 1, 2019,\4\ the Exchange
migrated to the Price/Time Execution Algorithm, which executes trading
interest in order of: (1) Price; (2) Displayed interest; and (3) Non-
Displayed interest.\5\
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\3\ See Rule 3307(b).
\4\ See Equity Trader Alert 2019-77 (Sept. 27, 2019), at https://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2019-77.
\5\ See Rule 3307(a).
---------------------------------------------------------------------------
In accordance with the Exchange's shift to the Price/Time Execution
Algorithm, the Exchange proposes to adopt functionality that was
unavailable for use under the Pro Rata Execution Algorithm, but which
is common among Price/Time exchanges, including the Exchange's
affiliates, the Nasdaq Stock Market, LLC (``Nasdaq'') and Nasdaq BX,
Inc. (``BX'').\6\
---------------------------------------------------------------------------
\6\ All of the proposed functionalities will apply only to the
extent that the Exchange continues to operate on a Price/Time basis.
They would not be available if the Exchange was to revert to a Pro
Rata Execution Algorithm.
---------------------------------------------------------------------------
The Exchange also proposes to make several non-substantive changes
to correct and conform the Exchange's Rules to corresponding rules of
Nasdaq and/or BX.\7\
---------------------------------------------------------------------------
\7\ For example, at various points in the rule text of Rule
3301A, the Exchange proposes to add the word ``Displayed'' before
the word ``Order'' to conform that rule text to corresponding Nasdaq
and BX rule text (Nasdaq and BX Rule 4702). Also to conform to
corresponding Nasdaq and BX rule text, the Exchange proposes, in
Rule 3301A(b)(4)(C), to add, to the paragraph describing the
treatment of a Post-Only Order designated as an ISO that locks or
crosses an Order on the PSX Book, language stating that such an
Order would either execute at time of entry, ``post at its limit
price,'' or would have its price adjusted prior to posting.
---------------------------------------------------------------------------
Post-Only Orders
The Exchange proposes to amend Rule 3301A to provide for additional
functionalities for Post-Only Orders.\8\
---------------------------------------------------------------------------
\8\ A ``Post-Only Order'' is an Order Type designed to have its
price adjusted as needed to post to the PSX Book in compliance with
Rule 610(d) under Regulation NMS by avoiding the display of
quotations that lock or cross any Protected Quotation in a System
Security during Market Hours, or to execute against locking or
crossing quotations in circumstances where economically beneficial
to the Participant entering the Post-Only Order. See Rule
3301A(b)(4)(A).
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One set of changes would provide Participants with the option of
cancelling a Post-Only Order in circumstances where currently, the
Exchange would adjust the price of such an Order. The proposed
functionality will apply when: (1) An incoming Post-Only Order locks or
crosses a Protected Quotation; \9\ (2) an adjusted Post-Only Order
locks or crosses a Displayed Order at its displayed price on the
Exchange Book; or (3) a Post-Only Order would not lock or cross a
Protected Quotation but would lock or cross a Displayed Order at its
displayed price on the Exchange Book. This functionality will be
offered as a port setting and may be applied to all Orders entered
under the same MPID for Orders entered through RASH and FIX, or, in the
case of Participants using the OUCH or FLITE order entry protocols, it
may be applied to all Orders entered through a specific order entry
port and under the same MPID.\10\
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\9\ The term ``Protected Quotation'' has the meaning assigned to
it under Rule 600 of Regulation National Market System. See Rule
3301(j). Unless otherwise stated, it refers to a quotation of a
market center other than PSX. Id.
\10\ RASH and FIX are order entry protocols to enter orders into
RASH, and RASH is a system separate from the matching system.
Because of that, the granular detail around the specific ports going
into the RASH system is not available to the matching system, and
thus the setting can only be available at the MPID level for these
protocols. By contrast, OUCH and FLITE are order entry protocols for
the matching system itself, and so that level of detail is
available.
---------------------------------------------------------------------------
The first of these changes relates to incoming Post-Only Orders
that lock or cross a Protected Quotation. Currently, Rule
3301A(b)(4)(A) states that, if a Post-Only Order would lock or cross a
Protected Quotation, the price of the Order will first be adjusted. If
the Order is Attributable,\11\ its adjusted price will be one minimum
price increment lower than the current Best Offer (for bids) or higher
than the current Best Bid (for offers). If the Order is not
Attributable, its adjusted price will be equal to the current Best
Offer (for bids) or the current Best Bid (for offers). However, the
Order will not post or execute until the Order, as adjusted, is
evaluated with respect to Orders on the Exchange Book. The Exchange
proposes to amend the behavior for both incoming Non-Attributable and
Attributable Post-Only Orders that lock or cross a Protected Quotation
on an away market center. In both cases, the Post-Only Order may be
either adjusted or cancelled back to the Participant, depending on the
Participant's choice. However, the Post-Only Order will execute if (i)
it is priced below $1.00 and the value of price improvement associated
with executing against an Order on the Exchange Book (as measured
against the original limit price of the Order) equals or exceeds the
sum of fees charged for such execution and the value of any rebate that
would be provided if the Order posted to the Exchange Book and
subsequently provided liquidity, or (ii) it is priced at $1.00 or more
and the value of price improvement associated with executing against an
Order on the Exchange Book (as measured against the original limit
price of the Order) equals or exceeds $0.01 per share. As with the
current rule text, the price of the Order will first be adjusted if the
Participant elects to have the Post-Only Order adjusted (instead of
being cancelled). Similarly, if the Order is Attributable, its adjusted
price will be one minimum price increment lower than the current Best
Offer (for bids) or higher than the current Best Bid (for offers). If
the Order is not Attributable, its adjusted price will be equal to the
current Best Offer (for bids) or the current Best Bid (for offers).
However, the Order will not post or execute until the Order, as
adjusted, is evaluated with respect to Orders on the Exchange Book.
---------------------------------------------------------------------------
\11\ As set forth in Rule 3301B(i), an Order with
``Attribution'' is referred to as an ``Attributable Order'' and an
Order without attribution is referred to as a ``Non-Attributable
Order.'' Rule 3301B(i) defines Attribution as an Order Attribute
that permits a Participant to designate that the price and size of
the Order will be displayed next to the Participant's MPID in market
data disseminated by the Exchange.
---------------------------------------------------------------------------
In addition to offering the new cancel functionality where an
incoming Post-Only Order locks or crosses a Protected Quotation on an
away market center, the Exchange proposes to amend Rule 3301A(b)(4)(A)
to state when that Order would execute, as described above. The
Exchange proposes this change because it believes that the instances
pursuant to which a locking or crossing Post-Only order will execute in
other scenarios (such as a Post-Only Order that locks or crosses a
Displayed Order at its displayed price on the Exchange Book) also apply
here, e.g., the execution of the Post-Only Order would be economically
beneficial to the Participant that entered the Order while contributing
to the price discovery process.
The second change relates to the adjusted price of the Post-Only
Order if that price would lock or cross an Order on the Exchange Book.
