Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4, Rules 4120, 4702 and 4703, 56122-56126 [2022-19684]
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56122
Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices
Dated: September 7, 2022.
J. Matthew DeLesDernier,
Deputy Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2022–19677 Filed 9–12–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95695; File No. SR–BX–
2022–015]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Equity 4,
Rules 4120, 4702 and 4703
September 7, 2022.
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 August
25, 2022, Nasdaq BX, Inc. (‘‘BX’’ or the
‘‘Exchange’’) 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
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Equity 4, Rules 4120, 4702 and 4703 in
light of planned changes to the System
as well as to address existing issues, as
described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/bx/rules, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
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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 parts of such
statements.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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1. Purpose
The Exchange is preparing to
introduce a new upgraded version of the
OUCH Order entry protocol 3 that will
enable the Exchange to make functional
enhancements and improvements to
specific Order Types 4 and Order
Attributes.5 Specifically, enhancements
to OUCH will enable the Exchange to
upgrade the logic and implementation
of these Order Types and Order
Attributes so that the features are more
robust, streamlined, and harmonized
across the Exchange’s Systems and
Order entry protocols. The Exchange
developed OUCH with simplicity in
mind, and therefore, it presently lacks
certain complex order handling
capabilities. By contrast, the Exchange
specifically designed its RASH Order
Entry Protocol 6 to support advanced
functionality, including discretion,
random reserve, pegging and routing.
The introduction of OUCH upgrades
will enable participants to utilize
OUCH, in addition to RASH, to enter
Order Types that require advanced
functionality. Thus, the proposal does
not seek to introduce new functionality,
but rather, it offers to OUCH users
advanced functionality that already
exists for RASH users.
The Exchange plans to implement its
enhancement of the OUCH protocol
sequentially, by Order Type and Order
Attribute.7
3 The OUCH Order entry protocol is a proprietary
protocol that allows subscribers to quickly enter
orders into the System and receive executions.
OUCH accepts limit Orders from members, and if
there are matching Orders, they will execute. Nonmatching Orders are added to the Limit Order Book,
a database of available limit Orders, where they are
matched in price-time priority. OUCH only
provides a method for members to send Orders and
receive status updates on those Orders. See https://
www.nasdaqtrader.com/Trader.aspx?id=OUCH.
4 An ‘‘Order Type’’ is a standardized set of
instructions associated with an Order that define
how it will behave with respect to pricing,
execution, and/or posting to the Exchange Book
when submitted to the Exchange. See Equity 1,
Section 1(a)(11).
5 An ‘‘Order Attribute’’ is a further set of variable
instructions that may be associated with an Order
to further define how it will behave with respect to
pricing, execution, and/or posting to the Exchange
Book when submitted to the Exchange. See id.
6 The RASH (Routing and Special Handling)
Order entry protocol is a proprietary protocol that
allows members to enter Orders, cancel existing
Orders and receive executions. RASH allows
participants to use advanced functionality,
including discretion, random reserve, pegging and
routing. See https://nasdaqtrader.com/content/
technicalsupport/specifications/TradingProducts/
rash_sb.pdf.
7 The Exchange notes that its sister exchanges,
The Nasdaq Stock Market and Nasdaq PSX, plan to
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To support and prepare for the
introduction of OUCH upgrades, the
Exchange proposes to amend Rule 4702
pertaining to Order Types to specify
that, going forward, OUCH may be used
to enter certain Order Types together
with certain Order Attributes, whereas
now, Rule 4702 specifies that RASH and
FIX, but not OUCH, may be used to
enter such combinations of Order Types
and Attributes. The Exchange also
proposes to adjust the current
functionality of the Pegging,8 Reserve,9
and Trade Now Order Attributes,10 as
described below, so that they align with
how OUCH, once upgraded, will handle
these Order Attributes going forward.
Changes to Use of Certain Order Types
With Certain Order Attributes
Pursuant to Rule 4702(b), the
availability of certain Order Attributes
for use with certain Order Types
presently depends upon the particular
Order entry protocol a participant uses
to enter its Order. For Price to Comply
and Price to Display Orders entered
though OUCH, the Reserve Size,
Primary Pegging and Market Pegging,
and Discretion Attributes are not
available to participants presently. For
Non-Displayed Orders entered through
OUCH, the Primary Pegging, Market
Pegging, and Discretion Attributes are
not available presently. The Exchange
proposes to amend Rule 4702(b) so that
for each of the Order Types listed above,
participants may utilize the
corresponding Order Attributes when
participants enter their Orders using the
upgraded version of OUCH.
Meanwhile, for Non-Displayed Orders
with the Midpoint Pegging Attribute,
the behavior of such Orders presently
varies, as set forth in Rule 4703(d),
based upon whether a participant uses
OUCH/FLITE or RASH/FIX to enter
them into the System. Going forward,
the Exchange proposes to amend the
Rule to reference the amended version
Rule 4703(d) (discussed below), which
will describe variances in behavior
involving Non-Displayed Orders with
Midpoint Pegging which will no longer
depend strictly upon the Order entry
protocol associated with the Orders.
Changes to Market Maker Peg Orders
Rule 4702(b)(7)(A) presently provides
that Market Maker Peg Orders may be
entered through RASH or FIX only. The
Exchange proposes to amend this
provision to state that the upgraded
file similar proposed rule changes with the
Commission shortly.
8 See Rule 4703(d).
9 See Rule 4703(h).
10 See Rule 4703(l).
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version of OUCH may be used to enter
such Orders going forward.
Changes to Pegging Order Attribute
In addition to the above, the Exchange
proposes to amend Rule 4703(d), which
governs the Pegging Order Attribute, to
account for the new capabilities of the
upgraded version of OUCH.
As described in Rule 4703(d), Pegging
is an Order Attribute that allows an
Order to have its price automatically set
with reference to the NBBO. The
Exchange offers three types of Pegging:
Primary Pegging, Market Pegging, and
Midpoint Pegging.11 The behavior of
each of these types of Pegged Orders
currently varies based upon the
particular Order entry protocol
associated with their use. With the
introduction of the upgraded version of
OUCH, these variances will narrow, as
OUCH will be capable of handling
Pegged Orders similar to how RASH and
FIX handle them. However, variances
will not disappear entirely, as the
upgraded version of OUCH will
continue to handle Orders with
Midpoint Pegging that the System
cancels in response to changes to the
Midpoint (‘‘Fixed Midpoint Orders’’)
the same way that the current iteration
of OUCH and FLITE handles them.
Indeed, pursuant to the proposed rule
filing, the behavior of Pegged Orders
will no longer vary strictly by the Order
entry protocol that a participant uses;
instead, variance will occur based upon
whether the Pegged Orders are subject
to management during their lifetimes,
i.e., the Exchange may adjust the prices
of those Orders during their lifetimes.
