Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Establish the “Extended Trading Close” and a New “Extended Trading Close” Order Type, 60318-60322 [2021-23670]

Download as PDF 60318 Federal Register / Vol. 86, No. 208 / Monday, November 1, 2021 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act,33 and Rule 19b–4(f)(2) 34 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: lotter on DSK11XQN23PROD with NOTICES1 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– MIAX–2021–50 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–MIAX–2021–50. 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 33 34 15 U.S.C. 78s(b)(3)(A)(ii). 17 CFR 240.19b–4(f)(2). VerDate Sep<11>2014 18:03 Oct 29, 2021 Jkt 256001 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–MIAX–2021–50, and should be submitted on or before November 22, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.35 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–23671 Filed 10–29–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93428; File No. SR– NASDAQ–2021–040] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Establish the ‘‘Extended Trading Close’’ and a New ‘‘Extended Trading Close’’ Order Type October 26, 2021. I. Introduction On July 12, 2021, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to add Equity 4, Rule (‘‘Rule’’) 4755 and amend Rules 4702 and 4703 to establish the ‘‘Extended Trading Close,’’ as well as the ‘‘ETC Eligible LOC’’ and ‘‘Extended Trading Close’’ order types. The proposed rule change was published for comment in the Federal Register on July 28, 2021.3 On 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 92466 (July 22, 2021), 86 FR 40667. The comment letters received on the proposed rule change are available on the Commission’s website at: https:// www.sec.gov/comments/sr-nasdaq-2021-040/ srnasdaq2021040.htm. 35 1 15 PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 September 9, 2021, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 On October 25, 2021, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and superseded the proposed rule change as originally filed.6 The Commission is publishing this notice and order to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons and to institute proceedings pursuant to Section 19(b)(2)(B) of the Act 7 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1. II. Description of the Proposal The Exchange proposes to adopt the Extended Trading Close (‘‘ETC’’), which would be a process during which eligible orders in Nasdaq-listed securities 8 may match and execute at the Nasdaq official closing price (‘‘NOCP’’), as determined by the Nasdaq closing cross or the LULD closing cross (together, the ‘‘Closing Cross’’), for a five-minute period immediately following the Closing Cross.9 According to the Exchange, the ETC would be complementary to the Closing Cross and is not intended or expected to be a substitute for the Closing Cross,10 and it would allow participants an additional 4 15 U.S.C. 78s(b)(2). Securities Exchange Act Release No. 92905, 86 FR 51390 (September 15, 2021). The Commission designated October 26, 2021 as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. 6 In Amendment No. 1, the Exchange modified the scenarios in which executions in the Extended Trading Close would be suspended, and made other conforming and clarifying changes throughout the proposed rule change. Amendment No. 1 is available on the Commission’s website at: https:// www.sec.gov/comments/sr-nasdaq-2021-040/ srnasdaq2021040.htm. 7 15 U.S.C. 78s(b)(2)(B). 8 The Exchange states that it is appropriate to limit participation in the ETC to orders in Nasdaqlisted securities, given the Exchange’s role as the primary listing market and its commitment in investing in and enhancing the Closing Cross (as defined herein) for Nasdaq-listed securities. See Amendment No. 1 at 20. The Exchange also states that the vast majority of participants looking to trade at the closing price participate in the primary listing market’s closing auction and do not route orders to non-primary listing market destinations. See id. 9 See proposed Rule 4755(a)(5). 10 See Amendment No. 1 at 18. The Exchange states that it does not expect the ETC to have an impact on participation in the Closing Cross, and that a number of off-exchange venues already offer their participants the ability to receive the NOCP after the Closing Cross. See id. 5 See E:\FR\FM\01NON1.SGM 01NON1 Federal Register / Vol. 86, No. 208 / Monday, November 1, 2021 / Notices lotter on DSK11XQN23PROD with NOTICES1 opportunity to access liquidity in Nasdaq-listed securities at the NOCP for a limited period of time after the Closing Cross concludes.11 As proposed, only ‘‘ETC Orders’’ and ‘‘ETC Eligible LOC Orders’’ (together, ‘‘ETC Eligible Orders’’) would be eligible to participate in the ETC.12 An ETC Order would be a new order type for Nasdaq-listed securities that may be executed only during the ETC and only at the NOCP as determined by the Closing Cross.13 An ETC Order may be entered, cancelled, or modified between the time when the ETC commences and ends.14 If an ETC Order is not fully executed at the conclusion of the ETC, then any unexecuted portion of the order would be cancelled.15 An ETC Eligible LOC Order would be a LOC order for a Nasdaq-listed security entered through RASH or FIX 16 that did not fully execute during the Closing 11 See id. at 4. The Exchange states that, for participants with limit-on-close (‘‘LOC’’) orders that do not execute in full in the Closing Cross, the ETC would give these LOC orders another opportunity to execute at the NOCP before the after-market trading price moves far away from it. See id. at 15. The Exchange also states that, with the ETC, participants would have an opportunity to access liquidity at the NOCP even if they did not participate in the Closing Cross. See id. According to the Exchange, by increasing opportunities for participants to execute their orders at the NOCP, it would allow them to execute sizable orders without market impact as a complement to the Closing Cross and as an alternative to after-hours trading. See id. 12 ETC Orders and ETC Eligible LOC Orders may only execute against other ETC Orders and ETC Eligible LOC Orders. See proposed Rules 4702(b)(17)(A) and 4702(b)(12)(A). 13 See proposed Rule 4702(b)(17)(A). An ETC Order may be assigned a minimum quantity order attribute, and the minimum quantity condition may be satisfied only by execution against one or more orders, each of which must have a size that satisfies the minimum quantity condition. See proposed Rule 4702(b)(17)(B). See also Amendment No. 1 at 13–14 n.18. If no orders in the ETC satisfy a minimum quantity condition for an ETC Order, then the ETC Order with a minimum quantity condition would rest on the Nasdaq book in time priority unless and until there is an order that can satisfy the minimum quantity condition to allow for execution of the ETC Order; if no such order is present in the ETC at its conclusion, then the ETC Order would cancel. See proposed Rule 4702(b)(17)(B). Moreover, an ETC Order may be referred to as having a time-in-force of ‘‘ETC.’’ See proposed Rule 4703(a)(8). 14 The system would reject an ETC Order that is submitted prior to the commencement of the ETC. See proposed Rule 4702(b)(17)(A). In addition, the system would not accept an ETC Order entered on any day when insufficient interest exists in the system to conduct a Closing Cross for that security, or when the Exchange invokes contingency procedures due to a disruption that prevents the execution of the Closing Cross. See id. 15 See id. 16 The Exchange states that it typically assumes a more active role in managing the order flow submitted by users of the RASH and FIX protocols, and in contrast, users of the OUCH and FLITE protocols generally assume a more active role in managing their order flow. See Amendment No. 1 at 15–16. VerDate Sep<11>2014 18:03 Oct 29, 2021 Jkt 256001 Cross, and would participate in the ETC if the NOCP, as determined by the Closing Cross, is at or within its limit price.17 A participant may choose to disable a LOC order from participating in the ETC, in which case the system would cancel any shares of the LOC order that remain unexecuted after the Closing Cross.18 In addition, if a participant enters a time-in-force that continues after the time of the Closing Cross to a LOC order (i.e., closing cross/ extended hours order), then such order would bypass the ETC.19 Any unexecuted portion of an ETC Eligible LOC Order may be cancelled or modified by the participant at any time during the ETC, and any unexecuted portion of an ETC Eligible LOC Order at the conclusion of the ETC would be cancelled.20 As proposed, the ETC would commence upon the conclusion of the Closing Cross and end at 4:05 p.m. (or 1:05 p.m. on a day when the Exchange closes early).21 The system would match and execute ETC Eligible Orders continuously throughout the ETC, in time priority order based on the time the system received each order into the ETC,22 and at the NOCP as determined 17 See proposed Rule 4702(b)(12)(A). The Exchange also proposes to amend Rule 4702(b)(12) to describe the participation of LOC orders in the LULD closing cross. 