Currently, Rule 3301A(b)(4)(A) states that, if the adjusted price of
the Post-Only Order would lock or cross an Order on the
[[Page 20535]]
Exchange Book, then the Post Only Order will be repriced, ranked, and
displayed at one minimum price increment below the current best price
to sell on the Exchange Book (for bids) or above the current best price
to buy on the Exchange Book (for offers). However, the Post-Only Order
will execute if: (i) It is priced below $1.00 and the value of price
improvement associated with executing against an Order on the Exchange
Book (as measured against the original limit price of the Order) equals
or exceeds the sum of fees charged for such execution and the value of
any rebate that would be provided if the Order posted to the Exchange
Book and subsequently provided liquidity, or (ii) it is priced at $1.00
or more and the value of price improvement associated with executing
against an Order on the Exchange Book (as measured against the original
limit price of the Order) equals or exceeds $0.01 per share.
The Exchange proposes to amend this provision to apply to a
scenario in which the adjusted price of the Post-Only Order would lock
or cross a Displayed Order at its displayed price on the Exchange Book.
The proposal would also allow the Post-Only Order to either be adjusted
or be cancelled back to the Participant in this scenario, depending on
the Participant's choice. As with the current language of this section,
however, the Post-Only Order will execute if: (i) It is priced below
$1.00 and the value of price improvement associated with executing
against an Order on the Exchange Book (as measured against the original
limit price of the Order) equals or exceeds the sum of fees charged for
such execution and the value of any rebate that would be provided if
the Order posted to the Exchange Book and subsequently provided
liquidity, or (ii) it is priced at $1.00 or more and the value of price
improvement associated with executing against an Order on the Exchange
Book (as measured against the original limit price of the Order) equals
or exceeds $0.01 per share. If the Participant elects to have the Post-
Only Order adjusted, the Order will continue to be treated as specified
today in the Rule, so that the Post- Only Order will be repriced,
ranked, and displayed at one minimum price increment below the current
best displayed price to sell on the Exchange Book (for bids) or above
the current best displayed price to buy on the Exchange Book (for
offers).
The third change relates to a Post-Only Order that would not lock
or cross a Protected Quotation but would lock or cross an Order on the
Exchange Book. Currently, Rule 3301A(b)(4)(A) states that such an Order
will be repriced, ranked, and displayed at one minimum price increment
below the current best-priced Order to sell on the Exchange Book (for
bids) or above the current best-priced Order to buy on the Exchange
Book (for offers). However, the Post-Only Order will execute if: (i) It
is priced below $1.00 and the value of price improvement associated
with executing against an Order on the Exchange Book equals or exceeds
the sum of fees charged for such execution and the value of any rebate
that would be provided if the Order posted to the Exchange Book and
subsequently provided liquidity, or (ii) it is priced at $1.00 or more
and the value of price improvement associated with executing against an
Order on the Exchange Book equals or exceeds $0.01 per share.
The Exchange proposes to amend this provision so that it applies
where a Post-Only Order would not lock or cross a Protected Quotation
but would lock or cross a Displayed Order at its displayed price on the
Exchange Book. The Exchange proposes that, in this scenario, the Order
may either be adjusted or be cancelled back to the Participant,
depending on the Participant's choice. However, the Post-Only Order
will execute if: (i) It is priced below $1.00 and the value of price
improvement associated with executing against an Order on the Exchange
Book (as measured against the original limit price of the Order) equals
or exceeds the sum of fees charged for such execution and the value of
any rebate that would be provided if the Order posted to the Exchange
Book and subsequently provided liquidity, or (ii) it is priced at $1.00
or more and the value of price improvement associated with executing
against an Order on the Exchange Book (as measured against the original
limit price of the Order) equals or exceeds $0.01 per share. If the
Participant elects to have the Post Only-Order adjusted, the Post-Only
Order will be repriced, ranked, and displayed at one minimum price
increment below the current best-priced Displayed Order to sell on the
Exchange Book (for bids) or above the current best-priced Displayed
Order to buy on the Exchange Book (for offers).\12\
---------------------------------------------------------------------------
\12\ The Exchange proposes to make a corresponding change to
Rule 3301A(b)(4)(A). The Exchange proposes to amend a provision of
the Rule relating to the treatment of Post-Only Orders during the
Pre-Market and Post-Market Hours. Currently, that provision states
that, during Pre-Market and Post-Market Hours, a Post-Only Order
will be processed in a manner identical to Market Hours with respect
to locking or crossing Orders on the Exchange Book, but will not
have its price adjusted with respect to locking or crossing the
quotations of other market centers. The Exchange proposes to amend
this language to provide that a Post-Only Order that locks or
crosses the quotation of another market center during the Pre-Market
and Post-Market Hours will not be cancelled or have its price
adjusted. The purpose of the proposed functionality is to allow a
Participant to cancel its Post-Only Order in various circumstances
rather than have that Order adjusted. To the extent that a Post-Only
Order will not have its price adjusted if it locks or crosses the
quotation of another market center during the Pre-Market or Post-
Market Hours, there is not a need to offer the corresponding cancel
functionality.
---------------------------------------------------------------------------
The Exchange believes that the foregoing proposals will benefit
liquidity providers and the market in general by, among other things,
providing Participants with greater flexibility when managing their
order flow, and thereby promoting the more efficient execution of
Orders. In some circumstances, a market maker may have its order price
adjusted due to locking or crossing an away market price (i.e., the
displayed NBBO without the Exchange) or it may have its order price
adjusted due to locking or crossing a Displayed Order on the Exchange
Book. In many cases, these liquidity providers do not want to have
their price adjusted and would rather have their order cancelled so
that they can reevaluate the market conditions at the time. The
Exchange believes that providing market makers with flexibility to
cancel in this circumstance will increase efficiency and reduce message
traffic both internal to the Exchange and for external data feed
consumers.
The Exchange also proposes to add a provision to Rule 3301A(b)(4)
that addresses the treatment of Post-Only Orders that would not lock or
cross a Protected Quotation but would lock or cross a Non-Displayed
Order on the Exchange Book. In that circumstance, the Exchange proposes
that the Post-Only Order will be posted, ranked, and displayed at its
limit price. Once again, however, the Post-Only Order will execute in
this instance if: (i) It is priced below $1.00 and the value of price
improvement associated with executing against an Order on the Exchange
Book (as measured against the original limit price of the Order) equals
or exceeds the sum of fees charged for such execution and the value of
any rebate that would be provided if the Order posted to the Exchange
Book and subsequently provided liquidity, or (ii) it is priced at $1.00
or more and the value of price improvement associated with executing
against an Order on the Exchange Book (as measured against the original
limit price of the Order) equals or exceeds $0.01 per share.
By allowing a Post-Only Order that is entered with a price equal to
a resting Non-Display Order to be posted at its
[[Page 20536]]
limit price rather than being re-priced, the Exchange will allow the
Post Only Order to lock the resting Non-Display Order.\13\ Both the
Displayed Post-Only Order and the resting Non-Display Order will remain
available for execution at the locking price. In this way, neither
Order will be disadvantaged and the Exchange's bid/offer spread will be
tightened. In this scenario, efficacy will be maintained or enhanced
for both the Participant entering the Post-Only Order and the
Participant entering the Non-Displayed Order.
---------------------------------------------------------------------------
\13\ The Exchange believes that this condition is consistent
with the Regulation NMS prohibition on locked and crossed markets
because the Exchange will not be displaying a locked market.