Managed Pegged Orders (‘‘Peg Managed
Orders’’) will include Primary Pegged
and Market Pegged Orders entered using
OUCH, RASH, and FIX, as well as
Midpoint Pegged Orders, entered using
the same protocols, which the System
may update in response to changes to
the Midpoint (‘‘Managed Midpoint
Orders’’). The Exchange will handle
Managed Midpoint Orders differently
from non-managed Orders, i.e., Fixed
Midpoint Orders, in like circumstances.
The specific proposed amendments
that effectuate the above are as follows.
Existing Rule 4703(d) states that if, at
the time of entry, there is no price to
which a Pegged Order, that has not been
assigned a Routing Order Attribute, can
be pegged, or pegging would lead to a
price at which the Order cannot be
11 See Rule 4703(d) (defining ‘‘Primary Pegging’’
as pegging with reference to the inside quotation on
the same side of the market, ‘‘Market Pegging’’ as
pegging with reference to the inside quotation on
the opposite side of the market, and ‘‘Midpoint
Pegging’’ as pegging with reference to the midpoint
between the inside bid and the inside offer).
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posted, then the Order will not be
immediately available on the Exchange
Book and will be entered once there is
a permissible price, provided, however,
that the System will cancel the Pegged
Order if no permissible pegging price
becomes available within one second
after Order entry.12 This existing
language applies to Primary, Market,
and Midpoint Pegging Orders entered
through RASH/FIX, but not Orders
entered through OUCH/FLITE. The
Exchange proposes to amend this
provision of the Rule so that it applies
to ‘‘Peg Managed Orders,’’ rather than
‘‘Pegged Orders,’’ which in practice will
mean that the behavior it currently
describes for Primary Pegged and
Market Pegged Orders entered through
RASH/FIX will also now apply to such
Orders entered through the upgraded
version of OUCH, as well as to Managed
Midpoint Orders entered through
RASH/FIX/upgraded OUCH.13
Moreover, the proposed amended
provision would provide for Managed
Midpoint Orders that are not assigned a
Routing Order Attribute (or a Time in
Force of IOC) to behave similarly if the
Inside Bid and Inside Offer are crossed
(i.e., the Managed Midpoint Order will
not be immediately available on the
Exchange Book unless and until a
permissible price emerges within one
second of entry (or other such time that
the Exchange designates, at its
discretion)).
Existing Rule 4703(d) also states that
if a Pegged Order has been assigned a
Routing Order Attribute, but there is no
permissible price to which the Order
can be pegged at the time of entry, then
the Exchange will reject it, except that
the Exchange will accept a Displayed
Order with Market Pegging and a Market
or a Primary Pegged Order with a NonDisplay Attribute at their respective
limit prices in this circumstance. The
Exchange again proposes to amend this
provision so that it applies to Peg
Managed Orders, rather than Pegged
Orders. It also proposes to apply this
provision to Managed Midpoint Orders
that are assigned a Routing Order
Attribute, if the Inside Bid and Inside
Offer are crossed. Finally, as is
explained further below, the Exchange
12 The Exchange may, in the exercise of its
discretion, modify the length of this one second
time period by posting advance notice of the
applicable time period on its website.
13 The Exchange also proposes to clarify that this
provision applies to a Peg Managed Order that has
not been assigned a Routing Order Attribute or a
Time-in-Force of Immediate-Or-Cancel (‘‘IOC’’).
This additional amendment makes it clear that IOC
orders in this scenario will cancel immediately if
no permissible pegging price is available upon
Order entry, rather than waiting up to one second
after Order entry to do so.
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proposes to delete the last two sentences
of this paragraph, which describe the
behavior of Orders with Midpoint
Pegging, and move them to the end of
the next paragraph, which also pertains
to Orders with Midpoint Pegging. The
Exchange proposes this organizational
change for ease of readability.
As to the next paragraph of Rule
4703(d), the Exchange proposes several
changes. First, the Exchange proposes to
delete the first sentence of this
paragraph, which lists the Order entry
protocols for which Primary Pegging
and Market Pegging are presently
available (RASH and FIX). This
sentence is no longer needed because, as
discussed above, the Exchange proposes
to add a new sentence that specifies that
all Peg Managed Orders will be
available, not only through RASH and
FIX, but also through OUCH, going
forward. Second, the Exchange proposes
to modify the second sentence of the
paragraph, which presently states that
for an Order entered through OUCH or
FLITE with Midpoint Pegging, the Order
will have its price set upon initial entry
to the Midpoint, unless the Order has a
limit price, and that limit price is lower
than the Midpoint for an Order to buy
(higher than the Midpoint for an Order
to sell), in which case the Order will be
ranked on the Exchange Book at its limit
price. The Exchange proposes to apply
this language to Midpoint Pegging
Orders generally, rather than only
Midpoint Pegging Orders entered
through OUCH or FLITE, as it will apply
to both Fixed Midpoint Orders and
Managed Midpoint Orders. Third, the
Exchange proposes to add and partially
restate the following language from the
preceding paragraph:
In the case of an Order with Midpoint
Pegging, if the Inside Bid and Inside Offer are
locked, the Order will be priced at the
locking price; and for Orders with Midpoint
Pegging entered through OUCH or FLITE, if
the Inside Bid and Inside Offer are crossed
or if there is no Inside Bid and/or Inside
Offer, the Order will not be accepted.
However, even if the Inside Bid and Inside
Offer are locked, an Order with Midpoint
Pegging that locked an Order on the
Exchange Book would execute.
Specifically, the Exchange proposes to
replace the phrase ‘‘and for Orders with
Midpoint Pegging entered through
OUCH or FLITE’’ with ‘‘and for Fixed
Midpoint Orders,’’ because going
forward, some Midpoint Pegging Orders
entered through the upgraded version of
OUCH will not behave in this manner;
only Fixed Midpoint Orders will do
so.14
14 The Exchange also proposes to make a stylistic,
non-substantive change to this text by deleting the
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The Exchange proposes to amend the
next paragraph, which describes how
the Exchange handles Orders with
Midpoint Pegging entered through
OUCH or FLITE where the Exchange
does not adjust the prices of the Orders
based on changes to the Inside Bid or
Offer that occur after the Orders post to
the Exchange Book. The Exchange
proposes to amend this paragraph to
state that it applies to Fixed Midpoint
Orders (rather than Orders with
Midpoint Pegging entered through
OUCH or FLITE) and to state expressly
that it applies to such Orders after they
post to the Exchange Book.