18 See id. Post-only orders, midpoint peg postonly orders, supplemental orders, and market maker peg orders may not operate as ETC Eligible LOC Orders, and ETC Eligible LOC Orders would be rejected if they are assigned a pegging attribute. See Amendment No. 1 at 9 n.14. 19 See proposed Rule 4702(b)(12)(B). 20 See proposed Rule 4702(b)(12)(A). 21 As proposed, the ETC would not occur for a security on any day when insufficient interest exists in the Exchange system to conduct the Closing Cross for that security or when the Exchange invokes contingency procedures due to a disruption that prevents the execution of the Closing Cross. See proposed Rule 4755(b). Moreover, the Exchange would cancel executions in a security that occur in the ETC if the Exchange nullifies the Closing Cross in that security pursuant to the rules governing clearly erroneous transactions. See id. The Exchange also states that if short sale orders in securities subject to Regulation SHO are permitted to execute in the Closing Cross pursuant to Rule 201 of Regulation SHO, then the system would also permit short sale executions in such securities to occur in the ETC; whereas the system would reject short sale orders in securities if short sale orders in such securities were not permitted to execute in the Closing Cross. See Amendment No. 1 at 8 n.11. Moreover, the restrictions of Rule 201 of Regulation SHO will apply to the ETC to the extent that the current national best bid is being calculated, collected, and disseminated for securities. See id. 22 ETC Eligible LOC Orders would receive new timestamps upon entry into the ETC and prioritized amongst each other and ETC Orders based on the time the system received each order into the ETC. See Amendment No. 1 at 9. Specifically, the system would submit ETC Eligible LOC Orders for participation in the ETC, and would assign them new timestamps, in random order. See id. at 9 n.15. Therefore, ETC Eligible LOC Orders may not PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 60319 by the Closing Cross.23 If fewer than all shares of ETC Eligible Orders are executed by the conclusion of the ETC, then the system would cancel any unexecuted portions of such orders.24 Also as proposed, beginning at 4:00:05 p.m. (or 1:00:05 p.m. on a day when the Exchange closes early), the Exchange would disseminate by electronic means an ETC order imbalance indicator every 5 seconds until the ETC concludes.25 The ETC order imbalance indicator would disseminate the following information: (a) Symbol; (b) the number of shares of ETC Eligible Orders that have been matched and executed at the NOCP during the ETC, as of the time of dissemination of the ETC order imbalance indicator; (c) the size of any ETC imbalance 26 (exclusive of orders with minimum quantity instructions 27); and (d) the buy or sell direction of any ETC imbalance.28 Moreover, as proposed, the Exchange system would suspend execution of ETC Eligible Orders in a security whenever it detects: (i) An order in that same security resting on the Nasdaq continuous book in after-hours trading 29 with a bid (offer) price that is higher than (lower than) the NOCP for that security, as determined by the Closing Cross; 30 or (ii) the after-hours trading last sale price, or the best afterhours trading bid (offer) price, of the necessarily enter the ETC with the same relative priority that they had prior to the ETC. See id. Moreover, due to the time required for the system to process ETC Eligible LOC Orders for participation in the ETC, it is possible that an ETC Eligible LOC Order would enter the ETC with a lower time priority than an ETC Order entered after the Closing Cross concludes. See id. 23 See proposed Rule 4755(b)(2). All ETC Eligible Orders executed in the ETC would be trade reported anonymously and disseminated via the consolidated tape. See proposed Rule 4755(b)(5). 24 See proposed Rule 4755(b)(4). 25 See proposed Rule 4755(b)(1). 26 ETC imbalance would mean the number of shares of buy or sell ETC Eligible Orders that have not been matched during the ETC. See proposed Rule 4755(a)(4). 27 The Exchange states that it proposes to exclude ETC Eligible Orders with minimum quantity instructions from the calculation of the size of the ETC imbalance because the size of such orders may be misleading to participants, given that such orders would rest on the book and would not execute if the minimum quantity instruction was not satisfied. See Amendment No. 1 at 18–19. 28 See proposed Rule 4755(a)(8). 29 See proposed Rule 4755(a)(1) (defining ‘‘after hours trading’’ to mean trading in a Nasdaq-listed security that commences immediately following the conclusion of the Closing Cross, during post-market hours, as that term is defined in Equity 1, Section 1(a)(9)). 30 According to the Exchange, this limitation would prevent the Exchange from trading through orders on its own continuous book in after-hours trading that do not participate in the ETC. See Amendment No. 1 at 6. E:\FR\FM\01NON1.SGM 01NON1 60320 Federal Register / Vol. 86, No. 208 / Monday, November 1, 2021 / Notices security other than on the Nasdaq continuous book is either more than 0.5% or $0.01 higher than (lower than) the NOCP for that security as determined by the Closing Cross, whichever is greater.31 The system would resume execution of ETC Eligible Orders in a security in scenario (i) if and when the system determines, during the ETC, that the Nasdaq continuous book in after-hours trading is clear of resting orders in that security with a bid (offer) price that is higher than (lower than) the NOCP for that security, as determined by the Closing Cross.32 The system would resume execution of ETC Eligible Orders in a security in scenario (ii) if and when the after-hours trading last sale price or the best after-hours trading bid (offer) price of the underlying security (other than on the Nasdaq continuous book) returns to within the greater of the 0.5% or $0.01 thresholds during the ETC.33 If execution of ETC Eligible Orders remains suspended as of the conclusion of the ETC, then the system would cancel any remaining unexecuted ETC Eligible Orders in that security.34 The Exchange represents that it will surveil the ETC for any unfair or manipulative trading practices.35 III. Summary of Comments and the Exchange’s Response The Commission received a comment letter opposing the proposal.36 This commenter states that the Exchange has not effectively identified the purpose, use case, or client demand for the ETC,37 and expresses the concern that the ETC would diminish the quality of the Closing Cross process, encourage harmful arbitrage behavior, and negatively impact aspects of the continuous market.38 lotter on DSK11XQN23PROD with NOTICES1 31 See proposed Rule 4755(b)(3). According to the Exchange, this limitation would help to mitigate the risk that orders in Nasdaq-listed securities that participate in the ETC would execute at a price that is no longer reflective of the value of the security on trading venues other than Nasdaq. See Amendment No. 1 at 7. 32 See proposed Rule 4755(b)(3). 33 See id. 34 See id. 35 See Amendment No. 1 at 19. As proposed, the Exchange intends to introduce the ETC and begin accepting ETC Orders during the Fourth Quarter of 2021. See id. at 14. The Exchange states that, at least 30 days prior to launching the ETC and beginning to accept ETC Orders, it would publish a Nasdaq Trader Alert announcing the launch date. See id. 36 See letter from Mehmet Kinak, Global Head of Systematic Trading & Market Structure and Jonathan Siegel, Senior Legal Counsel—Legislative & Regulatory Affairs, T. Rowe Price, to Vanessa Countryman, Secretary, Commission, dated August 18, 2021. 37 See id. at 1. 