Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Rule 4754 Related to Certain Order Handling in the LULD Closing Cross, 501-504 [2021-28519]

Download as PDF Federal Register / Vol. 87, No. 3 / Wednesday, January 5, 2022 / Notices Conditions were approved by the Required Majority under section 57(f). 12. Director Independence No Independent Director of a Regulated Fund will also be a director, general partner, managing member or principal, or otherwise be an ‘‘affiliated person’’ (as defined in the Act) of any Affiliated Fund. 13. Expenses The expenses, if any, associated with acquiring, holding or disposing of any securities acquired in a Co-Investment Transaction (including, without limitation, the expenses of the distribution of any such securities registered for sale under the Securities Act) will, to the extent not payable by the Advisers under their respective advisory agreements with the Regulated Funds and the Affiliated Funds, be shared by the Regulated Funds and the participating Affiliated Funds in proportion to the relative amounts of the securities held or being acquired or disposed of, as the case may be. TKELLEY on DSK125TN23PROD with NOTICE Fees 29 14. Transaction Any transaction fee (including breakup, structuring, monitoring or commitment fees but excluding brokerage or underwriting compensation permitted by section 17(e) or 57(k)) received in connection with any Co-Investment Transaction will be distributed to the participants on a pro rata basis based on the amounts they invested or committed, as the case may be, in such Co-Investment Transaction. If any transaction fee is to be held by an Adviser pending consummation of the transaction, the fee will be deposited into an account maintained by an Adviser at a bank or banks having the qualifications prescribed in section 26(a)(1), and the account will earn a competitive rate of interest that will also be divided pro rata among the participants. None of the Adviser, the Affiliated Funds, the other Regulated Funds or any affiliated person of the Affiliated Funds or the Regulated Funds will receive any additional compensation or remuneration of any kind as a result of or in connection with a Co-Investment Transaction other than (i) in the case of the Regulated Funds and the Affiliated Funds, the pro rata transaction fees described above and fees or other compensation described in Condition 2(c)(iii)(B)(z), (ii) brokerage or underwriting compensation permitted by section 17(e) or 57(k) or (iii) in the 29 Applicants are not requesting and the Commission is not providing any relief for transaction fees received in connection with any Co-Investment Transaction. VerDate Sep<11>2014 18:05 Jan 04, 2022 Jkt 256001 501 case of the Adviser, investment advisory compensation paid in accordance with investment advisory agreements between the applicable Regulated Fund(s) or Affiliated Fund(s) and its Adviser. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/nasdaq/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 15. Independence 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. If the Holders own in the aggregate more than 25 percent of the Shares of a Regulated Fund, then the Holders will vote such Shares in the same percentages as the Regulated Fund’s other shareholders (not including the Holders) when voting on (1) the election of directors; (2) the removal of one or more directors; or (3) any other matter under either the Act or applicable State law affecting the Board’s composition, size or manner of election. For the Commission, by the Division of Investment Management, under delegated authority. Dated: December 29, 2021. Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2021–28512 Filed 1–4–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93876; File No. SR– NASDAQ–2021–101] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Rule 4754 Related to Certain Order Handling in the LULD Closing Cross December 29, 2021. 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 December 22, 2021, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ 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 The Exchange proposes to a proposal to amend its rule related to certain order handling in the Limit-Up Limit-Down (‘‘LULD’’) closing cross. 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00078 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend Equity 4, Rule 4754 3 related to certain order handling in the LULD closing cross (‘‘LULD Closing Cross’’).4 On May 28, 2021, the Commission approved the Exchange’s proposal to make certain changes to the Exchange’s LULD Closing Cross, including the timing of the LULD Closing Cross, the process for determining the LULD Closing Cross price, establishing price protections for the LULD Closing Cross, the handling of on-close orders, and the imbalance information disseminated for the LULD Closing Cross.5 The Exchange has not yet implemented the proposed LULD Closing Cross changes in SR–NASDAQ– 2021–009, and recently filed to delay implementation in order to allow the Exchange additional time to test and implement these functionalities.6 During the testing conducted to date, Nasdaq has identified some changes that it wishes to make to the approved rule governing the LULD Closing Cross in Rule 4754(b)(6). Accordingly, the Exchange is submitting this proposal to 3 All Rule 4000 series referenced in this filing are within Equity 4. 4 The LULD Closing Cross is the Exchange’s auction process for executing closing trades in Nasdaq-listed securities when a Trading Pause pursuant to Rule 4120(a)(12) exists at or after 3:50 p.m. and before 4:00 p.m. ET. See Rule 4754(b)(6). 5 See Securities Exchange Act Release No. 92068 (May 28, 2021), 86 FR 29864 (June 3, 2021) (SR– NASDAQ–2021–009) (‘‘Approval Order’’). 6 See Securities Exchange Act Release No. 93250 (October 4, 2021), 86 FR 56307 (October 8, 2021) (SR–NASDAQ–2021–077). E:\FR\FM\05JAN1.SGM 05JAN1 502 Federal Register / Vol. 87, No. 3 / Wednesday, January 5, 2022 / Notices TKELLEY on DSK125TN23PROD with NOTICE amend the rule text prior to implementation. Specifically, the Exchange is proposing to provide that in the context of the LULD Closing Cross, Limit on Close (‘‘LOC’’) orders 7 entered between 3:55 p.m. ET and immediately prior to 3:58 p.m. ET (‘‘late LOC orders’’) will use the same reference prices for re-pricing as the reference prices used during the standard Nasdaq Closing Cross.8 Today, Rule 4702(b)(12) describes the treatment of late LOC orders during the standard Closing Cross. The Rule provides that late LOC orders may be entered between 3:55 p.m. ET and immediately prior to 3:58 p.m. ET provided that there is a First Reference Price 9 (i.e., the Current Reference Price 10 disseminated at 3:50 p.m. ET) or a Second Reference Price 11 (i.e., the Current Reference Price disseminated at 3:55 p.m. ET). Between 3:55 p.m. ET and immediately prior to 3:58 p.m. ET, LOC Orders can only be cancelled and/ or modified if the Participant requests that Nasdaq correct a legitimate error in the Order (e.g., Side, Size, Symbol, or Price, or duplication of an Order). LOC Orders cannot be cancelled or modified at or after 3:58 p.m. A late LOC order will be accepted at its limit price, unless its limit price is higher (lower) than the higher (lower) of the First Reference Price and the Second Reference Price for a late LOC order to buy (sell), in which case the late LOC order will be handled consistent with 7 A ‘‘Limit On Close Order’’ or ‘‘LOC Order’’ is an Order Type entered with a price that may be executed only in the Nasdaq Closing Cross, and only if the price determined by the Nasdaq Closing Cross is equal to or better than the price at which the LOC Order was entered. See Rule 4702(b)(12). 8 ‘‘Nasdaq Closing Cross’’ shall mean the process for determining the price at which orders shall be executed at the close and for executing those orders. See Rule 4754(a)(6). 9 ‘‘First Reference Price’’ shall mean the Current Reference Price in the Early Order Imbalance Indicator (‘‘EOII’’) disseminated at 3:50 p.m. ET, or 10 minutes prior to the early closing time on a day when Nasdaq closes early. See Rule 4754(a)(9). 