The subsequent paragraph of Rule
4703(d) describes how the Exchange
handles Pegged Orders entered through
RASH or FIX where the Exchange does
adjust the prices of the Orders based on
changes to the relevant Inside Quotation
that occur after the Orders Post to the
Exchange Book. Like the preceding
paragraph, the Exchange proposes to
amend this paragraph to state that it
applies to Peg Managed Orders (rather
than Orders entered through RASH or
FIX with Pegging). The Exchange also
proposes to amend text in this
paragraph, which states that the
Exchange will reject such an Order, if it
assigned a Routing Order Attribute, and
if the price to which it is pegged
becomes unavailable or pegging would
lead to a price at which it cannot be
posted. The proposed amended
language states that the Exchange will
cancel such an Order back to the
participant in these circumstances,
rather than ‘‘reject’’ it; the use of the
term ‘‘cancel’’ is more appropriate than
‘‘reject’’ in this provision insofar as the
Exchange only rejects Orders upon
entry, but thereafter, it cancels them.
Consistent with amendments elsewhere
in the proposal, the Exchange also
proposes to state that Managed
Midpoint Orders assigned a Routing
Order Attribute will cancel back to the
participant if the Inside Bid and Inside
Offer become crossed. The Exchange
also proposes to qualify the foregoing by
noting that an Order with Market
Pegging, or an Order with Primary
Pegging and a Non-Display Attribute,
will be re-entered at its limit price.
Finally, the Exchange proposes to
amend the subsequent text, which
presently reads as follows:
‘‘. . . if the Order is not assigned a Routing
Order Attribute, the Order will be removed
from the Exchange Book and will be rephrase ‘‘In the case of an Order with Midpoint
Pegging.’’ The Exchange believes this phrase is no
longer needed due to the fact that the new
paragraph to which it proposes to move the text
clearly applies to Orders with Midpoint Pegging.
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entered once there is a permissible price,
provided however, that the System will
cancel the Pegged Order if no permissible
pegging price becomes available within one
second after the Order was removed and no
longer available on the Exchange Book (the
Exchange may, in the exercise of its
discretion modify the length of this one
second time period by posting advance
notice of the applicable time period on its
website).’’
The Exchange proposes to amend this
text to specify that it applies to a ‘‘Peg
Managed Order,’’ rather than simply an
‘‘Order.’’ Additionally in this clause, the
Exchange proposes to add, after the
phrase, ‘‘if [a Peg Managed Order] is not
assigned a Routing Order Attribute,’’ the
following text, for clarity: ‘‘and the price
to which it is pegged becomes
unavailable, pegging would lead to a
price at which the Order cannot be
posted, or, in the case of a Managed
Midpoint Order, if the Inside Bid and
Inside Offer become crossed, . . . .’’
The Exchange believes that these
conditions are implicit in the existing
Rule text and should be made explicit
to avoid confusion. Insofar as this
proposed amended text will now
account for Managed Midpoint Orders,
then the Exchange proposes to delete
the following existing text, which will
otherwise be duplicative:
‘‘For an Order with Midpoint Pegging, if
the Inside Bid and Inside Offer become
crossed or if there is no Inside Bid and/or
Inside Offer, the Order will be removed from
the Exchange Book and will be re-entered at
the new midpoint once there is a valid Inside
Bid and Inside Offer that is not crossed;
provided, however, that the System will
cancel the Order with Midpoint Pegging if no
permissible price becomes available within
one second after the Order was removed and
no longer available on the Exchange Book
(the Exchange may, in the exercise of its
discretion modify the length of this one
second time period by posting advance
notice of the applicable time period on its
website).’’
Finally, the Exchange proposes to
restate the paragraph of Rule 4703(d)
that describes Pegging Order collars. In
pertinent part, this paragraph presently
states that ‘‘any portion of a Pegging
Order that could execute, either on the
Exchange or when routed to another
market center, at a price of more than
$0.25 or 5 percent worse than the NBBO
at the time when the order reaches the
System, whichever is greater, will be
cancelled.’’ The Exchange proposes to
restate this text to account for the fact
that under certain conditions, the
System will cancel Pegging Orders
before clearing liquidity inside the
collar. For non-routable Pegged Orders,
the System cancels these Orders prior to
polling the Exchange Book for liquidity
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(even inside of the collar) when the
combination of limit price, pegging,
offset, discretionary price, discretionary
pegging, and discretionary offset
attributes would result in the Order
attempting to post to the book or clear
resting Orders beyond the collar price
(even if such liquidity does not exist).15
For routable Primary or Market Peg
Orders, by contrast, the System will
clear any liquidity inside of the collar
before cancelling.16 The Exchange
proposes to more precisely describe this
behavior with the following restated
text:
Any portion of a Pegging Order with a
Routing attribute to buy (sell) that could
execute, either on the Exchange or when
routed to another market center, at a price of
more than the greater of $0.25 or 5 percent
higher (lower) than the NBO (NBB) at the
time when the order reaches the System (the
‘‘Collar Price’’), will be cancelled. An Order
entered without a Routing attribute will be
cancelled if it would, as a result of the price
determined by a Pegging or Discretionary
Pegging attribute, execute or post to the
Exchange Book at a price through the Collar
Price.
Change To Reserve Attribute
The Exchange proposes to amend its
rules governing the Reserve Order
Attribute, at Rule 4703(h) to state that
when a Reserve Order is entered using
OUCH with a displayed size of an odd
lot, the System will reject the Order,
whereas if such an order is entered
using RASH or FIX, then as is the case
now under the existing Rule, the System
will accept the Order but with the full
size of the Order Displayed. The
Exchange believes that this new
proposed behavior will benefit
participants insofar as Reserve Orders
entered with odd lot displayed sizes are
often the product of errors. Rather than
expose erroneous displayed sizes,
OUCH will cancel the Orders and thus
provide participants with an
opportunity to correct their errors, or to
15 For example, if NYSE is quoting $10.00 ×
$11.00 and a Displayed Sell Order of 100 shares is
setting the NBO by resting on the Book at $10.05,
then an incoming Primary Peg Buy order with a
Limit Price of $10.75 and an Offset Value of $0.56
will be cancelled back without executing against
the resting order at $10.05. The Primary Peg
attribute initially sets the price of the Order at
$10.00, then the offset amends the price to $10.56;
the collar price is set to $10.05 + ($10.05 × 5%) =
$10.5525, which is less than the price the incoming
Order would attempt to book at.
16 For example, if NYSE is quoting $10.00 ×
$11.00 and a Displayed Sell Order of 100 shares is
setting the NBO by resting on the Book at $10.05,
then an incoming Primary Peg Buy order of 200
shares with a Limit Price of $10.75, an Offset Value
of $0.56, and the SCAN routing strategy will
execute against the resting order before the
remainder is cancelled before booking outside the
collar price.
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validate their original choices, by reentering the Reserve Order.
Change To Trade Now Attribute
The Exchange proposes to amend its
rules governing the Trade Now Order
Attribute, at Rule 4703(l) to state that
when the Trade Now Attribute is
entered through RASH or FIX, and going
forward, also through OUCH, the Trade
Now Order Attribute may be enabled on
an order-by-order or a port-level basis.