38 See id. This commenter also provides alternative recommendations for the closing auction. See id. at 3. VerDate Sep<11>2014 18:03 Oct 29, 2021 Jkt 256001 Specifically, this commenter does not believe that the ETC would enhance the Closing Cross process, or improve price discovery or liquidity in the Closing Cross.39 Rather, this commenter believes that the ETC could detract from the Closing Cross because some market participants would withhold their interest from the Closing Cross and refrain from submitting orders until they know the NOCP.40 This, according to the commenter, would detract from the robustness and quality of the closing price.41 This commenter also believes that the ETC would allow sophisticated participants to engage in arbitrage by quickly identifying price differences between the Closing Cross price and the prevailing after-hours market price before other participants.42 According to the commenter, these sophisticated participants could use ETC-only order types and ETC imbalance information to opportunistically submit orders to engage with other participants’ ETC activity at a previously determined fixed price using the ETC and unwind risk in the after-market at prices that more accurately reflect the current value of the security.43 Finally, this commenter states that the availability of information going into the closing auction becomes the principal driver of price discovery in the continuous market in the last five to ten minutes of trading.44 According to the commenter, if participants do not submit their true interest in hopes they could trade in greater size utilizing the ETC, the breadth and quality of market information could be affected and result in more uncertainty and volatility in continuous trading behavior leading into the close.45 39 See id. at 1. This commenter also distinguishes the ETC from off-exchange trading venues’ mechanisms that allow their participants to receive the NOCP, and states that these other mechanisms are pre-arranged matched trades or guaranteed close trades that (unlike the ETC) are received prior to the Closing Cross and the determination of the closing price. See id. at 2. This commenter also states that when a trade is sent to an off-exchange mechanism after the Closing Cross, it is generally a trade that is executed by a broker in a principal capacity, and these transactions tend to be ‘‘clean-up’’ trades for orders that did not complete in the auction or trades to facilitate other specific needs of a client. See id. The commenter believes that these existing cleanup and facilitation mechanisms generally work well and does not believe there is a void that the Exchange needs to fill in this regard. See id. 40 See id. at 1–2. 41 See id. at 2. This commenter also expresses the concern that Commission approval of the ETC might encourage others to offer similar functions that would likely further detract from participation and price discovery in the closing auction. See id. 42 See id. at 3. 43 See id. 44 See id. 45 See id. PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 In its response letter, the Exchange disagrees with the commenter’s concerns that the ETC would threaten the integrity of the Closing Cross.46 The Exchange reiterates that the ETC would compete with other venues that already offer mechanisms that enable their customers to execute orders at the Closing Cross price after the Closing Cross concludes.47 The Exchange also does not believe that the ETC would siphon orders away from the Closing Cross.48 According to the Exchange, the Closing Cross is robust, efficient, and affords its participants reasonable assurance that their orders will execute, and the published indicative price and order imbalance information prior to the commencement of the Closing Cross enable its participants to mitigate their risks of participating in the Closing Cross.49 The Exchange believes that the ETC should not significantly alter the behavior of participants for which execution assurance is important,50 and that the ETC could bolster participants’ willingness to participate in the Closing Cross because the ETC would provide an added opportunity for their LOC orders to execute at the Closing Cross price.51 The Exchange further states that it expects participants to use the ETC as a ‘‘clean-up’’ mechanism for executing orders that are not executed in the Closing Cross or to facilitate other specific client needs.52 46 See letter from Brett M. Kitt, Associate Vice President & Principal Associate General Counsel, Nasdaq, to Vanessa Countryman, Secretary, Commission, dated September 9, 2021. 47 See id. at 1–2. While the Exchange would support a Commission review of ‘‘echo prints’’ of the Closing Cross price and their effects on market efficiency, the Exchange believes that, unless or until the Commission so acts, there is no reasonable basis to allow off-exchange venues to offer echo prints, while denying the Exchange the ability to do the same. See id. at 3. 48 See id. at 2. The Exchange states that, to the extent that it assesses that the ETC has become too large relative to the Closing Cross, or that members are indeed utilizing the ETC as a regular substitute for the Closing Cross, then it will propose such actions as are necessary to mitigate any threat to the Closing Cross or its price discovery function. See id. at 3. 49 See id. at 2. 50 The Exchange also states that, for those participants that seek to execute large volumes of shares at the Closing Cross price, exclusive participation in the ETC is unlikely to meet their needs, as ETC-only orders will execute only to the extent that there exists matching share volume in the ETC that is sufficient to do so. See id. According to the Exchange, because it would disseminate ETC imbalance information only after the ETC commences, participants in the ETC would have less assurance about the outcome of their participation than when they participate in the Closing Cross, or in the Closing Cross and ETC together. See id. 51 See id. 52 See id. The Exchange also states that market forces should determine whether the market for this E:\FR\FM\01NON1.SGM 01NON1 Federal Register / Vol. 86, No. 208 / Monday, November 1, 2021 / Notices In addition, the Exchange does not share the commenter’s concerns regarding arbitrage, and states that any risk that ETC participants would face harm from arbitrageurs is likely to be considerably less than the risks that market participants presently face when they trade after-hours.53 The Exchange also states that because it would suspend ETC executions if significant deviations emerge between the Closing Cross price and the after-hours market price of a security, this should limit the instances in which egregious arbitrage occurs.54 Finally, the Exchange reiterates that participation in the ETC is voluntary, and therefore any participant that is concerned about arbitrageurs is free to not participate in the ETC or cancel its orders in the ETC.55 IV. Proceedings To Determine Whether To Approve or Disapprove SR– NASDAQ–2021–040, as Modified by Amendment No. 1, and Grounds for Disapproval Under Consideration lotter on DSK11XQN23PROD with NOTICES1 The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 56 to determine whether the proposed rule change, as modified by Amendment No. 1, should be approved or disapproved. Institution of proceedings is appropriate at this time in view of the legal and policy issues raised by the proposal, as discussed below. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change, as modified by Amendment No. 1. Pursuant to Section 19(b)(2)(B) of the Act,57 the Commission is providing notice of the grounds for disapproval under consideration. As described above, the Exchange has proposed to adopt the ETC, which would be a fiveminute process immediately following the Closing Cross during which ETC Eligible Orders could match and execute against other ETC Eligible Orders continuously at the NOCP.58 As service is already saturated and whether there is new room for competition. See id. 53 See id. at 3. 54 See id. 55 See id. 56 15 U.S.C. 78s(b)(2)(B). 