---------------------------------------------------------------------------
In addition to the above, the Exchange proposes to add a provision
to Rule 3301A(b)(4) to address the scenario in which the adjusted price
of a Post-Only Order would lock or cross a Non-Displayed \14\ price on
the Exchange Book. The proposal would specify that in that
circumstance, the Post-Only Order will be posted in the same manner as
a Price to Comply Order.\15\ However, the Post-Only Order will execute
in this instance if: (i) It is priced below $1.00 and the value of
price improvement associated with executing against an Order on the
Exchange Book (as measured against the original limit price of the
Order) equals or exceeds the sum of fees charged for such execution and
the value of any rebate that would be provided if the Order posted to
the Exchange Book and subsequently provided liquidity, or (ii) it is
priced at $1.00 or more and the value of price improvement associated
with executing against an Order on the Exchange Book (as measured
against the original limit price of the Order) equals or exceeds $0.01
per share. This provision, which exists on Nasdaq and BX,\16\ will help
to reduce the information leakage that would otherwise occur when a
Post-Only Order re-prices to avoid locking or crossing the price of a
Non-Displayed Order resting on the Exchange's book.
---------------------------------------------------------------------------
\14\ A ``Non-Displayed Order'' is an Order Type that is not
displayed to other Participants, but nevertheless remains available
for potential execution against incoming Orders until executed in
full or cancelled. In addition to the Non-Displayed Order Type,
there are other Order Types that are not displayed on the PSX Book.
Thus, ``Non-Display'' is both a specific Order Type and an Order
Attribute of certain other Order Types. See Rule 3301A(b)(3)(A).
\15\ Pursuant to Rule 3301A(b)(1), a ``Price to Comply Order''
is an Order Type designed to comply with Rule 610(d) under
Regulation NMS by avoiding the display of quotations that lock or
cross any Protected Quotation in a System Security during Market
Hours. The Price to Comply Order is also designed to provide
potential price improvement. When a Price to Comply Order is
entered, the Price to Comply Order will be executed against
previously posted Orders on the Exchange Book that are priced equal
to or better than the price of the Price to Comply Order, up to the
full amount of such previously posted Orders, unless such executions
would trade through a Protected Quotation. Any portion of the Order
that cannot be executed in this manner will be posted on the
Exchange Book (and/or routed if it has been designated as routable).
During Market Hours, the price at which a Price to Comply Order is
posted is determined in the following manner. If the entered limit
price of the Price to Comply Order would lock or cross a Protected
Quotation and the Price to Comply Order could not execute against an
Order on the Exchange Book at a price equal to or better than the
price of the Protected Quotation, the Price to Comply Order will be
displayed on the PSX Book at a price one minimum price increment
lower than the current Best Offer (for a Price to Comply Order to
buy) or higher than the current Best Bid (for a Price to Comply
Order to sell) but will also be ranked on the Exchange Book with a
Non-Displayed price equal to the current Best Offer (for a Price to
Comply Order to buy) or to the current Best Bid (for a Price to
Comply Order to sell). During Pre-Market Hours and Post-Market
Hours, a Price to Comply Order will be ranked and displayed at its
entered limit price without adjustment.
\16\ See Nasdaq Rule 4702(b)(4)(A), BX Rule 4702(b)(4)(A).
---------------------------------------------------------------------------
The Exchange notes that the foregoing proposals add functionalities
to the Post-Only Order that are currently offered by other exchanges,
including the Exchange's affiliates, Nasdaq and BX. Indeed, the
proposed changes to Rule 3301A(b)(4) mirror language that currently
exists in both Nasdaq and BX Rules 4702(b)(4) and the rationales that
the Exchange puts forth for those changes mirror those proffered by
Nasdaq and BX.\17\
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 34-79290 (Nov. 10,
2016), 81 FR 81184 (Nov. 17, 2016) (SR-NASDAQ-2016-111); Securities
Exchange Act Release No. 34-80630 (May 9, 2017), 82 FR 22364 (May
15, 2017) (SR-NASDAQ-2017-043); Securities Exchange Act Release No.
79290 (November 10, 2016), 81 FR 81184 (November 17, 2016) (SR-BX-
2016-046).
---------------------------------------------------------------------------
Minimum Quantity
As set forth in Rule 3301B(e), ``Minimum Quantity'' is an Order
Attribute that allows a Participant to provide that an Order will not
execute unless a specified minimum quantity of shares can be obtained.
Thus, the functionality serves to allow a Participant that may wish to
buy or sell a large amount of a security to avoid signaling its trading
interest unless it can purchase a certain minimum amount. An Order with
a ``Minimum Quantity'' Order Attribute may be referred to as a
``Minimum Quantity Order.''
The Exchange proposes to amend Rule 3301B(e) to provide a
Participant with two choices as to how the Exchange will process a
Minimum Quantity Order at the time of entry. First, the Exchange
proposes that the Participant may specify that the Minimum Quantity
condition may be satisfied by execution against multiple Orders. In
that case, upon entry, the Exchange's System would determine whether
there were one or more posted Orders executable against the incoming
Order with an aggregate size of at least the minimum quantity. If there
were not, the Order would post on the Exchange Book in accordance with
the characteristics of its underlying Order Type.
Second, the Exchange proposes that Participant may specify that the
Minimum Quantity condition must be satisfied by execution against one
or more Orders, each of which must have a size that satisfies the
Minimum Quantity condition. If there are such Orders but there are also
other Orders that do not satisfy the Minimum Quantity condition, the
Minimum Quantity Order will execute against Orders on the PSX Book in
accordance with Rule 3307(a) (pertaining to execution priority) until
it reaches an Order that does not satisfy the minimum quantity
condition, and then the remainder of the Order will be cancelled. For
example, if a Participant entered an Order to buy at $11 with a size of
1,500 shares and a minimum quantity condition of 500 shares, and there
were three Orders to sell at $11 on the PSX Book, two with a size of
500 shares each and one with a size of 200 shares, with the 200 share
Order ranked in time priority between the 500 share Orders, the 500
share Order with the first time priority would execute and the
remainder of the Minimum Quantity Order would be cancelled.
Alternatively, if the Order would lock or cross Orders on the PSX Book
but none of the resting Orders would satisfy the minimum quantity
condition, an Order with a minimum quantity condition to buy (sell)
will be repriced to one minimum price increment lower than (higher
than) the lowest price (highest price) of such Orders. For example, if
there was an Order to buy at $11 with a minimum quantity condition of
500 shares, and there were resting Orders on the PSX Book to sell 200
shares at $10.99 and 300 shares at $11, the Order would be repriced to
$10.98 and ranked at that price.
Again, the foregoing proposed changes to Rule 3301B(e) mirror
language that exists for the same Order Attribute in the Nasdaq and BX
rulebooks.\18\
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 34-75252 (June 22,
2015), 80 FR 36865 (June 26, 2015) (SR-NASDAQ-2015-024); Securities
Exchange Act Release No. 34-84012 (August 31, 2018), 83 FR 45476
(September 7, 2018) (SR-BX-2018-040).