10 ‘‘Current Reference Price’’ means the following: (i) The single price that is at or within the current Nasdaq Market Center best bid and offer at which the maximum number of shares of MOC, LOC, and IO orders can be paired; (ii) if more than one price exists under subparagraph (i), the Current Reference Price shall mean the price that minimizes any Imbalance; (iii) it more than one price exists under subparagraph (ii), the Current Reference Price shall mean the entered price at which shares will remain unexecuted in the cross; or (iv) if more than one price exists under subparagraph (iii), the Current Reference Price shall mean the price that minimizes the distance from the bid-ask midpoint of the inside quotation prevailing at the time of the order imbalance indicator dissemination. See Rule 4754(a)(7)(A). 11 ‘‘Second Reference Price’’ shall mean the Current Reference Price in the Order Imbalance Indicator (‘‘NOII’’) disseminated at 3:55 p.m. ET, or five minutes prior to the early closing time on a day when Nasdaq closes early. See Rule 4754(a)(11). VerDate Sep<11>2014 18:05 Jan 04, 2022 Jkt 256001 the Participant’s instruction that the late LOC order is to be: (1) Rejected; or (2) re-priced to the higher (lower) of the First Reference Price and the Second Reference Price.12 As stated in SR–NASDAQ–2021–009, the intent of the proposed rule change was to align the LULD Closing Cross process as closely as possible to the standard Closing Cross process, including the handling of various closing cross order types like LOC orders (and their subset, late LOC orders). As such, the Exchange amended Rule 4754(b)(6)(F)(ii) to provide that MOC, LOC, and IO orders may be entered, modified, and cancelled pursuant to Rules 4702(b)(11), 4702(b)(12), and 4702(b)(13) to allow these order types to participate in the LULD Closing Cross in the same way as a standard Closing Cross. This includes accepting late LOC orders during the LULD Closing Cross and re-pricing (in certain cases) these orders to the more aggressive of First Reference Price or Second Reference Price in the same way as a standard Closing Cross. In the context of the standard Closing Cross, the First Reference Price and the Second Reference Price, at the time of their dissemination at 3:50 p.m. ET and 3:55 p.m. ET, respectively, each represent the current price, bounded by the continuous market (i.e., the Nasdaq best bid and offer), at which paired onclose shares are maximized (with certain tie-breakers if multiple prices meet this criterion).13 SR–NASDAQ– 2021–009, however, defined the 3:50 p.m. ET reference price and 3:55 p.m. ET reference price in the context of the LULD Closing Cross as the price at which the LULD Closing Cross would execute should the cross conclude at that time, and further indicated that the reference price would be bounded by the benchmark prices.14 As described in SR–NASDAQ–2021–009, the benchmark prices represent the price range within which the LULD Closing Cross price must fall and are calculated off the last disseminated LULD Auction Collar or the LULD Band that triggered the Trading Pause, as further described in 12 Furthermore, if either the First Reference Price or the Second Reference Price is not at a permissible minimum increment, the First Reference Price or the Second Reference Price, as applicable, will be rounded (i) to the nearest permitted minimum increment (with midpoint prices being rounded up) if there is no imbalance, (ii) up if there is a buy imbalance, or (iii) down if there is a sell imbalance. The default configuration for Participants that do not specify otherwise will be to have such late LOC orders re-priced rather than rejected. See Rule 4702(b)(12). 13 See definition of Current Reference Price in Rule 4754(a)(7)(A). 14 See Approval Order at 29866. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 Rule 4754(b)(6)(E). As a result of the foregoing, in cases where a Trading Pause exists at or prior to 3:50 p.m. ET, the 3:50 and 3:55 p.m. ET reference prices in the LULD Closing Cross would not be bounded by continuous market (i.e., the Nasdaq best bid and offer) like the 3:50 and 3:55 p.m. ET reference prices in the standard Closing Cross as there was no continuous market in the halted security during those times, and those reference prices in the LULD Closing Cross would instead be bounded by the benchmark prices described above. Similarly, if a Trading Pause is triggered after 3:50 p.m. ET but before 3:55 p.m. ET, the 3:50 reference price would reflect and be bounded by the Nasdaq best bid and offer at the time of dissemination like the 3:50 reference price used in a standard Closing Cross whereas the 3:55 reference price would not. Lastly, if a Trading Pause is triggered after 3:55 p.m. ET, both the 3:50 and 3:55 reference prices would reflect and be bounded by the Nasdaq best bid and offer at the time of dissemination like the reference prices used in a standard Closing Cross. The consequence of using the LULD Closing Cross-derived reference price and not the standard Closing Cross-derived reference price may result in late LOC orders being accepted and potentially repriced to 3:50 or 3:55 p.m. ET reference prices that are not reflective of the continuous market at the time of their dissemination (i.e., reference prices disseminated at a time when trading has been paused and that are not bounded by the Nasdaq best bid and offer), and which are bounded by benchmark prices that are calculated off the last disseminated LULD Auction Collar or the LULD Band that triggered the Trading Pause. The Exchange believes that this is inconsistent with market participant expectations of how late LOC orders would be normally repriced during a closing cross process (i.e., repriced to reference prices disseminated at a time when trading has been paused and that are not bounded by the Nasdaq best bid and offer), and therefore proposes to amend late LOC order handling so that its LULD Closing Cross and standard Closing Cross processes are more consistent. Accordingly, the Exchange proposes to state in its rules that it will only accept and if needed, re-price a late LOC order in the LULD Closing Cross if a standard Closing Cross-derived reference price (i.e., First Reference Price or Second Reference Price) is available. In particular, the Exchange proposes to add the following language at the end of Rule 4754(b)(6)(F)(ii): E:\FR\FM\05JAN1.SGM 05JAN1 Federal Register / Vol. 87, No. 3 / Wednesday, January 5, 2022 / Notices With respect to LOC orders entered between 3:55 p.m. ET and immediately prior to 3:58 p.m. ET (hereinafter, ‘‘late LOC orders’’), the System will handle such orders in the LULD Closing Cross as follows: (a) If the security entered a Trading Pause prior and up to 3:50 p.m., the System will not accept late LOC orders.15 (b) If the security entered a Trading Pause after 3:50 p.m. and up to 3:55 p.m., the System will accept late LOC orders, provided that there is a First Reference Price. Such orders may then be subject to re-pricing in accordance with Rule 4702(b)(12) or rejected, in either case consistent with the Participant’s instructions.16 (c) If the security entered a Trading Pause after 3:55 p.m., the System will accept late LOC orders, provided that there is a First Reference Price or a Second Reference Price. Such orders may then be subject to re-pricing in accordance with Rule 4702(b)(12) or rejected, in either case consistent with the Participant’s instructions.17 2. Statutory Basis TKELLEY on DSK125TN23PROD with NOTICE The Exchange believes that its proposal is consistent with Section 6(b) of the Act,18 in general, and furthers the objectives of Section 6(b)(5) of the Act,19 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 because it would amend the LULD Closing Cross process with respect to certain LOC order handling as approved in SR–NASDAQ–2021–009 in order to further align the LULD Closing Cross 15 The System will not accept late LOC orders in this scenario because if a security entered a Trading Pause prior and up to 3:50 p.m. ET, there would not be a First Reference Price or a Second Reference Price for the standard Closing Cross. 16 The System will accept late LOC orders provided there is a First Reference Price because in this scenario, the security entered a Trading Pause after 3:50 p.m. ET (but before 3:55 p.m. ET) so the First Reference Price would be disseminated at 3:50 p.m. ET for the standard Closing Cross but the Second Reference Price for the standard Closing Cross would not be disseminated at 3:55 p.m. ET. The option to have the Participant’s aggressively priced late LOC order rejected instead of re-priced is consistent with the standard Closing Cross. See Rule 4702(b)(12). 17 The System will accept late LOC orders provided there is a First Reference Price or Second Reference Price because in this scenario, the security entered a Trading Pause after 3:55 p.m. ET so both the First Reference Price and the Second Reference Price would be disseminated for the standard Closing Cross. 