In the next sentence in the paragraph,
the existing text will continue to apply,
but as to FLITE only, and not to OUCH.
Thus, when entered through FLITE (but
not OUCH), the Trade Now Order
Attribute may be enabled on a port-level
basis for all Order Types that support it,
and for the Non-Displayed Order Type,
also on an order-by-order basis.
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Change To Limit Up-Limit Down
Mechanism
The Exchange proposed to amend its
rules governing Limit Up-Limit Down
(‘‘LULD’’) functionality, at Rule
4120(a)(13)(E)(2)(a) to state that limit
priced orders entered via the OUCH
protocol, which are not assigned a
Managed Pegging, Discretionary, or
Reserve Attribute, shall be repriced
upon entry only if the Price Bands are
such that the price of the limit-priced
interest to buy (sell) would be above
(below) the upper (lower) Price Band.
Additionally, the Exchange is proposing
to amend Rule 4120(a)(13)(E)(2)(b) to
state that limit-priced orders entered via
RASH or FIX protocols, or via the
OUCH protocol if assigned a Managed
Pegging, Discretionary, or Reserve
Attribute, the order shall be eligible to
be repriced by the system multiple
times if the Price Bands move such that
the price of resting limit-priced interest
to buy (sell) would be above (below) the
upper (lower) Price Band.
The Exchange intends to implement
the foregoing changes at the end of the
Third Quarter or early in the Fourth
Quarter of 2022. The Exchange will
issue an Equity Trader Alert at least 7
days in advance of implementing the
changes.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,17 in general, and furthers the
objectives of Section 6(b)(5) of the Act,18
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
17 15
18 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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system, and, in general to protect
investors and the public interest.
Generally speaking, it is consistent
with the Act to amend the Rulebook to
reflect upgrades to the Exchange’s
OUCH Order entry protocols. The
planned upgrades will enable members
to utilize OUCH in additional
circumstances, including for the entry
of: (1) Price to Comply and Price to
Display Orders with the Reserve Size,
Primary and Market Pegging, and
Discretion Order Attributes; (2) NonDisplayed Orders with the Primary and
Market Pegging, Midpoint Pegging (in
scenarios described in amended Rule
4703(d)), and Discretion Order
Attributes; and (3) Market Maker Peg
Orders.
Likewise, the Exchange believes that
its proposed amendments to the Pegging
Order Attribute, at Rule 4703(d), are
consistent with the Act. The proposed
amendments account for the fact that
OUCH will become capable of use for
the entry of Peg Managed Orders,
including Managed Midpoint Orders, in
addition to Fixed Midpoint Orders. The
Exchange believes that it will be clearer
and more coherent to describe the
behavior of Pegged Orders and Orders
with Midpoint Pegging in the Rule with
regard to whether these Orders are
‘‘Managed’’ or ‘‘Fixed,’’ rather than with
regard to the protocol used to enter
them, especially as OUCH will be
available for use in entering both
Managed and Fixed Pegging Orders
going forward. Additionally, proposed
amendments to Rule 4703(d) would
reorganize the description of the
behavior of various types of Pegged
Orders so that it flows more logically
and is more readily comprehensible.
Finally, proposed changes would
describe the behavior of Pegged Orders
more comprehensively, by adding
language that was mistakenly omitted
from the Rule.
Meanwhile, the Exchange’s proposal
to restate the Rule’s description of the
price collar applicable to Pegged Orders
is consistent with the Act because it
accounts for the fact that under certain
conditions, the System will cancel
Pegging Orders before clearing liquidity
inside the collar.
The Exchange’s proposal is consistent
with the Act to amend its Rule
governing the Reserve Order Attribute,
at Rule 4703(h) to state that when a
Reserve Order is entered using OUCH
with a displayed size of an odd lot, the
System will reject the Order. The
Exchange believes that this new
proposed behavior will benefit
participants insofar as Reserve Orders
entered with odd lot displayed sizes are
often the product of errors. Rather than
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Sfmt 4703
56125
expose erroneous displayed sizes,
OUCH will cancel the Orders and thus
provide participants with an
opportunity to correct their errors, or to
validate their original choices, by reentering the Reserve Order.
Additionally, the Exchange’s proposal
to amend its Rule governing the Trade
Now Order Attribute, at Rule 4703(l), is
consistent with the Act, because it
accounts for the fact that when entered
through the upgraded version of OUCH,
the Trade Now Order Attribute may be
enabled on an order-by-order or a portlevel basis.
Finally, the Exchange’s proposal to
amend its Rule governing the Limit UpLimit Down Mechanism, at Rules
4120(a)(13)(E)(2)(a) and
4120(a)(13)(E)(2)(b) are consistent with
the Act because the proposed
amendments align with OUCH’s
capability going forward, once
upgraded, to handle certain Order Types
and Order Attributes similar to how
RASH and FIX handle them.
Additionally, as discussed above,
variance will occur in certain Order
Types based upon whether the orders
are subject to management during their
lifetimes.
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. As a general
principle, the proposed changes are
reflective of the significant competition
among exchanges and non-exchange
venues for order flow. In this regard,
proposed changes that facilitate
enhancements to the Exchange’s System
and Order entry protocols as well as
those that amend and clarify the
Exchange’s Rules regarding its Order
Attributes, are pro-competitive because
they bolster the efficiency, functionality,
and overall attractiveness of the
Exchange in an absolute sense and
relative to its peers.
Moreover, none of the proposed
changes will unduly burden intramarket competition among various
Exchange participants. Participants will
experience no competitive impact from
its proposals, as these proposals will
restate and reorganize portions of the
Rule to reflect the upgraded capabilities
of OUCH, as well as to render the
descriptions of OUCH’s new capabilities
easier to read and understand.
E:\FR\FM\13SEN1.SGM
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Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices
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
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 19 and Rule
19b–4(f)(6) thereunder.20 Because the
foregoing proposed rule change does
not: (i) significantly affect the protection
of investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section
19(b)(3)(A)(iii) of the Act 21 and Rule
19b–4(f)(6) thereunder.22
A proposed rule change filed under
Rule 19b–4(f)(6) 23 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),24 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest.
The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange has represented
that the proposal does not seek to
introduce new functionality, but rather,
it offers to OUCH users advanced
functionality that already exists for
RASH users. The Commission believes
that waiver of the 30-day operative
delay for this proposal is consistent
with the protection of investors and the
public interest as it will allow the
Exchange to provide existing advanced
functionality to OUCH users without
delay. Accordingly, the Commission
hereby waives the 30-day operative
19 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
21 15 U.S.C. 78s(b)(3)(A)(iii).
22 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
23 17 CFR 240.19b–4(f)(6).