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[[Page 20537]]
Trade Now
The Exchange proposes to amend Rules 3301A and 3301B to add a
``Trade Now'' instruction to certain order types. The Exchange will
offer this functionality--which is presently available on Nasdaq and BX
\19\--through its OUCH, RASH, FLITE, and FIX protocols. This
instruction will provide resting Orders with a greater ability to
receive an execution when that resting Order is locked by a Displayed
Order. The Trade Now instruction will allow participants to enter an
instruction to have a locked or crossed resting buy (sell) Order
execute against the locking or crossing sell (buy) order as a liquidity
taker. Depending on the protocol used by the participant to access the
Exchange's system, the participant may either specify that the Order
execute against locking interest automatically, or the participant may
be required to send a Trade Now instruction to the Exchange once the
Order has become locked. The Exchange is offering the Trade Now
instruction for all Orders that may be sent to and may be locked or
crossed by a Displayed Order on the continuous Exchange book, and will
not offer the instruction for Orders that do not execute and will not
be locked by a Displayed Order on the continuous book.\20\
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\19\ See Nasdaq Rules 4702(b) and 4703(m) and BX Rules 4702(b)
and 4703(l).
\20\ The Exchange proposes to amend Rule 3301A(b) to specify
that Trade Now functionality is available for Price to Comply
Orders, Non-Displayed Orders, Post-Only Orders, and Midpoint Peg
Post-Only Orders. The Exchange notes that it does not intend to make
Trade Now Available for Price to Display Orders or Market Maker Peg
Orders, as it is presently on Nasdaq and BX, because Trade Now
functionality is intended to apply to non-displayed Orders only, and
would not be invoked for Price to Display and Market Maker Peg
Orders, which are displayed order types. Nasdaq and BX plan to
separately propose to amend their respective rules to remove Trade
Now functionality from their Price to Display and Market Maker Peg
order types.
---------------------------------------------------------------------------
When a Trade Now instruction is applied to a resting buy (sell)
Order, the Order will execute against the available size of the locking
or crossing sell (buy) Order as the liquidity taker. The following
example illustrates this scenario:
Participant A enters a Non-Display buy order for 200
shares at $10, and specifies the Trade Now instruction;
Participant B enters a Post Only sell Order for 100 shares
at $10;
The Post Only Order is posted at $10 and locks the Non-
Display Order;
The buy Order will execute for 100 shares at $10 as the
remover of liquidity.
If a buy (sell) Order with the Trade Now instruction is only
partially executed, the unexecuted portion of that Order remains on the
Exchange book and maintains its priority.
Depending on the interface being used by the participant, the Trade
Now attribute may either allow the order to execute against locking or
crossing interest automatically (``Reactive Trade Now''), or the
participant may be required to send a Trade Now instruction to the
Exchange once the Order has become locked (``Non-Reactive Trade Now'').
All Orders that are entered through the RASH and FIX protocols with a
Trade Now Order Attribute will be Reactive Trade Now, and those Orders
shall execute against locking interest automatically.
The Reactive Trade Now instruction will be available on an Order-
by-Order basis, and will also be available as an optional port level
setting. If the Reactive Trade Now setting is enabled on a specific
port, all Orders entered via the specific port will, by default, be
designated with the Reactive Trade Now instruction. If the Reactive
Trade Now setting is enabled on a specific port, participants will have
the ability to designate on an Order-by-Order basis that a particular
Order entered via the specific port will not be designated with the
Reactive Trade Now instruction, thereby overriding the port level
setting for the Order. If the Reactive Trade Now instruction is
specified for an Order for which the Trade Now instruction does not
apply, the system will not invoke the Trade Now instruction for that
Order.
In contrast, Orders entered through the OUCH and FLITE protocols
will use the Non-Reactive Trade Now functionality, and participants
must send the Trade Now instruction after the order becomes locked. If
a participant enters a Non-Reactive Trade Now instruction when there is
no locking or crossing interest, the instruction will be ignored by the
System and the order will remain on the Exchange Book with the same
priority.
The Non-Reactive Trade Now instruction will be available to
participants on an Order-by-Order basis. If the Non-Reactive Trade Now
instruction is entered for an Order for which the Trade Now instruction
does not apply, the System will not invoke the Trade Now instruction
for that Order.
The Exchange is offering two different variations of the Trade Now
instruction to reflect the differences in behavior among participants
who use the different Exchange protocols. For example, the Exchange
typically assumes a more active role in managing the order flow
submitted by users of the RASH and FIX protocols. Allowing these
participants to use the Reactive Trade Now instruction at the time of
Order entry will allow for the automatic execution of Orders, and
reflects the order flow management practices of these participants. In
contrast, users of the OUCH and FLITE protocols generally assume a more
active role in managing their Order flow. Offering the Non-Reactive
Trade Now instruction for these protocols, and its requirement that the
instruction must be sent after the Order becomes locked or crossed,
reflects the order flow management practices of these participants.
Midpoint Peg Post-Only Orders and Orders With Midpoint Pegging
The Exchange proposes to amend Rule 3301A and Rule 3301B to
discontinue executing Orders with Midpoint Pegging when the NBBO is
crossed, as well as to specify the behavior of Midpoint Peg Post-Only
Orders and Orders with Midpoint Pegging when the market is crossed or
when there is no best bid and/or offer. The Exchange also proposes to
change certain references to cancelling or rejecting orders in Rule
3301A and Rule 3301B.
Today, the Exchange executes Orders with Midpoint Pegging when the
NBBO is locked by executing at the locking price and when the NBBO is
crossed by executing at the midpoint of the crossed price.\21\ Based on
feedback from members and the practice of other exchanges,\22\ the
Exchange has determined that its current practice of executing Orders
with Midpoint Pegging during such crossed markets produces sub-optimal
execution prices for members and investors. The midpoint of a crossed
market is not a clear and accurate indication of a valid price, nor is
it indicative of a fair and orderly market. The better practice is to
simply not execute Midpoint Orders during crossed markets. To
accomplish this, the Exchange proposes to add language to Rule
3301A(b)(6)(B) for Midpoint Peg Post-Only Orders entered through RASH
or FIX, whereby, if the Order is on the System Book and subsequently
the NBBO is crossed, or if there is subsequently no NBBO, the Order
will be removed from the System Book and will be reentered at the new
Midpoint once there is a valid NBBO that is not
[[Page 20538]]
crossed.\23\ At present, Midpoint Peg Post-Only Orders entered through
RASH or FIX are repriced to the Midpoint of the NBBO if the NBBO
subsequently becomes crossed or are cancelled if there is subsequently
no NBBO. The Exchange is proposing to re-enter such Orders at the new
Midpoint once there is a NBBO that is not crossed because the new NBBO
is indicative of a valid price.
---------------------------------------------------------------------------
\21\ See Rule 3301B(d).
\22\ See, e.g., Cboe BZX Rule 11.9(c)(9) (no midpoint execution
during crossed market); NYSE Arca Rule 7.31-E(d)(3) (no midpoint
execution when the market is locked or crossed); Nasdaq Rule
4703(d).
\23\ The Exchange proposes to amend Rule 3301A(b)(6)(A) to
specify that it will not accept new Midpoint Peg Post-Only Orders
while the NBBO is crossed or there is no NBBO.