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 18:05 Jan 04, 2022 Jkt 256001 with the standard Nasdaq Closing Cross. Specifically, the Exchange is proposing to provide in Rule 4754(b)(6)(F)(ii) that it will only accept and if needed, reprice a late LOC order in the LULD Closing Cross if a First Reference Price or Second Reference Price for the standard Closing Cross is available, identical to the handling of late LOC orders for the standard Closing Cross. As discussed above, in the context of the standard Closing Cross, the First Reference Price and the Second Reference Price, at the time of their dissemination at 3:50 p.m. ET and 3:55 p.m. ET, respectively, each represent the current price, bounded by the continuous market (i.e., the Nasdaq best and offer), at which paired on-close shares are maximized. SR–NASDAQ– 2021–009, however, defined the 3:50 p.m. ET reference price and 3:55 p.m. ET reference price in the context of the LULD Closing Cross as the price, bounded by the benchmark prices, at which the LULD Closing Cross would execute should the cross conclude at that time. Because the benchmark prices are based on the LULD Auction Collar or LULD Band instead of the continuous market, the consequence of using the LULD Closing Cross-derived reference price and not the standard Closing Cross-derived reference price may result in late LOC orders being accepted and potentially repriced to 3:50 or 3:55 reference prices that are not reflective of the continuous market at the time of their dissemination (i.e., reference prices disseminated at a time when trading has been paused and that are not bounded by the Nasdaq best bid and offer), and which are bounded by benchmark prices that are calculated off the last disseminated LULD Auction Collar or the LULD Band that triggered the Trading Pause. The Exchange believes that this is an undesirable outcome and contrary to market participant expectations of how a late LOC order would normally be repriced by the Exchange. The Exchange believes that the proposed changes will align the LULD Closing Cross with the standard Closing Cross more closely, thereby promoting a more consistent experience for market participants, and reducing any potential confusion regarding Nasdaq’s closing processes. 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. Rather, the proposed changes would allow the Exchange to make certain changes to the PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 503 Exchange’s rules and functionality related to certain LOC order handling in the LULD Closing Cross in a manner consistent with the current standard Closing Cross. Ultimately, the Exchange believes that the proposed changes will render the LULD Closing Cross more attractive to market participants by providing a more consistent experience for Nasdaq’s closing processes. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2021–101 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2021–101. 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 E:\FR\FM\05JAN1.SGM 05JAN1 504 Federal Register / Vol. 87, No. 3 / Wednesday, January 5, 2022 / Notices amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NASDAQ–2021–101 and should be submitted on or before January 26, 2022. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2021–28519 Filed 1–4–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93887; File No. SR–C2– 2021–019] Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to Certain Fine Amounts in Rule 13.15, Which Governs the Exchange’s Minor Rule Violation Plan, and NonSubstantive Clarifying Changes TKELLEY on DSK125TN23PROD with NOTICE December 30, 2021. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 16, 2021, Cboe C2 Exchange, Inc. (the ‘‘Exchange’’ or ‘‘C2’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:05 Jan 04, 2022 Jkt 256001 publishing this notice to solicit comments on the proposed rule change from interested persons and approving the proposal on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 13.15, which governs the Exchange’s Minor Rule Violation Plan (‘‘MRVP’’), in connection with applicable fines, as well as a clarifying, nonsubstantive change. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ options/regulation/rule_filings/ctwo/), at the Exchange’s Office of the Secretary, 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 III 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 its MRVP in Rule 13.15(g)(14) in connection with the fine schedule applicable for minor rule violations of a Market-Maker’s quoting obligations and proposes to update language in Chapter 13 to reflect recent changes to Cboe Exchange, Inc. (‘‘Cboe Options’’) MRVP. Chapter 13 of the C2 Rulebook incorporates Cboe Options Chapter 13, in most part, by reference. Rule 13.15 provides for disposition of specific violations through assessment of fines in lieu of conducting a formal disciplinary proceeding. Rule 13.15(g) sets forth the list of specific Exchange Rules under which a Trading Permit Holder (‘‘TPH’’) or person associated with or employed by a TPH may be subject to a fine for violations of such Rules and the applicable fines that may be imposed by the Exchange. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 The proposed rule change amends the fine schedule applicable to MakerMakers for failure to meet Exchange continuous quoting obligations. The Exchange notes that because Cboe Options Rule 13.15(g)(9) 3 applies to violations of Cboe Options’ MarketMaker quoting obligations, this subparagraph is inapplicable to MarketMakers on C2. Instead, the Exchange maintains its own Rule 13.15(g)(14),4 which governs minor rule violations of C2 Market-Makers’ continuous quoting obligations. Specifically, Rule 13.15(g)(14) (13.15(g)(9), as amended) 5 provides that a fine will be imposed upon a Market-Maker in accordance with the fine schedule set forth below for failure to meet its continuous quoting obligations (Rule 5.52(d)): For the first offense during any rolling 24-month period, the fine schedule imposed by Rule 13.15(g)(14) currently permits the Exchange to apply a fine ranging between $2,000 and $4,000. For subsequent offenses during the same period, the fine schedule currently permits the Exchange to apply a fine ranging between $4,000 and $5,000. The proposed rule change updates the fine schedule to provide that, during any rolling 24-month period, the Exchange may give a Letter of Caution for a first offense, may apply a fine of $1,500 for a second offense, may apply a fine of $3,000 for a third offense,6 and may proceed with formal disciplinary action for subsequent offenses. As is the case for all rule violations covered under Rule 13.15(g), the Exchange may determine that a violation of MarketMaker quoting obligations is intentional, egregious, or otherwise not minor in nature and choose to proceed under the Exchange’s formal disciplinary rules rather than its MRVP.7 The Exchange may continue to aggregate individual 3 Previously Cboe Options Rule 13.15(g)(14). The paragraphs in Cboe Options Rule 13.15(g) were recently renumbered. See Securities Exchange Release No. 92702 (August 18, 2021), 86 FR 47346 (August 24, 2021) (SR–CBOE–2021–045). As a result, the proposed rule change updates Rules 13.15(g)(6), (g)(14), and (g)(19) to Rules (g)(4), (g)(9), and (g)(14), respectively, as well as references where applicable, to be consistent with the recently renumbered paragraphs in Cboe Options Rule 13.15(g). 4 See id. 5 See id. 6 The Exchange notes that Rule 13.15(a) authorizes the Exchange to impose a fine, not to exceed $5,000, for minor rule violations in lieu of commencing a disciplinary proceeding. Additionally, any fine imposed pursuant to Rule 13.15 that (1) does not exceed $2,500 and (2) is not contested, shall be reported by the Exchange to the Commission on a periodic, rather than a current, basis, except as may otherwise be required by Exchange Act Rule 19d–1 and by any other regulatory authority. 7 See Rule 13.15(f). E:\FR\FM\05JAN1.SGM 05JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 3 (Wednesday, January 5, 2022)]
[Notices]
[Pages 501-504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28519]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93876; File No. SR-NASDAQ-2021-101]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4754 Related to 
Certain Order Handling in the LULD Closing Cross