57 Id. 58 However, as described above, the Exchange would suspend execution of ETC Eligible Orders in a security whenever it detects: (i) An order in that same security resting on the Nasdaq continuous book in after-hours trading with a bid (offer) price VerDate Sep<11>2014 18:03 Oct 29, 2021 Jkt 256001 proposed, the Exchange would disseminate an ETC order imbalance indicator during the ETC, which would include certain information regarding ETC Eligible Orders. As described above, the Commission has received a commenter letter that expresses concerns regarding the potential impact of the ETC on the Closing Cross and on continuous trading, and the potential for the ETC to encourage arbitrage behavior. The Commission has also received a response letter from the Exchange. Moreover, on October 25, 2021, the Exchange submitted an amendment to the proposed rule change. The Commission is instituting proceedings to allow for additional analysis of, and input from commenters with respect to, the consistency of the proposal with Sections 6(b)(5) 59 and 6(b)(8) 60 of the Act. Section 6(b)(5) of the Act requires that the rules of a national securities exchange be designed, among other things, 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, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act requires that the rules of a national securities exchange not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. V. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their data, views, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested that is higher than (lower than) the NOCP for that security; or (ii) the after-hours trading last sale price, or the best after-hours trading bid (offer) price, of the security (other than on the Nasdaq continuous book) is more than 0.5% or $0.01 higher than (lower than) the NOCP for that security, whichever is greater. The Exchange would resume execution of ETC Eligible Orders in a security in scenario (i) if and when the system determines, during the ETC, that the Nasdaq continuous book in after-hours trading is clear of resting orders in that security with a bid (offer) price that is higher than (lower than) the NOCP. The Exchange would resume execution of ETC Eligible Orders in a security in scenario (ii) if and when the after-hours trading last sale price or the best after-hours trading bid (offer) price of the security (other than on the Nasdaq continuous book) returns to within the greater of the 0.5% or $0.01 thresholds during the ETC. 59 15 U.S.C. 78f(b)(5). 60 15 U.S.C. 78f(b)(8). PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 60321 persons concerning whether the proposed rule change, as modified by Amendment No. 1, is consistent with Section 6(b)(5), 6(b)(8), or any other provision of the Act, or rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of data, views, and arguments, the Commission will consider, pursuant to Rule 19b–4 under the Act,61 any request for an opportunity to make an oral presentation.62 Interested persons are invited to submit written data, views, and arguments regarding whether the proposed rule change, as modified by Amendment No. 1, should be approved or disapproved by November 22, 2021. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by December 6, 2021. 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 No. SR– NASDAQ–2021–040 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 No. SR–NASDAQ–2021–040. The 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 61 17 CFR 240.19b–4. 19(b)(2) of the Act, as amended by the Securities Acts Amendments of 1975, Pub. L. 94– 29 (June 4, 1975), grants to the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Acts Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 62 Section E:\FR\FM\01NON1.SGM 01NON1 60322 Federal Register / Vol. 86, No. 208 / Monday, November 1, 2021 / Notices 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 No. SR–NASDAQ–2021–040 and should be submitted by November 22, 2021. Rebuttal comments should be submitted by December 6, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.63 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–23670 Filed 10–29–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93424; File No. SR–MIAX– 2021–49] Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt an Incentive Program for Market Makers in SPIKES® Options lotter on DSK11XQN23PROD with NOTICES1 October 26, 2021. Pursuant to the provisions of 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 October 12, 2021, Miami International Securities Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III 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. 63 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 3(a)(57). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Sep<11>2014 18:03 Oct 29, 2021 Jkt 256001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the MIAX Options Fee Schedule (the ‘‘Fee Schedule’’) to adopt an incentive program for Market Makers 3 in SPIKES® options. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend the Fee Schedule to implement a SPIKES Options Market Maker Incentive Program (the ‘‘Incentive Program’’) for the period beginning October 1, 2021, and ending December 31, 2021.4 The Incentive Program is designed to improve liquidity, volume, and quote width spreads in SPIKES options. Technical details regarding the Incentive Program were published in a Regulatory Circular on September 30, 2021.5 The Exchange originally filed this proposal on September 30, 2021, (SR–MIAX–2021–45). On October 12, 2021, the Exchange withdrew SR– MIAX–2021–45 and refiled this proposal. 3 The term ‘‘Market Makers’’ refers to ‘‘Lead Market Makers’’, ‘‘Primary Lead Market Makers’’ and ‘‘Registered Market Makers’’ collectively. See Exchange Rule 100. 4 The Exchange notes that at the end of the period, the Program will expire unless the Exchange files another 19b–4 Filing to amend its fees. 5 See MIAX Options Regulatory Circular 2021–56, SPIKES Options Market Maker Incentive Program (September 30, 2021) available at https:// www.miaxoptions.com/sites/default/files/circularfiles/MIAX_Options_RC_2021_56.pdf. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 Background On October 12, 2018, the Exchange received approval from the Commission to list and trade options on the SPIKES® Index, which measures expected 30-day volatility of the SPDR® S&P 500 ETF Trust (commonly known and referred to by its ticker symbol, ‘‘SPY’’).6 The Exchange adopted its initial SPIKES transaction fees on February 15, 2019.7 Options on the SPIKES Index began trading on the Exchange on February 19, 2019. SPIKES Options Market Maker Incentive Program The Exchange proposes to implement a SPIKES Options Market Maker Incentive Program for SPIKES options to incentivize Market Makers to improve liquidity, available volume, and the quote spread width of SPIKES options. To be eligible to participate in the Incentive Program, a Market Maker must meet certain minimum requirements related to quote spread width in certain in-the-money (ITM) and out-of-themoney (OTM) options as determined by the Exchange and communicated to Members via Regulatory Circular.8 Market Makers must also satisfy a minimum time in the market in the front 2 expiry months of 70%, and have an average quote size of 25 contracts. The Exchange proposes to establish two separate incentive compensation pools that will be used to compensate Market Makers that satisfy the criteria pursuant to the proposed Incentive Program. Incentive 1 Pool The first pool (Incentive 1) will be a total amount of $40,000 per month, which will be allocated to Market Makers that meet the minimum requirements of the Incentive Program. Market Makers will be required to meet minimum spread width requirements in a select number of ITM and OTM SPIKES option contracts as determined by the Exchange and communicated to 6 See Securities Exchange Act Release No. 84417 (October 12, 2018), 83 FR 52865 (October 18, 2018) (SR–MIAX–2018–14) (Order Granting Approval of a Proposed Rule Change by Miami International Securities Exchange, LLC to List and Trade on the Exchange Options on the SPIKES® Index). 7 See Securities Exchange Release No. 85283 (March 11, 2019), 84 FR 9567 (March 15, 2019) (SR– MIAX–2019–11). On September 30, 2020, the Exchange filed its proposal to, among other things, reorganize the Fee Schedule to adopt new Section 1(b), Proprietary Products Exchange Fees, and moved the fees and rebates for SPIKES options into new Section 1(b)(i). See Securities Exchange Act Release No. 90146 (October 9, 2020), 85 FR 65443 (October 15, 2020) (SR–MIAX–2020–32). 8 Supra note 5. E:\FR\FM\01NON1.SGM 01NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 208 (Monday, November 1, 2021)]
[Notices]
[Pages 60318-60322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23670]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93428; File No. SR-NASDAQ-2021-040]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Instituting Proceedings 
To Determine Whether To Approve or Disapprove a Proposed Rule Change, 
as Modified by Amendment No. 1, To Establish the ``Extended Trading 
Close'' and a New ``Extended Trading Close'' Order Type