---------------------------------------------------------------------------
Similarly, the Exchange proposes to add language to Rule 3301B(d)
\24\ for Orders entered through RASH or FIX with Midpoint Pegging,
whereby, if the Order is on the System Book and the Inside Bid and
Inside Offer are subsequently crossed, or if there is subsequently no
Inside Bid and/or Inside Offer, the Order will be removed from the
System Book and will be reentered at the new Midpoint once there is a
valid Inside Bid and Inside Offer that is not crossed. At present,
Midpoint Pegged Orders entered through RASH or FIX are repriced to the
Midpoint of the Inside Bid and Inside Offer if the Inside Bid and
Inside Offer subsequently becomes crossed or are cancelled if there is
subsequently no Inside Bid and/or Inside Offer. As with the change to
Midpoint Peg Post-Only Orders, the Exchange is proposing to re-enter
such Orders at the new Midpoint once there is an Inside Bid and Inside
Offer that is not crossed because the new Midpoint of the Inside Bid
and Inside Offer is indicative of a valid price.
---------------------------------------------------------------------------
\24\ Also in Rule 3301B(d), the Exchange proposes to clarify
that, even if the Inside Bid and Inside Offer are locked, an Order
with Midpoint Pegging that locked an Order on the PSX Book would
execute ``(provided, however, that a Midpoint Peg Post-Only Order
would execute or post as described in Rule 3301A(b)(6)(A)).'' This
clarification avoids confusion as to circumstances in which an Order
with Midpoint Pegging would execute. The proposal also would conform
the Exchange's Rule with the corresponding Nasdaq Rule 4703(d).
The Exchange furthermore proposes to amend Rule 3301B(d) to
specify that it will not accept new Midpoint Peg Post-Only Orders
while the NBBO is crossed or there is no NBBO.
---------------------------------------------------------------------------
The Exchange is proposing to re-enter Orders submitted through RASH
or FIX because the Exchange typically assumes a more active role in
managing the order flow submitted by users of these protocols, and this
functionality reflects the order flow management practices of these
participants.
While the Exchange is only proposing to adopt this re-entry
functionality for Orders that are entered through RASH or FIX, the
Exchange believes that it is appropriate to also modify the treatment
of Midpoint Peg Post-Only Orders and Orders with Midpoint Pegging
entered through OUCH or FLITE where the NBBO subsequently becomes
crossed, or there is subsequently no NBBO or Inside Bid and/or Offer.
Accordingly, the Exchange proposes to amend Rule 3301A(b)(6)(B) to
state that if, after a Midpoint Peg Post-Only Order entered through
OUCH or FLITE is posted to the System Book, the Midpoint Peg Post-Only
Order will be cancelled back to the Participant if any of the following
conditions are met:
There is no National Best Bid and/or National Best Offer;
The Order to buy (sell) is entered with a limit price
above (below) the Midpoint of the NBBO and is ranked at the Midpoint of
the NBBO; thereafter, the NBBO changes so that the Midpoint changes and
the Order is no longer at the NBBO Midpoint;
The Order to buy (sell) is entered at a limit price that
is equal to or less than (greater than) the Midpoint of the NBBO and is
ranked at its limit price and thereafter, the NBBO changes so that the
Midpoint of the NBBO is lower (higher) than the limit price of the
Order;
The Order to buy (sell) is entered at a limit price that
is equal to or less than (greater than) the Midpoint of the NBBO and is
ranked at its limit price, thereafter the NBBO becomes crossed, such
that the Midpoint of the crossed NBBO remains equal to or higher
(lower) than the limit price of the Order, and then a new sell (buy)
Order is received at a price that locks or crosses the limit price of
the resting Midpoint Peg Post-Only Order; or
The Order to buy (sell) is entered at a limit price that
is greater than (less than) the Midpoint of the NBBO and is therefore
ranked at the Midpoint of the NBBO, thereafter the NBBO becomes crossed
but the Midpoint does not change, and then a new sell (buy) Order is
received at a price that locks or crosses the Midpoint of the NBBO.
The Exchange believes that the proposed language captures the new
System behavior and further clarifies the current behavior as described
in Rule 3301A(b)(6)(B) by the language:
If, after being posted to the System book, the NBBO changes so
that midpoint between the NBBO is lower than (higher than) the price
of a Midpoint Peg Post-Only Order to buy (sell), the Midpoint Peg
Post-Only Order will be cancelled back to the Participant.
The proposed language is more precise than the existing language
because it draws specific attention to a Midpoint Peg Post-Only Order
that posts to the System Book at its limit price verses a Midpoint Peg
Post-Only Order with a limit price that is adjusted to post to the
System Book at the Midpoint of the NBBO. Where the NBBO shifts after an
Order to buy (sell) posts at its limit such that the Midpoint of the
NBBO remains or becomes higher (lower) than the limit price of that
Order, cancellation of the Order is unnecessary because the Order can
simply remain on the Exchange Book at its limit price, while an Order
that has posted at a price lower (higher) than its limit price will be
cancelled following any change to the Midpoint of the NBBO.
Likewise, the new proposed language specifies the context under
which a Midpoint Peg Post-Only Order will be cancelled when the NBBO
subsequently becomes crossed. Specifically, when a Midpoint Peg Post-
Only Order to buy (sell) posts at its limit price, then the NBBO
subsequently becomes crossed but the Midpoint of the crossed NBBO
remains equal to or higher (lower) than the limit price of the Order to
buy (sell), the Order will only be cancelled if a new sell (buy) Order
is received at a price that locks or crosses the limit price of the
resting Order. Furthermore, the proposed language specifies that when
the limit price of a Midpoint Peg Post-Only Order to buy (sell) is
greater than (less than) the Midpoint of the NBBO and therefore posts
at the Midpoint of the NBBO, then the NBBO subsequently becomes crossed
but the Midpoint of the crossed NBBO does not change, the Exchange will
only cancel the Order if the Exchange receives a new sell (buy) Order
at a price that locks or crosses the Midpoint of the NBBO. Other than
in these two circumstances, cancellation of an Order simply because the
NBBO crosses is unnecessary. When an Order to buy (sell) is ranked at
its limit price, and the NBBO becomes crossed while the Midpoint
remains above (below) the limit price, the crossed market does not
impact the Order, which can still rest on the Exchange Book at its
limit price because the NBBO could uncross prior to the Order
executing. Likewise, when an Order to buy (sell) is ranked at the
Midpoint of the NBBO, then the NBBO becomes crossed but the Midpoint
does not change, the crossed market also does not impact the Order,
which can continue to rest on the Exchange Book at the Midpoint because
the NBBO could uncross (with the Midpoint still remaining unchanged)
prior to the Order executing.
Similarly, the Exchange proposes to amend Rule 3301B(d) to state
that, after an Order with Midpoint Pegging entered through OUCH or
FLITE is posted to the System Book, the Order with Midpoint Pegging
will be cancelled back to the
[[Page 20539]]
participant if any of the following conditions are met:
There is no Inside Bid and/or Inside Offer;
The Order to buy (sell) is entered with a limit price
above (below) the Midpoint and is ranked at the Midpoint; thereafter
the Inside Bid and/or Inside Offer change so that the Midpoint changes
and the Order is no longer at the Midpoint;
The Order to buy (sell) is entered at a limit price that
is equal to or less than (greater than) the Midpoint and is ranked at
its limit price; thereafter, the Inside Bid and/or Inside Offer change
so that the Midpoint is lower (higher) than the limit price of the
Order;
The Order to buy (sell) is entered at a limit price that
is equal to or less than (greater than) the Midpoint and is ranked at
its limit price, then the Inside Bid and Inside Offer become crossed,
such that the Midpoint of the crossed Quotation remains equal to or
higher (lower) than the limit price of the Order, and then a new sell
(buy) Order is received at a price that locks or crosses the limit
price of the resting Order marked for Midpoint Pegging;
The Order to buy (sell) is entered at a limit price that
is greater than (less than) the Midpoint and is therefore ranked at the
Midpoint, then the Inside Bid and Inside Offer become crossed but the
Midpoint does not change, and then a new sell (buy) Order is received
at a price that locks or crosses the Midpoint of the Inside Bid and
Inside Offer.