24 17 CFR 240.19b–4(f)(6)(iii).
jspears on DSK121TN23PROD with NOTICES
20 17
VerDate Sep<11>2014
17:30 Sep 12, 2022
Jkt 256001
delay and designates the proposal
operative upon filing.25
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
under Section 19(b)(2)(B) 26 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2022–015 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–BX–2022–015. 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
25 For purposes only of accelerating the operative
date of this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
26 15 U.S.C. 78s(b)(2)(B).
PO 00000
Frm 00139
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Sfmt 4703
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–BX–2022–015 and should
be submitted on or before October 4,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–19684 Filed 9–12–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95699; File No. SR–
NYSEAMER–2022–37]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Transfer the Services
and Fees Related to Colocation
September 7, 2022.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on August
24, 2022, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) 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 self-regulatory
organization. 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 (1) transfer
the services and fees related to
colocation from the NYSE American
Equities Price List and Fee Schedule
and the NYSE American Options Fee
Schedule (together, the ‘‘Price List and
27 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 87, Number 176 (Tuesday, September 13, 2022)]
[Notices]
[Pages 56122-56126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19684]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95695; File No. SR-BX-2022-015]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4,
Rules 4120, 4702 and 4703
September 7, 2022.
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 August 25, 2022, Nasdaq BX, Inc. (``BX'' or the ``Exchange'')
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 publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Equity 4, Rules 4120, 4702 and 4703
in light of planned changes to the System as well as to address
existing issues, as described further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/bx/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 parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is preparing to introduce a new upgraded version of
the OUCH Order entry protocol \3\ that will enable the Exchange to make
functional enhancements and improvements to specific Order Types \4\
and Order Attributes.\5\ Specifically, enhancements to OUCH will enable
the Exchange to upgrade the logic and implementation of these Order
Types and Order Attributes so that the features are more robust,
streamlined, and harmonized across the Exchange's Systems and Order
entry protocols. The Exchange developed OUCH with simplicity in mind,
and therefore, it presently lacks certain complex order handling
capabilities. By contrast, the Exchange specifically designed its RASH
Order Entry Protocol \6\ to support advanced functionality, including
discretion, random reserve, pegging and routing. The introduction of
OUCH upgrades will enable participants to utilize OUCH, in addition to
RASH, to enter Order Types that require advanced functionality. Thus,
the proposal does not seek to introduce new functionality, but rather,
it offers to OUCH users advanced functionality that already exists for
RASH users.
---------------------------------------------------------------------------
\3\ The OUCH Order entry protocol is a proprietary protocol that
allows subscribers to quickly enter orders into the System and
receive executions. OUCH accepts limit Orders from members, and if
there are matching Orders, they will execute. Non-matching Orders
are added to the Limit Order Book, a database of available limit
Orders, where they are matched in price-time priority. OUCH only
provides a method for members to send Orders and receive status
updates on those Orders. See https://www.nasdaqtrader.com/Trader.aspx?id=OUCH.
\4\ An ``Order Type'' is a standardized set of instructions
associated with an Order that define how it will behave with respect
to pricing, execution, and/or posting to the Exchange Book when
submitted to the Exchange. See Equity 1, Section 1(a)(11).
\5\ An ``Order Attribute'' is a further set of variable
instructions that may be associated with an Order to further define
how it will behave with respect to pricing, execution, and/or
posting to the Exchange Book when submitted to the Exchange. See id.
\6\ The RASH (Routing and Special Handling) Order entry protocol
is a proprietary protocol that allows members to enter Orders,
cancel existing Orders and receive executions. RASH allows
participants to use advanced functionality, including discretion,
random reserve, pegging and routing. See https://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf.
---------------------------------------------------------------------------
The Exchange plans to implement its enhancement of the OUCH
protocol sequentially, by Order Type and Order Attribute.\7\
---------------------------------------------------------------------------
\7\ The Exchange notes that its sister exchanges, The Nasdaq
Stock Market and Nasdaq PSX, plan to file similar proposed rule
changes with the Commission shortly.
---------------------------------------------------------------------------
To support and prepare for the introduction of OUCH upgrades, the
Exchange proposes to amend Rule 4702 pertaining to Order Types to
specify that, going forward, OUCH may be used to enter certain Order
Types together with certain Order Attributes, whereas now, Rule 4702
specifies that RASH and FIX, but not OUCH, may be used to enter such
combinations of Order Types and Attributes. The Exchange also proposes
to adjust the current functionality of the Pegging,\8\ Reserve,\9\ and
Trade Now Order Attributes,\10\ as described below, so that they align
with how OUCH, once upgraded, will handle these Order Attributes going
forward.
---------------------------------------------------------------------------
\8\ See Rule 4703(d).
\9\ See Rule 4703(h).
\10\ See Rule 4703(l).
---------------------------------------------------------------------------
Changes to Use of Certain Order Types With Certain Order Attributes
Pursuant to Rule 4702(b), the availability of certain Order
Attributes for use with certain Order Types presently depends upon the
particular Order entry protocol a participant uses to enter its Order.
For Price to Comply and Price to Display Orders entered though OUCH,
the Reserve Size, Primary Pegging and Market Pegging, and Discretion
Attributes are not available to participants presently. For Non-
Displayed Orders entered through OUCH, the Primary Pegging, Market
Pegging, and Discretion Attributes are not available presently. The
Exchange proposes to amend Rule 4702(b) so that for each of the Order
Types listed above, participants may utilize the corresponding Order
Attributes when participants enter their Orders using the upgraded
version of OUCH.
Meanwhile, for Non-Displayed Orders with the Midpoint Pegging
Attribute, the behavior of such Orders presently varies, as set forth
in Rule 4703(d), based upon whether a participant uses OUCH/FLITE or
RASH/FIX to enter them into the System. Going forward, the Exchange
proposes to amend the Rule to reference the amended version Rule
4703(d) (discussed below), which will describe variances in behavior
involving Non-Displayed Orders with Midpoint Pegging which will no
longer depend strictly upon the Order entry protocol associated with
the Orders.
Changes to Market Maker Peg Orders
Rule 4702(b)(7)(A) presently provides that Market Maker Peg Orders
may be entered through RASH or FIX only. The Exchange proposes to amend
this provision to state that the upgraded
[[Page 56123]]
version of OUCH may be used to enter such Orders going forward.
Changes to Pegging Order Attribute
In addition to the above, the Exchange proposes to amend Rule
4703(d), which governs the Pegging Order Attribute, to account for the
new capabilities of the upgraded version of OUCH.
As described in Rule 4703(d), Pegging is an Order Attribute that
allows an Order to have its price automatically set with reference to
the NBBO. The Exchange offers three types of Pegging: Primary Pegging,
Market Pegging, and Midpoint Pegging.\11\ The behavior of each of these
types of Pegged Orders currently varies based upon the particular Order
entry protocol associated with their use. With the introduction of the
upgraded version of OUCH, these variances will narrow, as OUCH will be
capable of handling Pegged Orders similar to how RASH and FIX handle
them. However, variances will not disappear entirely, as the upgraded
version of OUCH will continue to handle Orders with Midpoint Pegging
that the System cancels in response to changes to the Midpoint (``Fixed
Midpoint Orders'') the same way that the current iteration of OUCH and
FLITE handles them.