October 26, 2021.

I. Introduction

    On July 12, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to add Equity 4, Rule (``Rule'') 4755 and amend 
Rules 4702 and 4703 to establish the ``Extended Trading Close,'' as 
well as the ``ETC Eligible LOC'' and ``Extended Trading Close'' order 
types. The proposed rule change was published for comment in the 
Federal Register on July 28, 2021.\3\ On September 9, 2021, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On October 25, 2021, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and superseded the proposed rule change as originally filed.\6\ 
The Commission is publishing this notice and order to solicit comments 
on the proposed rule change, as modified by Amendment No. 1, from 
interested persons and to institute proceedings pursuant to Section 
19(b)(2)(B) of the Act \7\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92466 (July 22, 
2021), 86 FR 40667. The comment letters received on the proposed 
rule change are available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2021-040/srnasdaq2021040.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92905, 86 FR 51390 
(September 15, 2021). The Commission designated October 26, 2021 as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ In Amendment No. 1, the Exchange modified the scenarios in 
which executions in the Extended Trading Close would be suspended, 
and made other conforming and clarifying changes throughout the 
proposed rule change. Amendment No. 1 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2021-040/srnasdaq2021040.htm.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

    The Exchange proposes to adopt the Extended Trading Close 
(``ETC''), which would be a process during which eligible orders in 
Nasdaq-listed securities \8\ may match and execute at the Nasdaq 
official closing price (``NOCP''), as determined by the Nasdaq closing 
cross or the LULD closing cross (together, the ``Closing Cross''), for 
a five-minute period immediately following the Closing Cross.\9\ 
According to the Exchange, the ETC would be complementary to the 
Closing Cross and is not intended or expected to be a substitute for 
the Closing Cross,\10\ and it would allow participants an additional

[[Page 60319]]

opportunity to access liquidity in Nasdaq-listed securities at the NOCP 
for a limited period of time after the Closing Cross concludes.\11\
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    \8\ The Exchange states that it is appropriate to limit 
participation in the ETC to orders in Nasdaq-listed securities, 
given the Exchange's role as the primary listing market and its 
commitment in investing in and enhancing the Closing Cross (as 
defined herein) for Nasdaq-listed securities. See Amendment No. 1 at 
20. The Exchange also states that the vast majority of participants 
looking to trade at the closing price participate in the primary 
listing market's closing auction and do not route orders to non-
primary listing market destinations. See id.
    \9\ See proposed Rule 4755(a)(5).
    \10\ See Amendment No. 1 at 18. The Exchange states that it does 
not expect the ETC to have an impact on participation in the Closing 
Cross, and that a number of off-exchange venues already offer their 
participants the ability to receive the NOCP after the Closing 
Cross. See id.
    \11\ See id. at 4. The Exchange states that, for participants 
with limit-on-close (``LOC'') orders that do not execute in full in 
the Closing Cross, the ETC would give these LOC orders another 
opportunity to execute at the NOCP before the after-market trading 
price moves far away from it. See id. at 15. The Exchange also 
states that, with the ETC, participants would have an opportunity to 
access liquidity at the NOCP even if they did not participate in the 
Closing Cross. See id. According to the Exchange, by increasing 
opportunities for participants to execute their orders at the NOCP, 
it would allow them to execute sizable orders without market impact 
as a complement to the Closing Cross and as an alternative to after-
hours trading. See id.
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    As proposed, only ``ETC Orders'' and ``ETC Eligible LOC Orders'' 
(together, ``ETC Eligible Orders'') would be eligible to participate in 
the ETC.\12\ An ETC Order would be a new order type for Nasdaq-listed 
securities that may be executed only during the ETC and only at the 
NOCP as determined by the Closing Cross.\13\ An ETC Order may be 
entered, cancelled, or modified between the time when the ETC commences 
and ends.\14\ If an ETC Order is not fully executed at the conclusion 
of the ETC, then any unexecuted portion of the order would be 
cancelled.\15\ An ETC Eligible LOC Order would be a LOC order for a 
Nasdaq-listed security entered through RASH or FIX \16\ that did not 
fully execute during the Closing Cross, and would participate in the 
ETC if the NOCP, as determined by the Closing Cross, is at or within 
its limit price.\17\ A participant may choose to disable a LOC order 
from participating in the ETC, in which case the system would cancel 
any shares of the LOC order that remain unexecuted after the Closing 
Cross.\18\ In addition, if a participant enters a time-in-force that 
continues after the time of the Closing Cross to a LOC order (i.e., 
closing cross/extended hours order), then such order would bypass the 
ETC.\19\ Any unexecuted portion of an ETC Eligible LOC Order may be 
cancelled or modified by the participant at any time during the ETC, 
and any unexecuted portion of an ETC Eligible LOC Order at the 
conclusion of the ETC would be cancelled.\20\
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    \12\ ETC Orders and ETC Eligible LOC Orders may only execute 
against other ETC Orders and ETC Eligible LOC Orders. See proposed 
Rules 4702(b)(17)(A) and 4702(b)(12)(A).
    \13\ See proposed Rule 4702(b)(17)(A). An ETC Order may be 
assigned a minimum quantity order attribute, and the minimum 
quantity condition may be satisfied only by execution against one or 
more orders, each of which must have a size that satisfies the 
minimum quantity condition. See proposed Rule 4702(b)(17)(B). See 
also Amendment No. 1 at 13-14 n.18. If no orders in the ETC satisfy 
a minimum quantity condition for an ETC Order, then the ETC Order 
with a minimum quantity condition would rest on the Nasdaq book in 
time priority unless and until there is an order that can satisfy 
the minimum quantity condition to allow for execution of the ETC 
Order; if no such order is present in the ETC at its conclusion, 
then the ETC Order would cancel. See proposed Rule 4702(b)(17)(B). 
Moreover, an ETC Order may be referred to as having a time-in-force 
of ``ETC.'' See proposed Rule 4703(a)(8).
    \14\ The system would reject an ETC Order that is submitted 
prior to the commencement of the ETC. See proposed Rule 
4702(b)(17)(A). In addition, the system would not accept an ETC 
Order entered on any day when insufficient interest exists in the 
system to conduct a Closing Cross for that security, or when the 
Exchange invokes contingency procedures due to a disruption that 
prevents the execution of the Closing Cross. See id.
    \15\ See id.
    \16\ The Exchange states that it typically assumes a more active 
role in managing the order flow submitted by users of the RASH and 
FIX protocols, and in contrast, users of the OUCH and FLITE 
protocols generally assume a more active role in managing their 
order flow. See Amendment No. 1 at 15-16.
    \17\ See proposed Rule 4702(b)(12)(A). The Exchange also 
proposes to amend Rule 4702(b)(12) to describe the participation of 
LOC orders in the LULD closing cross.
    \18\ See id. Post-only orders, midpoint peg post-only orders, 
supplemental orders, and market maker peg orders may not operate as 
ETC Eligible LOC Orders, and ETC Eligible LOC Orders would be 
rejected if they are assigned a pegging attribute. See Amendment No. 
1 at 9 n.14.
    \19\ See proposed Rule 4702(b)(12)(B).
    \20\ See proposed Rule 4702(b)(12)(A).
---------------------------------------------------------------------------