December 29, 2021.
    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 December 22, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to a proposal to amend its rule related to 
certain order handling in the Limit-Up Limit-Down (``LULD'') closing 
cross.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Equity 4, Rule 
4754 \3\ related to certain order handling in the LULD closing cross 
(``LULD Closing Cross'').\4\ On May 28, 2021, the Commission approved 
the Exchange's proposal to make certain changes to the Exchange's LULD 
Closing Cross, including the timing of the LULD Closing Cross, the 
process for determining the LULD Closing Cross price, establishing 
price protections for the LULD Closing Cross, the handling of on-close 
orders, and the imbalance information disseminated for the LULD Closing 
Cross.\5\ The Exchange has not yet implemented the proposed LULD 
Closing Cross changes in SR-NASDAQ-2021-009, and recently filed to 
delay implementation in order to allow the Exchange additional time to 
test and implement these functionalities.\6\
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    \3\ All Rule 4000 series referenced in this filing are within 
Equity 4.
    \4\ The LULD Closing Cross is the Exchange's auction process for 
executing closing trades in Nasdaq-listed securities when a Trading 
Pause pursuant to Rule 4120(a)(12) exists at or after 3:50 p.m. and 
before 4:00 p.m. ET. See Rule 4754(b)(6).
    \5\ See Securities Exchange Act Release No. 92068 (May 28, 
2021), 86 FR 29864 (June 3, 2021) (SR-NASDAQ-2021-009) (``Approval 
Order'').
    \6\ See Securities Exchange Act Release No. 93250 (October 4, 
2021), 86 FR 56307 (October 8, 2021) (SR-NASDAQ-2021-077).
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    During the testing conducted to date, Nasdaq has identified some 
changes that it wishes to make to the approved rule governing the LULD 
Closing Cross in Rule 4754(b)(6). Accordingly, the Exchange is 
submitting this proposal to