Again, the Exchange believes that the proposed language captures the
new System behavior and further clarifies the current behavior as
described in Rule 3301B(d) by the language:
Thereafter, if the NBBO changes so that the Midpoint is lower
than (higher than) the price of an Order to buy (sell), the Pegged
Order will be cancelled back to the Participant.\25\
The Exchange intends for the proposed amendment to ensure consistency
in the rationale and language between Rule 3301B(d) and the amended
Rule 3301A(b)(6)(B) described above.\26\
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\25\ To enhance the consistency of the Rule, the Exchange
proposes to change references from the term ``NBBO'' to ``Inside Bid
and Inside Offer.''
\26\ Additionally, to avoid confusion, the Exchange proposes to
amend Rule 3301A(b)(6)(A) to clarify that a Midpoint Peg Post-Only
Order in the Rule's example is an Order to buy.
---------------------------------------------------------------------------
The Exchange also proposes to delete the following language from Rule
3301A(b)(3)(B), which describes the Non-Display Order Type:
If a Non-Displayed Order entered through OUCH or FLITE is
assigned a Midpoint Pegging Order Attribute, and if, after being
posted to the PSX Book, the NBBO changes so that the Non-Displayed
Order is no longer at the Midpoint between the NBBO, the Non-
Displayed Order will be cancelled back to the Participant. In
addition, if a Non-Displayed Order entered through OUCH or FLITE is
assigned a Midpoint Pegging Attribute and also has a limit price
that is lower than the midpoint between the NBBO for an Order to buy
(higher than the midpoint between the NBBO for an Order to sell),
the Order will nevertheless be accepted at its limit price and will
be cancelled if the midpoint between the NBBO moves lower than
(higher than) the price of an Order to buy (sell).
This language describes the behavior of a Non-Displayed Order with
a Midpoint Pegging Attribute enabled, which is duplicative of the
general description of the behavior of a Midpoint Pegging Attribute in
Rule 3301B(d). The Exchange believes that the concept described in
these two Rules is best stated only once to avoid unintended
discrepancies. In this instance, the Exchange believes that the
language is most appropriate for inclusion in Rule 3301B(d).
Examples
Below are examples of the operation of the proposed amendments to
Rules 3301B(d) and 3301A(b)(6)(B) with respect to the cancellation of
Midpoint Peg Post-Only Orders and Orders with Midpoint Pegging entered
through OUCH or FLITE.
1. There is no National Best Bid and/or National Best Offer.
The National Best Bid (``NBB'') is $11.00 and the National Best
Offer (``NBO'') is $11.06. A Midpoint Peg Post-Only Order to buy is
posted at the Midpoint between the NBBO, at $11.03. At this point, all
displayed liquidity on the sell side is reported to be removed by all
Market Centers, such that an NBO no longer exists. In this
circumstance, the Midpoint Peg Post-Only Order will be cancelled back
to the Participant.
1. The Order to buy (sell) is entered with a limit price above
(below) the Midpoint of the NBBO and is ranked at the Midpoint of the
NBBO; thereafter, the NBBO changes so that the Order is no longer at
the NBBO Midpoint.
The NBB is $11.00 and the NBO is $11.06. A Midpoint Peg Post-Only
Order to buy is entered with a limit price of $11.04 and it posts at
the Midpoint between the NBBO, at $11.03. If the NBO later shifts to
$11.08, such that the Midpoint between the NBBO becomes $11.04, then
the Midpoint Peg Post-Only Order will be cancelled back to the
Participant.
2. The Order to buy (sell) is entered at a limit price that is
equal to or less than (greater than) the Midpoint of the NBBO and is
ranked at its limit price; thereafter, the NBBO changes so that the
Midpoint of the NBBO is lower (higher) than the limit price of the
Order.
The NBB is $11.00 and the NBO is $11.06. A Midpoint Peg Post-Only
Order to buy is entered with a limit price of $11.03 and it posts at
the Midpoint between the NBBO, at $11.03. If the NBO shifts thereafter
to $11.08, such that the Midpoint between the NBBO becomes $11.04, then
the Midpoint Peg Post-Only Order will remain on the Exchange Book
unchanged. If, however, the NBO later shifts to $11.04, such that the
Midpoint between the NBBO becomes $11.02, then the Midpoint Peg Post-
Only Order will be cancelled back to the Participant.
3. The Order to buy (sell) is ranked at its limit price and the
NBBO becomes crossed, such that the Midpoint of the crossed NBBO
remains equal to or higher (lower) than the limit price of the Order,
and a new sell (buy) Order is received at a price that locks or crosses
the limit price of the resting Midpoint Peg Post-Only Order.
The NBB is $11.00 and the NBO is $11.06. A Midpoint Peg Post-Only
Order to buy is entered with a limit price of $11.03 and it posts at
the Midpoint between the NBBO, at $11.03. Subsequently, if the NBB
shifts to $11.04, such that the Midpoint between the NBBO becomes
$11.05, then the Midpoint Peg Post-Only Order will remain on the
Exchange Book at its limit price of $11.03. If the NBO later shifts to
cross the market at $11.02, then the Midpoint between the crossed NBBO
will become $11.03 and the Midpoint Peg Post Only Order will remain on
the Exchange Book unchanged. If, however, a new sell Order is received
at $11.03 while the market is still crossed, then the Midpoint Peg Post
Only Order will be cancelled back to the participant without execution.
4. The Order to buy (sell) is ranked at the Midpoint of the NBBO
because the limit price of the Order is greater (less than) the
Midpoint and the NBBO becomes crossed but the Midpoint does not change,
then a new sell (buy) Order is received at a price that locks or
crosses the Midpoint of the NBBO.
The NBB is $11.00 and the NBO is $11.06. A Midpoint Peg Post-Only
Order to buy is entered with a limit price of $11.04 and it posts at
the Midpoint between the NBBO, at $11.03. Subsequently, if the NBB
shifts to $11.04 and the NBO simultaneously shifts to $11.02, thus
instantaneously crossing the market, then the Midpoint between the
crossed NBBO will remain at $11.03 and the Midpoint Peg Post Only Order
will remain on the Exchange Book unchanged. If, however, a new sell
[[Page 20540]]
Order is received at $11.03 while the market is still crossed, then the
Midpoint Peg Post Only Order will be cancelled back to the Participant
without execution.
Finally, the Exchange is proposing to change certain instances in
Rule 3301A and Rule 3301B that describe the cancellation or rejection
of an Order. For example, Rule 3301A(b)(6)(A) currently states that, if
the NBBO is locked when a Midpoint Peg Post-Only Order is entered, the
Midpoint Peg Post-Only Order will be priced at the locking price, if
the NBBO is crossed, it will nevertheless be priced at the midpoint
between the NBBO, and if there is no NBBO, the Order will be rejected.