    As proposed, the ETC would commence upon the conclusion of the 
Closing Cross and end at 4:05 p.m. (or 1:05 p.m. on a day when the 
Exchange closes early).\21\ The system would match and execute ETC 
Eligible Orders continuously throughout the ETC, in time priority order 
based on the time the system received each order into the ETC,\22\ and 
at the NOCP as determined by the Closing Cross.\23\ If fewer than all 
shares of ETC Eligible Orders are executed by the conclusion of the 
ETC, then the system would cancel any unexecuted portions of such 
orders.\24\
---------------------------------------------------------------------------

    \21\ As proposed, the ETC would not occur for a security on any 
day when insufficient interest exists in the Exchange system to 
conduct the Closing Cross for that security or when the Exchange 
invokes contingency procedures due to a disruption that prevents the 
execution of the Closing Cross. See proposed Rule 4755(b). Moreover, 
the Exchange would cancel executions in a security that occur in the 
ETC if the Exchange nullifies the Closing Cross in that security 
pursuant to the rules governing clearly erroneous transactions. See 
id. The Exchange also states that if short sale orders in securities 
subject to Regulation SHO are permitted to execute in the Closing 
Cross pursuant to Rule 201 of Regulation SHO, then the system would 
also permit short sale executions in such securities to occur in the 
ETC; whereas the system would reject short sale orders in securities 
if short sale orders in such securities were not permitted to 
execute in the Closing Cross. See Amendment No. 1 at 8 n.11. 
Moreover, the restrictions of Rule 201 of Regulation SHO will apply 
to the ETC to the extent that the current national best bid is being 
calculated, collected, and disseminated for securities. See id.
    \22\ ETC Eligible LOC Orders would receive new timestamps upon 
entry into the ETC and prioritized amongst each other and ETC Orders 
based on the time the system received each order into the ETC. See 
Amendment No. 1 at 9. Specifically, the system would submit ETC 
Eligible LOC Orders for participation in the ETC, and would assign 
them new timestamps, in random order. See id. at 9 n.15. Therefore, 
ETC Eligible LOC Orders may not necessarily enter the ETC with the 
same relative priority that they had prior to the ETC. See id. 
Moreover, due to the time required for the system to process ETC 
Eligible LOC Orders for participation in the ETC, it is possible 
that an ETC Eligible LOC Order would enter the ETC with a lower time 
priority than an ETC Order entered after the Closing Cross 
concludes. See id.
    \23\ See proposed Rule 4755(b)(2). All ETC Eligible Orders 
executed in the ETC would be trade reported anonymously and 
disseminated via the consolidated tape. See proposed Rule 
4755(b)(5).
    \24\ See proposed Rule 4755(b)(4).
---------------------------------------------------------------------------

    Also as proposed, beginning at 4:00:05 p.m. (or 1:00:05 p.m. on a 
day when the Exchange closes early), the Exchange would disseminate by 
electronic means an ETC order imbalance indicator every 5 seconds until 
the ETC concludes.\25\ The ETC order imbalance indicator would 
disseminate the following information: (a) Symbol; (b) the number of 
shares of ETC Eligible Orders that have been matched and executed at 
the NOCP during the ETC, as of the time of dissemination of the ETC 
order imbalance indicator; (c) the size of any ETC imbalance \26\ 
(exclusive of orders with minimum quantity instructions \27\); and (d) 
the buy or sell direction of any ETC imbalance.\28\
---------------------------------------------------------------------------

    \25\ See proposed Rule 4755(b)(1).
    \26\ ETC imbalance would mean the number of shares of buy or 
sell ETC Eligible Orders that have not been matched during the ETC. 
See proposed Rule 4755(a)(4).
    \27\ The Exchange states that it proposes to exclude ETC 
Eligible Orders with minimum quantity instructions from the 
calculation of the size of the ETC imbalance because the size of 
such orders may be misleading to participants, given that such 
orders would rest on the book and would not execute if the minimum 
quantity instruction was not satisfied. See Amendment No. 1 at 18-
19.
    \28\ See proposed Rule 4755(a)(8).
---------------------------------------------------------------------------