---------------------------------------------------------------------------
\11\ See Rule 4703(d) (defining ``Primary Pegging'' as pegging
with reference to the inside quotation on the same side of the
market, ``Market Pegging'' as pegging with reference to the inside
quotation on the opposite side of the market, and ``Midpoint
Pegging'' as pegging with reference to the midpoint between the
inside bid and the inside offer).
---------------------------------------------------------------------------
Indeed, pursuant to the proposed rule filing, the behavior of
Pegged Orders will no longer vary strictly by the Order entry protocol
that a participant uses; instead, variance will occur based upon
whether the Pegged Orders are subject to management during their
lifetimes, i.e., the Exchange may adjust the prices of those Orders
during their lifetimes. Managed Pegged Orders (``Peg Managed Orders'')
will include Primary Pegged and Market Pegged Orders entered using
OUCH, RASH, and FIX, as well as Midpoint Pegged Orders, entered using
the same protocols, which the System may update in response to changes
to the Midpoint (``Managed Midpoint Orders''). The Exchange will handle
Managed Midpoint Orders differently from non-managed Orders, i.e.,
Fixed Midpoint Orders, in like circumstances.
The specific proposed amendments that effectuate the above are as
follows.
Existing Rule 4703(d) states that if, at the time of entry, there
is no price to which a Pegged Order, that has not been assigned a
Routing Order Attribute, can be pegged, or pegging would lead to a
price at which the Order cannot be posted, then the Order will not be
immediately available on the Exchange Book and will be entered once
there is a permissible price, provided, however, that the System will
cancel the Pegged Order if no permissible pegging price becomes
available within one second after Order entry.\12\ This existing
language applies to Primary, Market, and Midpoint Pegging Orders
entered through RASH/FIX, but not Orders entered through OUCH/FLITE.
The Exchange proposes to amend this provision of the Rule so that it
applies to ``Peg Managed Orders,'' rather than ``Pegged Orders,'' which
in practice will mean that the behavior it currently describes for
Primary Pegged and Market Pegged Orders entered through RASH/FIX will
also now apply to such Orders entered through the upgraded version of
OUCH, as well as to Managed Midpoint Orders entered through RASH/FIX/
upgraded OUCH.\13\ Moreover, the proposed amended provision would
provide for Managed Midpoint Orders that are not assigned a Routing
Order Attribute (or a Time in Force of IOC) to behave similarly if the
Inside Bid and Inside Offer are crossed (i.e., the Managed Midpoint
Order will not be immediately available on the Exchange Book unless and
until a permissible price emerges within one second of entry (or other
such time that the Exchange designates, at its discretion)).
---------------------------------------------------------------------------
\12\ The Exchange may, in the exercise of its discretion, modify
the length of this one second time period by posting advance notice
of the applicable time period on its website.
\13\ The Exchange also proposes to clarify that this provision
applies to a Peg Managed Order that has not been assigned a Routing
Order Attribute or a Time-in-Force of Immediate-Or-Cancel (``IOC'').
This additional amendment makes it clear that IOC orders in this
scenario will cancel immediately if no permissible pegging price is
available upon Order entry, rather than waiting up to one second
after Order entry to do so.
---------------------------------------------------------------------------
Existing Rule 4703(d) also states that if a Pegged Order has been
assigned a Routing Order Attribute, but there is no permissible price
to which the Order can be pegged at the time of entry, then the
Exchange will reject it, except that the Exchange will accept a
Displayed Order with Market Pegging and a Market or a Primary Pegged
Order with a Non-Display Attribute at their respective limit prices in
this circumstance. The Exchange again proposes to amend this provision
so that it applies to Peg Managed Orders, rather than Pegged Orders. It
also proposes to apply this provision to Managed Midpoint Orders that
are assigned a Routing Order Attribute, if the Inside Bid and Inside
Offer are crossed. Finally, as is explained further below, the Exchange
proposes to delete the last two sentences of this paragraph, which
describe the behavior of Orders with Midpoint Pegging, and move them to
the end of the next paragraph, which also pertains to Orders with
Midpoint Pegging. The Exchange proposes this organizational change for
ease of readability.
As to the next paragraph of Rule 4703(d), the Exchange proposes
several changes. First, the Exchange proposes to delete the first
sentence of this paragraph, which lists the Order entry protocols for
which Primary Pegging and Market Pegging are presently available (RASH
and FIX). This sentence is no longer needed because, as discussed
above, the Exchange proposes to add a new sentence that specifies that
all Peg Managed Orders will be available, not only through RASH and
FIX, but also through OUCH, going forward. Second, the Exchange
proposes to modify the second sentence of the paragraph, which
presently states that for an Order entered through OUCH or FLITE with
Midpoint Pegging, the Order will have its price set upon initial entry
to the Midpoint, unless the Order has a limit price, and that limit
price is lower than the Midpoint for an Order to buy (higher than the
Midpoint for an Order to sell), in which case the Order will be ranked
on the Exchange Book at its limit price. The Exchange proposes to apply
this language to Midpoint Pegging Orders generally, rather than only
Midpoint Pegging Orders entered through OUCH or FLITE, as it will apply
to both Fixed Midpoint Orders and Managed Midpoint Orders. Third, the
Exchange proposes to add and partially restate the following language
from the preceding paragraph:
In the case of an Order with Midpoint Pegging, if the Inside Bid
and Inside Offer are locked, the Order will be priced at the locking
price; and for Orders with Midpoint Pegging entered through OUCH or
FLITE, if the Inside Bid and Inside Offer are crossed or if there is
no Inside Bid and/or Inside Offer, the Order will not be accepted.
However, even if the Inside Bid and Inside Offer are locked, an
Order with Midpoint Pegging that locked an Order on the Exchange
Book would execute.
Specifically, the Exchange proposes to replace the phrase ``and for
Orders with Midpoint Pegging entered through OUCH or FLITE'' with ``and
for Fixed Midpoint Orders,'' because going forward, some Midpoint
Pegging Orders entered through the upgraded version of OUCH will not
behave in this manner; only Fixed Midpoint Orders will do so.\14\
---------------------------------------------------------------------------
\14\ The Exchange also proposes to make a stylistic, non-
substantive change to this text by deleting the phrase ``In the case
of an Order with Midpoint Pegging.'' The Exchange believes this
phrase is no longer needed due to the fact that the new paragraph to
which it proposes to move the text clearly applies to Orders with
Midpoint Pegging.