Rule 3301A(b)(6)(A) also provides that a Midpoint Peg Post-Only Order
that would be assigned a price of $1 or less per share will be rejected
or cancelled, as applicable. Similarly, Rule 3301B(d) states that, in
the case of an Order with Midpoint Pegging, if the Inside Bid and
Inside Offer are locked, the Order will be priced at the locking price,
if the Inside Bid and Inside Offer are crossed, the Order will
nevertheless be priced at the midpoint between the Inside Bid and
Inside Offer, and if there is no Inside Bid and/or Inside Offer, the
Order will be rejected.
The Exchange proposes to change references to cancelling or
rejecting an Order to ``not accepting'' an Order. Depending on the
context, the reference to rejecting an Order may have one of two
meanings.\27\ The Exchange believes that changing references from
rejecting or cancelling an Order to not accepting an Order is
appropriate because the proposed language resolves the ambiguity that
may arise when referring to an Order rejection, and is sufficiently
broad to encompass the contexts in which the concept of Order rejection
or cancellation may be used.
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\27\ Specifically, an Order may be referred to as ``rejected''
if it is not initially accepted by the customer-facing Exchange
interface. Alternatively, after an Order has been initially accepted
by the customer-facing interface and is being transmitted from one
Exchange interface to another, it may be ``rejected'' if the Order
is not accepted by another part of the Exchange System for various
reasons.
---------------------------------------------------------------------------
The foregoing proposed changes to Rule 3301A and 3301B mirror
language that exists for the same Order Types and Order Attribute in
the Nasdaq rulebook.\28\
---------------------------------------------------------------------------
\28\ See Securities Exchange Act Release No. 34-78908 (Sep 22,
2016), 81 FR 66702 (Sept 28, 2016) (SR-NASDAQ-2016-111); Securities
Exchange Act Release No. 34-80593 (May 4, 2017), 82 FR 21860 (May
10, 2017) (SR-NASDAQ-2017-042); Securities Exchange Act Release No.
34-86774 (Aug 27, 2019), 84 FR 46075 (Sept 3, 2019) (SR-NASDAQ-2019-
065).
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* * * * *
The Exchange intends to implement its proposed rule change on or
before the end of the Second Quarter of 2020. The Exchange will
announce the new implementation date by an Equity Trader Alert, which
shall be issued prior to the implementation date.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\29\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\30\ 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.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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Post-Only Orders
The Exchange is proposing to add a new functionality (cancelling a
Post-Only Order instead of adjusting its price) that is not currently
available on the Exchange, and that is consistent with functionalities
that are currently offered by other exchanges. The Exchange believes
that this new functionality is consistent with the Act because, as
discussed above, it will provide Participants with greater flexibility
when managing their order flow, which will promote the more efficient
execution of Orders. The proposal is also consistent with the stated
intent of the Post-Only Order, which is to avoid the display of
quotations that would lock or cross a Protected Quotation. The Exchange
believes that amending Rule 3301A(b)(4) to specify when an incoming
Post-Only Order that locks or crosses a Protected Quotation on an away
market center would execute is consistent with the Act because, as with
other the instances pursuant to which a locking or crossing Post-Only
Order will execute, the execution of the Post-Only Order would be
economically beneficial to the Participant that entered the Order while
contributing to the price discovery process.
Additionally, the proposal to allow Post-Only Orders to lock Non-
Display Orders under certain circumstances will benefit investors and
Participants by tightening bid/offer spreads, thereby enhancing
execution quality on the Exchange. Second, Participants entering Post-
Only Orders will be able to execute liquidity providing strategies more
efficiently as the Order will, in most cases, only be subjected to
price-sliding due to to a Protected Quotation on an away market center
or Displayed Orders on the Exchange Book, and not due to Non-Displayed
Orders, and not due to Non-Displayed Orders. Third, the proposed
changes--including the provision stating that the adjusted price of
Post-Only Orders that would lock or cross a Non-Displayed price will
post in the same manner as a Price to Comply Order--will improve the
interaction of Post-Only and Non-Display Orders as both Orders will be
eligible for execution and the information leakage created due to the
current interaction will be reduced. The Exchange believes the proposed
changes will have no detrimental impact on any Participant or class of
Participants, or on users of the Post-Only or Non-Display Order types
or on users of other order types offered by the Exchange.
Minimum Quantity
The proposal will provide Participants, including institutional
firms that ultimately represent individual retail investors in many
cases, with better control over their Orders, thereby providing them
with greater potential to improve the quality of their Order
executions. Currently, Rule 3301B(e) allows a Participant to designate
a minimum quantity on an Order that, upon entry, may aggregate multiple
executions to meet the minimum quantity requirement. Once posted to the
Exchange book, however, the minimum quantity requirement is equivalent
to a minimum execution size requirement. The Exchange now proposes to
provide a Participant with control over the execution of their Order
with Minimum Quantity by giving them an option to designate the minimum
individual execution size upon entry. The control offered by the
proposed change is consistent with the various types of control
currently provided by exchange order types. For example, the Exchange,
Nasdaq, BX and other exchanges offer limit orders, which allow a
Participant to control the price it will pay or receive for a stock.
Similarly, exchanges offer order types that allow market participants
to structure their trading activity in a manner that is more likely
avoid certain transaction cost-related economic outcomes. Moreover, as
noted above, other trading venues provide the very same functionality
that the Exchange is proposing.
Additionally, the Exchange notes that this functionality is one
that Participants--and in particular large institutional firms--have
requested to avoid transacting with smaller Orders that they believe
ultimately increase the cost of their transaction. The Exchange
[[Page 20541]]
notes that proposed new optional functionality may improve the Exchange
market by attracting more Order flow, which is currently trading on
less transparent venues that contribute less to price discovery and
price competition than executions and quotes that occur on lit
exchanges. Such new Order flow will further enhance the depth and
liquidity on the Exchange, which supports just and equitable principles
of trade. Furthermore, the proposed modification to the Minimum
Quantity Order Attribute is consistent with providing market
participants greater control over the nature of their executions so
that they may achieve their trading goals and improve the quality of
their executions.
Trade Now
The Exchange's proposal to offer Trade Now functionality is
consistent with the Act because Trade Now is an additional
functionality that will facilitate the execution of locked or crossed
Orders, thereby increasing the efficient functioning of the Exchange's
market. The Trade Now functionality is an optional feature, and is
designed to reflect both the objectives of the Exchange's market, and
the order flow management practices of various market participants. For
these reasons, the Trade Now functionality will only be made available
for Orders that are entered in and may be locked or crossed by a
Displayed Order on the continuous book, and, depending on the protocol,
will be offered as either the Reactive Trade Now or Non-Reactive Trade
Now functionality.