    Moreover, as proposed, the Exchange system would suspend execution 
of ETC Eligible Orders in a security whenever it detects: (i) An order 
in that same security resting on the Nasdaq continuous book in after-
hours trading \29\ with a bid (offer) price that is higher than (lower 
than) the NOCP for that security, as determined by the Closing Cross; 
\30\ or (ii) the after-hours trading last sale price, or the best 
after-hours trading bid (offer) price, of the

[[Page 60320]]

security other than on the Nasdaq continuous book is either more than 
0.5% or $0.01 higher than (lower than) the NOCP for that security as 
determined by the Closing Cross, whichever is greater.\31\ The system 
would resume execution of ETC Eligible Orders in a security in scenario 
(i) if and when the system determines, during the ETC, that the Nasdaq 
continuous book in after-hours trading is clear of resting orders in 
that security with a bid (offer) price that is higher than (lower than) 
the NOCP for that security, as determined by the Closing Cross.\32\ The 
system would resume execution of ETC Eligible Orders in a security in 
scenario (ii) if and when the after-hours trading last sale price or 
the best after-hours trading bid (offer) price of the underlying 
security (other than on the Nasdaq continuous book) returns to within 
the greater of the 0.5% or $0.01 thresholds during the ETC.\33\ If 
execution of ETC Eligible Orders remains suspended as of the conclusion 
of the ETC, then the system would cancel any remaining unexecuted ETC 
Eligible Orders in that security.\34\
---------------------------------------------------------------------------

    \29\ See proposed Rule 4755(a)(1) (defining ``after hours 
trading'' to mean trading in a Nasdaq-listed security that commences 
immediately following the conclusion of the Closing Cross, during 
post-market hours, as that term is defined in Equity 1, Section 
1(a)(9)).
    \30\ According to the Exchange, this limitation would prevent 
the Exchange from trading through orders on its own continuous book 
in after-hours trading that do not participate in the ETC. See 
Amendment No. 1 at 6.
    \31\ See proposed Rule 4755(b)(3). According to the Exchange, 
this limitation would help to mitigate the risk that orders in 
Nasdaq-listed securities that participate in the ETC would execute 
at a price that is no longer reflective of the value of the security 
on trading venues other than Nasdaq. See Amendment No. 1 at 7.
    \32\ See proposed Rule 4755(b)(3).
    \33\ See id.
    \34\ See id.
---------------------------------------------------------------------------

    The Exchange represents that it will surveil the ETC for any unfair 
or manipulative trading practices.\35\
---------------------------------------------------------------------------

    \35\ See Amendment No. 1 at 19. As proposed, the Exchange 
intends to introduce the ETC and begin accepting ETC Orders during 
the Fourth Quarter of 2021. See id. at 14. The Exchange states that, 
at least 30 days prior to launching the ETC and beginning to accept 
ETC Orders, it would publish a Nasdaq Trader Alert announcing the 
launch date. See id.
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III. Summary of Comments and the Exchange's Response

    The Commission received a comment letter opposing the proposal.\36\ 
This commenter states that the Exchange has not effectively identified 
the purpose, use case, or client demand for the ETC,\37\ and expresses 
the concern that the ETC would diminish the quality of the Closing 
Cross process, encourage harmful arbitrage behavior, and negatively 
impact aspects of the continuous market.\38\
---------------------------------------------------------------------------

    \36\ See letter from Mehmet Kinak, Global Head of Systematic 
Trading & Market Structure and Jonathan Siegel, Senior Legal 
Counsel--Legislative & Regulatory Affairs, T. Rowe Price, to Vanessa 
Countryman, Secretary, Commission, dated August 18, 2021.
    \37\ See id. at 1.
    \38\ See id. This commenter also provides alternative 
recommendations for the closing auction. See id. at 3.
---------------------------------------------------------------------------

    Specifically, this commenter does not believe that the ETC would 
enhance the Closing Cross process, or improve price discovery or 
liquidity in the Closing Cross.\39\ Rather, this commenter believes 
that the ETC could detract from the Closing Cross because some market 
participants would withhold their interest from the Closing Cross and 
refrain from submitting orders until they know the NOCP.\40\ This, 
according to the commenter, would detract from the robustness and 
quality of the closing price.\41\
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    \39\ See id. at 1. This commenter also distinguishes the ETC 
from off-exchange trading venues' mechanisms that allow their 
participants to receive the NOCP, and states that these other 
mechanisms are pre-arranged matched trades or guaranteed close 
trades that (unlike the ETC) are received prior to the Closing Cross 
and the determination of the closing price. See id. at 2. This 
commenter also states that when a trade is sent to an off-exchange 
mechanism after the Closing Cross, it is generally a trade that is 
executed by a broker in a principal capacity, and these transactions 
tend to be ``clean-up'' trades for orders that did not complete in 
the auction or trades to facilitate other specific needs of a 
client. See id. The commenter believes that these existing clean-up 
and facilitation mechanisms generally work well and does not believe 
there is a void that the Exchange needs to fill in this regard. See 
id.
    \40\ See id. at 1-2.
    \41\ See id. at 2. This commenter also expresses the concern 
that Commission approval of the ETC might encourage others to offer 
similar functions that would likely further detract from 
participation and price discovery in the closing auction. See id.
---------------------------------------------------------------------------

    This commenter also believes that the ETC would allow sophisticated 
participants to engage in arbitrage by quickly identifying price 
differences between the Closing Cross price and the prevailing after-
hours market price before other participants.\42\ According to the 
commenter, these sophisticated participants could use ETC-only order 
types and ETC imbalance information to opportunistically submit orders 
to engage with other participants' ETC activity at a previously 
determined fixed price using the ETC and unwind risk in the after-
market at prices that more accurately reflect the current value of the 
security.\43\
---------------------------------------------------------------------------

    \42\ See id. at 3.
    \43\ See id.
---------------------------------------------------------------------------

    Finally, this commenter states that the availability of information 
going into the closing auction becomes the principal driver of price 
discovery in the continuous market in the last five to ten minutes of 
trading.\44\ According to the commenter, if participants do not submit 
their true interest in hopes they could trade in greater size utilizing 
the ETC, the breadth and quality of market information could be 
affected and result in more uncertainty and volatility in continuous 
trading behavior leading into the close.\45\
---------------------------------------------------------------------------

    \44\ See id.
    \45\ See id.
---------------------------------------------------------------------------