[[Page 502]]

amend the rule text prior to implementation. Specifically, the Exchange 
is proposing to provide that in the context of the LULD Closing Cross, 
Limit on Close (``LOC'') orders \7\ entered between 3:55 p.m. ET and 
immediately prior to 3:58 p.m. ET (``late LOC orders'') will use the 
same reference prices for re-pricing as the reference prices used 
during the standard Nasdaq Closing Cross.\8\
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    \7\ A ``Limit On Close Order'' or ``LOC Order'' is an Order Type 
entered with a price that may be executed only in the Nasdaq Closing 
Cross, and only if the price determined by the Nasdaq Closing Cross 
is equal to or better than the price at which the LOC Order was 
entered. See Rule 4702(b)(12).
    \8\ ``Nasdaq Closing Cross'' shall mean the process for 
determining the price at which orders shall be executed at the close 
and for executing those orders. See Rule 4754(a)(6).
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    Today, Rule 4702(b)(12) describes the treatment of late LOC orders 
during the standard Closing Cross. The Rule provides that late LOC 
orders may be entered between 3:55 p.m. ET and immediately prior to 
3:58 p.m. ET provided that there is a First Reference Price \9\ (i.e., 
the Current Reference Price \10\ disseminated at 3:50 p.m. ET) or a 
Second Reference Price \11\ (i.e., the Current Reference Price 
disseminated at 3:55 p.m. ET). Between 3:55 p.m. ET and immediately 
prior to 3:58 p.m. ET, LOC Orders can only be cancelled and/or modified 
if the Participant requests that Nasdaq correct a legitimate error in 
the Order (e.g., Side, Size, Symbol, or Price, or duplication of an 
Order). LOC Orders cannot be cancelled or modified at or after 3:58 
p.m.
---------------------------------------------------------------------------