Midpoint Peg Post-Only Orders and Orders With Midpoint Pegging
The Exchange believes that the midpoint of a crossed market, or
where there is no NBBO (or Inside Bid and/or Inside Offer), is not a
clear and accurate indication of a valid price and may produce sub-
optimal execution prices for members and investors. As such, preventing
the execution of Midpoint-Pegged Orders when the NBBO is crossed or
where there is no NBBO (or Inside Bid and/or Inside Offer) will result
in higher overall execution quality for members. The proposal adopts
new functionality for Midpoint Peg Post-Only Orders and Orders with
Midpoint Pegging, after initial entry and posting to the System Book
and where the NBBO (or Inside Bid and Inside Offer) subsequently
becomes crossed or where there is subsequently no NBBO (or Inside Bid
and/or Inside Offer). Furthermore, the amendments reflect the order
flow management practices of participants who have selected from the
available order submission protocols, e.g., cancelling and re-
submitting such Orders that are entered through RASH or FIX; cancelling
Orders that are submitted through OUCH or FLITE in the case of no NBBO
(or Inside Bid and/or Inside Offer); or canceling Orders that are
submitted through OUCH or FLITE when the NBBO (or Inside Bid and Inside
Offer) becomes crossed and a new Order is received that locks or
crosses the price at which the Midpoint Pegged Order is resting.
Furthermore, the proposal protects investors by clearly describing
the circumstances in which the Exchange will not cancel Midpoint-Pegged
Orders entered using OUCH or FLITE. That is, the Exchange believes that
the concept of a limit price fairly implies that the Exchange has no
need to cancel a Midpoint-Pegged Order to buy (sell) when such an Order
is posted at its limit price and the NBBO (or Inside Bid and Inside
Offer) shifts thereafter but the Midpoint remains above (below) the
limit price. The proposal explains that the Exchange will cancel a
Midpoint-Pegged Order posted at its limit price if the NBBO (or Inside
Bid and Inside Offer) shifts after entry such that the Midpoint becomes
lower (higher) than the limit price. In this circumstance, cancellation
is warranted because the Order would need to be re-priced, and a
Midpoint-Pegged Order entered using OUCH or FLITE cannot be re-priced.
Similarly, the Exchange believes it is helpful to investors to
clarify the circumstances in which the Exchange does and does not
cancel Midpoint-Pegged Orders, entered using OUCH or FLITE, when the
market becomes crossed. Although cancellation is warranted to prevent
Orders from actually executing in a crossed market, the Exchange does
not believe cancellation is warranted simply because the markets cross
so long as a possibility remains for the markets to become uncrossed
again prior to an execution occurring. Thus, the Exchange proposes that
it will not cancel a Midpoint-Pegged Order to buy (sell) when the Order
is ranked at its limit price and the NBBO (or Inside Bid and Inside
Offer) becomes crossed thereafter while the Midpoint remains equal to
or more aggressive than its limit price, so long as a new sell (buy)
Order is not received that locks or crosses the limit price of the
resting Midpoint-Pegged Order. Likewise, as was also discussed above,
the Exchange proposes that it will not cancel a Midpoint-Pegged Order
that is ranked at the Midpoint of the NBBO (or Inside Bid and Inside
Offer) when the market becomes crossed, provided that while the market
is crossed, the Midpoint of the crossed NBBO (or Inside Bid and Inside
Offer) does not change \31\ and the Exchange does not receive a new
Order that would lock or cross the Midpoint. Cancellation is
unnecessary in these scenarios because the Midpoint-Pegged Order can
continue to rest at its limit price or the Midpoint, respectively,
while the market is crossed and because the market may become uncross
again without triggering a cancelation condition.
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\31\ If at any point after the Midpoint-Pegged Order posts to
the Exchange Book at the Midpoint, the NBBO (Inside Bid and Inside
Offer) changes so that the price of the Order is no longer at the
Midpoint, then the order must be cancelled because orders entered
through OUCH or FLITE cannot be re-priced.
---------------------------------------------------------------------------
The Exchange believes that the proposed clarifying changes and
revised rule text under Rule 3301A(b)(6)(A) are consistent with the Act
because they will help avoid investor confusion that may be caused by
not clarifying that a Midpoint Peg Post-Only Order in the Rule's
example is an Order to buy.
Finally, the proposal to remove duplicative language from Rule
3301A(b)(3)(B), pertaining to Non-Displayed Orders with Midpoint
Pegging, is consistent with the Act because the affected language is
also stated in Rule 3301B(d) and it will reduce the possibility of
future inconsistencies. Also, replacing certain references to rejecting
or cancelling an Order to ``not accepting'' an Order is consistent with
the Act because the proposed language encompasses the contexts in which
the concept of order rejection or cancellation may be used and resolves
any ambiguity that may arise when referring to an Order rejection.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Post-Only
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 Post-Only Order is an
optional Order Type that is available for entry through multiple
Exchange Order entry protocols. No Participant is required to use any
specific Order Type or Attribute or even to use any Exchange Order Type
or Attribute or any Exchange functionality at all. If an Exchange
[[Page 20542]]
Participant believes for any reason that the proposed rule change will
be detrimental, that perceived detriment can be avoided by choosing not
to enter or interact with the Order Types modified by this proposed
rule change. The proposed changes are pro-competitive, moreover,
because they will provide Participants with a functionality that is not
currently available on the Exchange, and that is consistent with
functionalities that are currently offered by other exchanges. The
proposed changes will apply equally to all Orders that meet the
proposed criteria. This functionality will facilitate the more
efficient execution of order flow, which could increase the Exchange's
market quality and thereby promote competition by attracting additional
liquidity to the Exchange.
Minimum Quantity
The proposed change to the Minimum Quantity Order Attribute will
allow Participants to condition the processing of their Orders based on
a minimum execution size. The changes to the Minimum Quantity Order
Attribute will enhance the functionality offered by the Exchange to
Participants, thereby promoting its competitiveness with other
exchanges and non-exchange trading venues that already offer the same
or similar functionality. As a consequence, the proposed change will
promote competition among exchanges and their peers, which, in turn,
will decrease the burden on competition rather than place an
unnecessary burden thereon.
Trade Now
The Exchange does not believe that its proposal to adopt Trade Now
functionality will impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. This is an
optional functionality, and which may be used equally by similarly-
situated participants. Although the functionality of the Trade Now
instruction will differ depending upon the protocol that is used to
access the Exchange, the Exchange believes that the difference in
functionality reflects the different ways in which participants enter
and manage their order flow.
Midpoint Peg Post-Only Orders and Orders With Midpoint Pegging
For similar reasons, the Exchange does not believe that its
proposals to amend its rules regarding Midpoint Peg Post-Only Orders
and Orders with Midpoint Pegging will impose an undue burden on
competition. To the contrary, by clarifying the circumstances in which
such Orders will execute, cancel, or be removed and re-entered on the
Exchange Book when the NBBO (or Inside Bid and Inside Offer) becomes
crossed or when there is no NBBO (or Inside Bid and/or Inside Offer),
the Exchange will bolster its competitiveness vis-[agrave]-vis other
exchanges. Indeed, the proposed clarifications will help protect
Exchange participants from executing orders at sub-optimal prices while
also improving the efficiency of their order flow management processes.
Moreover, the proposals will render the Exchange's functionality for
these Orders similar to that of other exchanges, including Nasdaq.
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 \32\ and Rule 19b-
4(f)(6) thereunder.\33\
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 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-Phlx-2020-15 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-Phlx-2020-15. 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-Phlx-2020-15, and should be submitted on
or before May 4, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07653 Filed 4-10-20; 8:45 am]
BILLING CODE 8011-01-P