---------------------------------------------------------------------------
[[Page 56124]]
The Exchange proposes to amend the next paragraph, which describes
how the Exchange handles Orders with Midpoint Pegging entered through
OUCH or FLITE where the Exchange does not adjust the prices of the
Orders based on changes to the Inside Bid or Offer that occur after the
Orders post to the Exchange Book. The Exchange proposes to amend this
paragraph to state that it applies to Fixed Midpoint Orders (rather
than Orders with Midpoint Pegging entered through OUCH or FLITE) and to
state expressly that it applies to such Orders after they post to the
Exchange Book.
The subsequent paragraph of Rule 4703(d) describes how the Exchange
handles Pegged Orders entered through RASH or FIX where the Exchange
does adjust the prices of the Orders based on changes to the relevant
Inside Quotation that occur after the Orders Post to the Exchange Book.
Like the preceding paragraph, the Exchange proposes to amend this
paragraph to state that it applies to Peg Managed Orders (rather than
Orders entered through RASH or FIX with Pegging). The Exchange also
proposes to amend text in this paragraph, which states that the
Exchange will reject such an Order, if it assigned a Routing Order
Attribute, and if the price to which it is pegged becomes unavailable
or pegging would lead to a price at which it cannot be posted. The
proposed amended language states that the Exchange will cancel such an
Order back to the participant in these circumstances, rather than
``reject'' it; the use of the term ``cancel'' is more appropriate than
``reject'' in this provision insofar as the Exchange only rejects
Orders upon entry, but thereafter, it cancels them. Consistent with
amendments elsewhere in the proposal, the Exchange also proposes to
state that Managed Midpoint Orders assigned a Routing Order Attribute
will cancel back to the participant if the Inside Bid and Inside Offer
become crossed. The Exchange also proposes to qualify the foregoing by
noting that an Order with Market Pegging, or an Order with Primary
Pegging and a Non-Display Attribute, will be re-entered at its limit
price. Finally, the Exchange proposes to amend the subsequent text,
which presently reads as follows:
``. . . if the Order is not assigned a Routing Order Attribute,
the Order will be removed from the Exchange Book and will be re-
entered once there is a permissible price, provided however, that
the System will cancel the Pegged Order if no permissible pegging
price becomes available within one second after the Order was
removed and no longer available on the Exchange Book (the Exchange
may, in the exercise of its discretion modify the length of this one
second time period by posting advance notice of the applicable time
period on its website).''
The Exchange proposes to amend this text to specify that it applies
to a ``Peg Managed Order,'' rather than simply an ``Order.''
Additionally in this clause, the Exchange proposes to add, after the
phrase, ``if [a Peg Managed Order] is not assigned a Routing Order
Attribute,'' the following text, for clarity: ``and the price to which
it is pegged becomes unavailable, pegging would lead to a price at
which the Order cannot be posted, or, in the case of a Managed Midpoint
Order, if the Inside Bid and Inside Offer become crossed, . . . .'' The
Exchange believes that these conditions are implicit in the existing
Rule text and should be made explicit to avoid confusion. Insofar as
this proposed amended text will now account for Managed Midpoint
Orders, then the Exchange proposes to delete the following existing
text, which will otherwise be duplicative:
``For an Order with Midpoint Pegging, if the Inside Bid and
Inside Offer become crossed or if there is no Inside Bid and/or
Inside Offer, the Order will be removed from the Exchange Book and
will be re-entered at the new midpoint once there is a valid Inside
Bid and Inside Offer that is not crossed; provided, however, that
the System will cancel the Order with Midpoint Pegging if no
permissible price becomes available within one second after the
Order was removed and no longer available on the Exchange Book (the
Exchange may, in the exercise of its discretion modify the length of
this one second time period by posting advance notice of the
applicable time period on its website).''
Finally, the Exchange proposes to restate the paragraph of Rule
4703(d) that describes Pegging Order collars. In pertinent part, this
paragraph presently states that ``any portion of a Pegging Order that
could execute, either on the Exchange or when routed to another market
center, at a price of more than $0.25 or 5 percent worse than the NBBO
at the time when the order reaches the System, whichever is greater,
will be cancelled.'' The Exchange proposes to restate this text to
account for the fact that under certain conditions, the System will
cancel Pegging Orders before clearing liquidity inside the collar. For
non-routable Pegged Orders, the System cancels these Orders prior to
polling the Exchange Book for liquidity (even inside of the collar)
when the combination of limit price, pegging, offset, discretionary
price, discretionary pegging, and discretionary offset attributes would
result in the Order attempting to post to the book or clear resting
Orders beyond the collar price (even if such liquidity does not
exist).\15\ For routable Primary or Market Peg Orders, by contrast, the
System will clear any liquidity inside of the collar before
cancelling.\16\ The Exchange proposes to more precisely describe this
behavior with the following restated text:
---------------------------------------------------------------------------
\15\ For example, if NYSE is quoting $10.00 x $11.00 and a
Displayed Sell Order of 100 shares is setting the NBO by resting on
the Book at $10.05, then an incoming Primary Peg Buy order with a
Limit Price of $10.75 and an Offset Value of $0.56 will be cancelled
back without executing against the resting order at $10.05. The
Primary Peg attribute initially sets the price of the Order at
$10.00, then the offset amends the price to $10.56; the collar price
is set to $10.05 + ($10.05 x 5%) = $10.5525, which is less than the
price the incoming Order would attempt to book at.
\16\ For example, if NYSE is quoting $10.00 x $11.00 and a
Displayed Sell Order of 100 shares is setting the NBO by resting on
the Book at $10.05, then an incoming Primary Peg Buy order of 200
shares with a Limit Price of $10.75, an Offset Value of $0.56, and
the SCAN routing strategy will execute against the resting order
before the remainder is cancelled before booking outside the collar
price.
Any portion of a Pegging Order with a Routing attribute to buy
(sell) that could execute, either on the Exchange or when routed to
another market center, at a price of more than the greater of $0.25
or 5 percent higher (lower) than the NBO (NBB) at the time when the
order reaches the System (the ``Collar Price''), will be cancelled.
An Order entered without a Routing attribute will be cancelled if it
would, as a result of the price determined by a Pegging or
Discretionary Pegging attribute, execute or post to the Exchange
Book at a price through the Collar Price.
Change To Reserve Attribute
The Exchange proposes to amend its rules governing the Reserve
Order Attribute, at Rule 4703(h) to state that when a Reserve Order is
entered using OUCH with a displayed size of an odd lot, the System will
reject the Order, whereas if such an order is entered using RASH or
FIX, then as is the case now under the existing Rule, the System will
accept the Order but with the full size of the Order Displayed. The
Exchange believes that this new proposed behavior will benefit
participants insofar as Reserve Orders entered with odd lot displayed
sizes are often the product of errors. Rather than expose erroneous
displayed sizes, OUCH will cancel the Orders and thus provide
participants with an opportunity to correct their errors, or to
[[Page 56125]]
validate their original choices, by re-entering the Reserve Order.