    \9\ ``First Reference Price'' shall mean the Current Reference 
Price in the Early Order Imbalance Indicator (``EOII'') disseminated 
at 3:50 p.m. ET, or 10 minutes prior to the early closing time on a 
day when Nasdaq closes early. See Rule 4754(a)(9).
    \10\ ``Current Reference Price'' means the following: (i) The 
single price that is at or within the current Nasdaq Market Center 
best bid and offer at which the maximum number of shares of MOC, 
LOC, and IO orders can be paired; (ii) if more than one price exists 
under subparagraph (i), the Current Reference Price shall mean the 
price that minimizes any Imbalance; (iii) it more than one price 
exists under subparagraph (ii), the Current Reference Price shall 
mean the entered price at which shares will remain unexecuted in the 
cross; or (iv) if more than one price exists under subparagraph 
(iii), the Current Reference Price shall mean the price that 
minimizes the distance from the bid-ask midpoint of the inside 
quotation prevailing at the time of the order imbalance indicator 
dissemination. See Rule 4754(a)(7)(A).
    \11\ ``Second Reference Price'' shall mean the Current Reference 
Price in the Order Imbalance Indicator (``NOII'') disseminated at 
3:55 p.m. ET, or five minutes prior to the early closing time on a 
day when Nasdaq closes early. See Rule 4754(a)(11).
---------------------------------------------------------------------------

    A late LOC order will be accepted at its limit price, unless its 
limit price is higher (lower) than the higher (lower) of the First 
Reference Price and the Second Reference Price for a late LOC order to 
buy (sell), in which case the late LOC order will be handled consistent 
with the Participant's instruction that the late LOC order is to be: 
(1) Rejected; or (2) re-priced to the higher (lower) of the First 
Reference Price and the Second Reference Price.\12\
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    \12\ Furthermore, if either the First Reference Price or the 
Second Reference Price is not at a permissible minimum increment, 
the First Reference Price or the Second Reference Price, as 
applicable, will be rounded (i) to the nearest permitted minimum 
increment (with midpoint prices being rounded up) if there is no 
imbalance, (ii) up if there is a buy imbalance, or (iii) down if 
there is a sell imbalance. The default configuration for 
Participants that do not specify otherwise will be to have such late 
LOC orders re-priced rather than rejected. See Rule 4702(b)(12).
---------------------------------------------------------------------------