    In its response letter, the Exchange disagrees with the commenter's 
concerns that the ETC would threaten the integrity of the Closing 
Cross.\46\ The Exchange reiterates that the ETC would compete with 
other venues that already offer mechanisms that enable their customers 
to execute orders at the Closing Cross price after the Closing Cross 
concludes.\47\ The Exchange also does not believe that the ETC would 
siphon orders away from the Closing Cross.\48\ According to the 
Exchange, the Closing Cross is robust, efficient, and affords its 
participants reasonable assurance that their orders will execute, and 
the published indicative price and order imbalance information prior to 
the commencement of the Closing Cross enable its participants to 
mitigate their risks of participating in the Closing Cross.\49\ The 
Exchange believes that the ETC should not significantly alter the 
behavior of participants for which execution assurance is 
important,\50\ and that the ETC could bolster participants' willingness 
to participate in the Closing Cross because the ETC would provide an 
added opportunity for their LOC orders to execute at the Closing Cross 
price.\51\ The Exchange further states that it expects participants to 
use the ETC as a ``clean-up'' mechanism for executing orders that are 
not executed in the Closing Cross or to facilitate other specific 
client needs.\52\
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    \46\ See letter from Brett M. Kitt, Associate Vice President & 
Principal Associate General Counsel, Nasdaq, to Vanessa Countryman, 
Secretary, Commission, dated September 9, 2021.
    \47\ See id. at 1-2. While the Exchange would support a 
Commission review of ``echo prints'' of the Closing Cross price and 
their effects on market efficiency, the Exchange believes that, 
unless or until the Commission so acts, there is no reasonable basis 
to allow off-exchange venues to offer echo prints, while denying the 
Exchange the ability to do the same. See id. at 3.
    \48\ See id. at 2. The Exchange states that, to the extent that 
it assesses that the ETC has become too large relative to the 
Closing Cross, or that members are indeed utilizing the ETC as a 
regular substitute for the Closing Cross, then it will propose such 
actions as are necessary to mitigate any threat to the Closing Cross 
or its price discovery function. See id. at 3.
    \49\ See id. at 2.
    \50\ The Exchange also states that, for those participants that 
seek to execute large volumes of shares at the Closing Cross price, 
exclusive participation in the ETC is unlikely to meet their needs, 
as ETC-only orders will execute only to the extent that there exists 
matching share volume in the ETC that is sufficient to do so. See 
id. According to the Exchange, because it would disseminate ETC 
imbalance information only after the ETC commences, participants in 
the ETC would have less assurance about the outcome of their 
participation than when they participate in the Closing Cross, or in 
the Closing Cross and ETC together. See id.
    \51\ See id.
    \52\ See id. The Exchange also states that market forces should 
determine whether the market for this service is already saturated 
and whether there is new room for competition. See id.

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[[Page 60321]]

    In addition, the Exchange does not share the commenter's concerns 
regarding arbitrage, and states that any risk that ETC participants 
would face harm from arbitrageurs is likely to be considerably less 
than the risks that market participants presently face when they trade 
after-hours.\53\ The Exchange also states that because it would suspend 
ETC executions if significant deviations emerge between the Closing 
Cross price and the after-hours market price of a security, this should 
limit the instances in which egregious arbitrage occurs.\54\ Finally, 
the Exchange reiterates that participation in the ETC is voluntary, and 
therefore any participant that is concerned about arbitrageurs is free 
to not participate in the ETC or cancel its orders in the ETC.\55\
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    \53\ See id. at 3.
    \54\ See id.
    \55\ See id.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2021-040, as Modified by Amendment No. 1, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \56\ to determine whether the proposed rule 
change, as modified by Amendment No. 1, should be approved or 
disapproved. Institution of proceedings is appropriate at this time in 
view of the legal and policy issues raised by the proposal, as 
discussed below. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to any of the 
issues involved. Rather, as described below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change, as modified by Amendment No. 1.
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    \56\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\57\ the Commission is 
providing notice of the grounds for disapproval under consideration. As 
described above, the Exchange has proposed to adopt the ETC, which 
would be a five-minute process immediately following the Closing Cross 
during which ETC Eligible Orders could match and execute against other 
ETC Eligible Orders continuously at the NOCP.\58\ As proposed, the 
Exchange would disseminate an ETC order imbalance indicator during the 
ETC, which would include certain information regarding ETC Eligible 
Orders. As described above, the Commission has received a commenter 
letter that expresses concerns regarding the potential impact of the 
ETC on the Closing Cross and on continuous trading, and the potential 
for the ETC to encourage arbitrage behavior. The Commission has also 
received a response letter from the Exchange. Moreover, on October 25, 
2021, the Exchange submitted an amendment to the proposed rule change.
---------------------------------------------------------------------------

    \57\ Id.
    \58\ However, as described above, the Exchange would suspend 
execution of ETC Eligible Orders in a security whenever it detects: 
(i) An order in that same security resting on the Nasdaq continuous 
book in after-hours trading with a bid (offer) price that is higher 
than (lower than) the NOCP for that security; or (ii) the after-
hours trading last sale price, or the best after-hours trading bid 
(offer) price, of the security (other than on the Nasdaq continuous 
book) is more than 0.5% or $0.01 higher than (lower than) the NOCP 
for that security, whichever is greater. The Exchange would resume 
execution of ETC Eligible Orders in a security in scenario (i) if 
and when the system determines, during the ETC, that the Nasdaq 
continuous book in after-hours trading is clear of resting orders in 
that security with a bid (offer) price that is higher than (lower 
than) the NOCP. The Exchange would resume execution of ETC Eligible 
Orders in a security in scenario (ii) if and when the after-hours 
trading last sale price or the best after-hours trading bid (offer) 
price of the security (other than on the Nasdaq continuous book) 
returns to within the greater of the 0.5% or $0.01 thresholds during 
the ETC.
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    The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the consistency 
of the proposal with Sections 6(b)(5) \59\ and 6(b)(8) \60\ of the Act. 
Section 6(b)(5) of the Act requires that the rules of a national 
securities exchange be designed, among other things, 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, and not 
be designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. Section 6(b)(8) of the Act requires that the rules 
of a national securities exchange not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78f(b)(5).
    \60\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5), 6(b)(8), or any other provision of the Act, or rules and 
regulations thereunder. Although there do not appear to be any issues 
relevant to approval or disapproval that would be facilitated by an 
oral presentation of data, views, and arguments, the Commission will 
consider, pursuant to Rule 19b-4 under the Act,\61\ any request for an 
opportunity to make an oral presentation.\62\
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    \61\ 17 CFR 240.19b-4.
    \62\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by November 22, 
2021. Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by December 6, 2021. 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 No. SR-NASDAQ-2021-040 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 No. SR-NASDAQ-2021-040. The 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

[[Page 60322]]

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 No. SR-NASDAQ-
2021-040 and should be submitted by November 22, 2021. Rebuttal 
comments should be submitted by December 6, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\63\
---------------------------------------------------------------------------

    \63\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23670 Filed 10-29-21; 8:45 am]
BILLING CODE 8011-01-P

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