Change To Trade Now Attribute
The Exchange proposes to amend its rules governing the Trade Now
Order Attribute, at Rule 4703(l) to state that when the Trade Now
Attribute is entered through RASH or FIX, and going forward, also
through OUCH, the Trade Now Order Attribute may be enabled on an order-
by-order or a port-level basis. In the next sentence in the paragraph,
the existing text will continue to apply, but as to FLITE only, and not
to OUCH. Thus, when entered through FLITE (but not OUCH), the Trade Now
Order Attribute may be enabled on a port-level basis for all Order
Types that support it, and for the Non-Displayed Order Type, also on an
order-by-order basis.
Change To Limit Up-Limit Down Mechanism
The Exchange proposed to amend its rules governing Limit Up-Limit
Down (``LULD'') functionality, at Rule 4120(a)(13)(E)(2)(a) to state
that limit priced orders entered via the OUCH protocol, which are not
assigned a Managed Pegging, Discretionary, or Reserve Attribute, shall
be repriced upon entry only if the Price Bands are such that the price
of the limit-priced interest to buy (sell) would be above (below) the
upper (lower) Price Band. Additionally, the Exchange is proposing to
amend Rule 4120(a)(13)(E)(2)(b) to state that limit-priced orders
entered via RASH or FIX protocols, or via the OUCH protocol if assigned
a Managed Pegging, Discretionary, or Reserve Attribute, the order shall
be eligible to be repriced by the system multiple times if the Price
Bands move such that the price of resting limit-priced interest to buy
(sell) would be above (below) the upper (lower) Price Band.
The Exchange intends to implement the foregoing changes at the end
of the Third Quarter or early in the Fourth Quarter of 2022. The
Exchange will issue an Equity Trader Alert at least 7 days in advance
of implementing the changes.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\18\ 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.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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Generally speaking, it is consistent with the Act to amend the
Rulebook to reflect upgrades to the Exchange's OUCH Order entry
protocols. The planned upgrades will enable members to utilize OUCH in
additional circumstances, including for the entry of: (1) Price to
Comply and Price to Display Orders with the Reserve Size, Primary and
Market Pegging, and Discretion Order Attributes; (2) Non-Displayed
Orders with the Primary and Market Pegging, Midpoint Pegging (in
scenarios described in amended Rule 4703(d)), and Discretion Order
Attributes; and (3) Market Maker Peg Orders.
Likewise, the Exchange believes that its proposed amendments to the
Pegging Order Attribute, at Rule 4703(d), are consistent with the Act.
The proposed amendments account for the fact that OUCH will become
capable of use for the entry of Peg Managed Orders, including Managed
Midpoint Orders, in addition to Fixed Midpoint Orders. The Exchange
believes that it will be clearer and more coherent to describe the
behavior of Pegged Orders and Orders with Midpoint Pegging in the Rule
with regard to whether these Orders are ``Managed'' or ``Fixed,''
rather than with regard to the protocol used to enter them, especially
as OUCH will be available for use in entering both Managed and Fixed
Pegging Orders going forward. Additionally, proposed amendments to Rule
4703(d) would reorganize the description of the behavior of various
types of Pegged Orders so that it flows more logically and is more
readily comprehensible. Finally, proposed changes would describe the
behavior of Pegged Orders more comprehensively, by adding language that
was mistakenly omitted from the Rule.
Meanwhile, the Exchange's proposal to restate the Rule's
description of the price collar applicable to Pegged Orders is
consistent with the Act because it accounts for the fact that under
certain conditions, the System will cancel Pegging Orders before
clearing liquidity inside the collar.
The Exchange's proposal is consistent with the Act to amend its
Rule governing the Reserve Order Attribute, at Rule 4703(h) to state
that when a Reserve Order is entered using OUCH with a displayed size
of an odd lot, the System will reject the Order. The Exchange believes
that this new proposed behavior will benefit participants insofar as
Reserve Orders entered with odd lot displayed sizes are often the
product of errors. Rather than expose erroneous displayed sizes, OUCH
will cancel the Orders and thus provide participants with an
opportunity to correct their errors, or to validate their original
choices, by re-entering the Reserve Order.
Additionally, the Exchange's proposal to amend its Rule governing
the Trade Now Order Attribute, at Rule 4703(l), is consistent with the
Act, because it accounts for the fact that when entered through the
upgraded version of OUCH, the Trade Now Order Attribute may be enabled
on an order-by-order or a port-level basis.
Finally, the Exchange's proposal to amend its Rule governing the
Limit Up-Limit Down Mechanism, at Rules 4120(a)(13)(E)(2)(a) and
4120(a)(13)(E)(2)(b) are consistent with the Act because the proposed
amendments align with OUCH's capability going forward, once upgraded,
to handle certain Order Types and Order Attributes similar to how RASH
and FIX handle them. Additionally, as discussed above, variance will
occur in certain Order Types based upon whether the orders are subject
to management during their lifetimes.
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. As a general principle, the
proposed changes are reflective of the significant competition among
exchanges and non-exchange venues for order flow. In this regard,
proposed changes that facilitate enhancements to the Exchange's System
and Order entry protocols as well as those that amend and clarify the
Exchange's Rules regarding its Order Attributes, are pro-competitive
because they bolster the efficiency, functionality, and overall
attractiveness of the Exchange in an absolute sense and relative to its
peers.
Moreover, none of the proposed changes will unduly burden intra-
market competition among various Exchange participants. Participants
will experience no competitive impact from its proposals, as these
proposals will restate and reorganize portions of the Rule to reflect
the upgraded capabilities of OUCH, as well as to render the
descriptions of OUCH's new capabilities easier to read and understand.
[[Page 56126]]
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative prior
to 30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \21\ and Rule
19b-4(f)(6) thereunder.\22\
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\19\ 15 U.S.C. 78s(b)(3)(A)(iii).
\20\ 17 CFR 240.19b-4(f)(6).
\21\ 15 U.S.C. 78s(b)(3)(A)(iii).
\22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\24\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\23\ 17 CFR 240.19b-4(f)(6).
\24\ 17 CFR 240.19b-4(f)(6)(iii).
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Exchange has represented that the proposal does not seek to
introduce new functionality, but rather, it offers to OUCH users
advanced functionality that already exists for RASH users. The
Commission believes that waiver of the 30-day operative delay for this
proposal is consistent with the protection of investors and the public
interest as it will allow the Exchange to provide existing advanced
functionality to OUCH users without delay. Accordingly, the Commission
hereby waives the 30-day operative delay and designates the proposal
operative upon filing.\25\
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\25\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \26\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\26\ 15 U.S.C. 78s(b)(2)(B).
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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-BX-2022-015 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-BX-2022-015. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-BX-2022-015 and should be submitted on
or before October 4, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19684 Filed 9-12-22; 8:45 am]
BILLING CODE 8011-01-P