    As stated in SR-NASDAQ-2021-009, the intent of the proposed rule 
change was to align the LULD Closing Cross process as closely as 
possible to the standard Closing Cross process, including the handling 
of various closing cross order types like LOC orders (and their subset, 
late LOC orders). As such, the Exchange amended Rule 4754(b)(6)(F)(ii) 
to provide that MOC, LOC, and IO orders may be entered, modified, and 
cancelled pursuant to Rules 4702(b)(11), 4702(b)(12), and 4702(b)(13) 
to allow these order types to participate in the LULD Closing Cross in 
the same way as a standard Closing Cross. This includes accepting late 
LOC orders during the LULD Closing Cross and re-pricing (in certain 
cases) these orders to the more aggressive of First Reference Price or 
Second Reference Price in the same way as a standard Closing Cross.
    In the context of the standard Closing Cross, the First Reference 
Price and the Second Reference Price, at the time of their 
dissemination at 3:50 p.m. ET and 3:55 p.m. ET, respectively, each 
represent the current price, bounded by the continuous market (i.e., 
the Nasdaq best bid and offer), at which paired on-close shares are 
maximized (with certain tie-breakers if multiple prices meet this 
criterion).\13\ SR-NASDAQ-2021-009, however, defined the 3:50 p.m. ET 
reference price and 3:55 p.m. ET reference price in the context of the 
LULD Closing Cross as the price at which the LULD Closing Cross would 
execute should the cross conclude at that time, and further indicated 
that the reference price would be bounded by the benchmark prices.\14\ 
As described in SR-NASDAQ-2021-009, the benchmark prices represent the 
price range within which the LULD Closing Cross price must fall and are 
calculated off the last disseminated LULD Auction Collar or the LULD 
Band that triggered the Trading Pause, as further described in Rule 
4754(b)(6)(E). As a result of the foregoing, in cases where a Trading 
Pause exists at or prior to 3:50 p.m. ET, the 3:50 and 3:55 p.m. ET 
reference prices in the LULD Closing Cross would not be bounded by 
continuous market (i.e., the Nasdaq best bid and offer) like the 3:50 
and 3:55 p.m. ET reference prices in the standard Closing Cross as 
there was no continuous market in the halted security during those 
times, and those reference prices in the LULD Closing Cross would 
instead be bounded by the benchmark prices described above. Similarly, 
if a Trading Pause is triggered after 3:50 p.m. ET but before 3:55 p.m. 
ET, the 3:50 reference price would reflect and be bounded by the Nasdaq 
best bid and offer at the time of dissemination like the 3:50 reference 
price used in a standard Closing Cross whereas the 3:55 reference price 
would not. Lastly, if a Trading Pause is triggered after 3:55 p.m. ET, 
both the 3:50 and 3:55 reference prices would reflect and be bounded by 
the Nasdaq best bid and offer at the time of dissemination like the 
reference prices used in a standard Closing Cross. The consequence of 
using the LULD Closing Cross-derived reference price and not the 
standard Closing Cross-derived reference price may result in late LOC 
orders being accepted and potentially repriced to 3:50 or 3:55 p.m. ET 
reference prices that are not reflective of the continuous market at 
the time of their dissemination (i.e., reference prices disseminated at 
a time when trading has been paused and that are not bounded by the 
Nasdaq best bid and offer), and which are bounded by benchmark prices 
that are calculated off the last disseminated LULD Auction Collar or 
the LULD Band that triggered the Trading Pause. The Exchange believes 
that this is inconsistent with market participant expectations of how 
late LOC orders would be normally repriced during a closing cross 
process (i.e., repriced to reference prices disseminated at a time when 
trading has been paused and that are not bounded by the Nasdaq best bid 
and offer), and therefore proposes to amend late LOC order handling so 
that its LULD Closing Cross and standard Closing Cross processes are 
more consistent.
---------------------------------------------------------------------------

    \13\ See definition of Current Reference Price in Rule 
4754(a)(7)(A).
    \14\ See Approval Order at 29866.
---------------------------------------------------------------------------

    Accordingly, the Exchange proposes to state in its rules that it 
will only accept and if needed, re-price a late LOC order in the LULD 
Closing Cross if a standard Closing Cross-derived reference price 
(i.e., First Reference Price or Second Reference Price) is available. 
In particular, the Exchange proposes to add the following language at 
the end of Rule 4754(b)(6)(F)(ii):

[[Page 503]]

    With respect to LOC orders entered between 3:55 p.m. ET and 
immediately prior to 3:58 p.m. ET (hereinafter, ``late LOC orders''), 
the System will handle such orders in the LULD Closing Cross as 
follows:
    (a) If the security entered a Trading Pause prior and up to 3:50 
p.m., the System will not accept late LOC orders.\15\
---------------------------------------------------------------------------

    \15\ The System will not accept late LOC orders in this scenario 
because if a security entered a Trading Pause prior and up to 3:50 
p.m. ET, there would not be a First Reference Price or a Second 
Reference Price for the standard Closing Cross.
---------------------------------------------------------------------------

    (b) If the security entered a Trading Pause after 3:50 p.m. and up 
to 3:55 p.m., the System will accept late LOC orders, provided that 
there is a First Reference Price. Such orders may then be subject to 
re-pricing in accordance with Rule 4702(b)(12) or rejected, in either 
case consistent with the Participant's instructions.\16\
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    \16\ The System will accept late LOC orders provided there is a 
First Reference Price because in this scenario, the security entered 
a Trading Pause after 3:50 p.m. ET (but before 3:55 p.m. ET) so the 
First Reference Price would be disseminated at 3:50 p.m. ET for the 
standard Closing Cross but the Second Reference Price for the 
standard Closing Cross would not be disseminated at 3:55 p.m. ET. 
The option to have the Participant's aggressively priced late LOC 
order rejected instead of re-priced is consistent with the standard 
Closing Cross. See Rule 4702(b)(12).
---------------------------------------------------------------------------

    (c) If the security entered a Trading Pause after 3:55 p.m., the 
System will accept late LOC orders, provided that there is a First 
Reference Price or a Second Reference Price. Such orders may then be 
subject to re-pricing in accordance with Rule 4702(b)(12) or rejected, 
in either case consistent with the Participant's instructions.\17\
---------------------------------------------------------------------------

    \17\ The System will accept late LOC orders provided there is a 
First Reference Price or Second Reference Price because in this 
scenario, the security entered a Trading Pause after 3:55 p.m. ET so 
both the First Reference Price and the Second Reference Price would 
be disseminated for the standard Closing Cross.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\19\ 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 because it would amend the LULD Closing Cross process with 
respect to certain LOC order handling as approved in SR-NASDAQ-2021-009 
in order to further align the LULD Closing Cross with the standard 
Nasdaq Closing Cross. Specifically, the Exchange is proposing to 
provide in Rule 4754(b)(6)(F)(ii) that it will only accept and if 
needed, re-price a late LOC order in the LULD Closing Cross if a First 
Reference Price or Second Reference Price for the standard Closing 
Cross is available, identical to the handling of late LOC orders for 
the standard Closing Cross. As discussed above, in the context of the 
standard Closing Cross, the First Reference Price and the Second 
Reference Price, at the time of their dissemination at 3:50 p.m. ET and 
3:55 p.m. ET, respectively, each represent the current price, bounded 
by the continuous market (i.e., the Nasdaq best and offer), at which 
paired on-close shares are maximized. SR-NASDAQ-2021-009, however, 
defined the 3:50 p.m. ET reference price and 3:55 p.m. ET reference 
price in the context of the LULD Closing Cross as the price, bounded by 
the benchmark prices, at which the LULD Closing Cross would execute 
should the cross conclude at that time. Because the benchmark prices 
are based on the LULD Auction Collar or LULD Band instead of the 
continuous market, the consequence of using the LULD Closing Cross-
derived reference price and not the standard Closing Cross-derived 
reference price may result in late LOC orders being accepted and 
potentially repriced to 3:50 or 3:55 reference prices that are not 
reflective of the continuous market at the time of their dissemination 
(i.e., reference prices disseminated at a time when trading has been 
paused and that are not bounded by the Nasdaq best bid and offer), and 
which are bounded by benchmark prices that are calculated off the last 
disseminated LULD Auction Collar or the LULD Band that triggered the 
Trading Pause. The Exchange believes that this is an undesirable 
outcome and contrary to market participant expectations of how a late 
LOC order would normally be repriced by the Exchange. The Exchange 
believes that the proposed changes will align the LULD Closing Cross 
with the standard Closing Cross more closely, thereby promoting a more 
consistent experience for market participants, and reducing any 
potential confusion regarding Nasdaq's closing processes.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. Rather, the proposed changes 
would allow the Exchange to make certain changes to the Exchange's 
rules and functionality related to certain LOC order handling in the 
LULD Closing Cross in a manner consistent with the current standard 
Closing Cross. Ultimately, the Exchange believes that the proposed 
changes will render the LULD Closing Cross more attractive to market 
participants by providing a more consistent experience for Nasdaq's 
closing processes.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2021-101 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2021-101. 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

[[Page 504]]

amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2021-101 and should be submitted on or before January 26, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021-28519 Filed 1-4-22; 8:45 am]
BILLING CODE 8011-01-P

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