Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Rule 4702 To Establish New “Contra Midpoint Only” and “Contra Midpoint Only With Post-Only” Order Types, 1616-1621 [2023-00320]
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1616
Federal Register / Vol. 88, No. 7 / Wednesday, January 11, 2023 / Notices
2023
Adjusted
penalty
amounts
CPI–U
multiplier
Civil monetary penalty description
15 U.S.C. 78ff(c)(1)(B) (Exchange Act
sec. 32(c)(1)(B)).
15 U.S.C. 78ff(c)(2)(B) (Exchange Act
sec. 32(c)(2)(B)).
15 U.S.C. 80a–9(d) (Investment Company Act sec. 9(d)).
Foreign Corrupt Practices—any issuer ................................
23,011
1.07745
24,793
Foreign Corrupt Practices—any agent or stockholder acting on behalf of issuer.
For natural person ................................................................
For any other person ............................................................
For natural person/fraud .......................................................
For any other person/fraud ..................................................
For natural person/fraud/substantial losses or risk of losses
to others or gains to self.
For any other person/fraud/substantial losses or risk of
losses to others or gain to self.
For natural person ................................................................
For any other person ............................................................
For natural person/fraud .......................................................
For any other person/fraud ..................................................
For natural person/fraud/substantial losses or risk of losses
to others.
For any other person/fraud/substantial losses or risk of
losses to others.
For natural person ................................................................
For any other person ............................................................
For natural person/fraud .......................................................
For any other person/fraud ..................................................
For natural person/fraud/substantial losses or risk of losses
to others or gains to self.
For any other person/fraud/substantial losses or risk of
losses to others or gain to self.
For natural person ................................................................
For any other person ............................................................
For natural person/fraud .......................................................
For any other person/fraud ..................................................
For natural person/fraud/substantial losses or risk of losses
to others.
For any other person/fraud/substantial losses or risk of
losses to others.
For natural person ................................................................
For any other person ............................................................
For natural person ................................................................
For any other person ............................................................
23,011
1.07745
24,793
10,360
103,591
103,591
517,955
207,183
1.07745
1.07745
1.07745
1.07745
1.07745
11,162
111,614
111,614
558,071
223,229
1,035,909
1.07745
1,116,140
10,360
103,591
103,591
517,955
207,183
1.07745
1.07745
1.07745
1.07745
1.07745
11,162
111,614
111,614
558,071
223,229
1,035,909
1.07745
1,116,140
10,360
103,591
103,591
517,955
207,183
1.07745
1.07745
1.07745
1.07745
1.07745
11,162
111,614
111,614
558,071
223,229
1,035,909
1.07745
1,116,140
10,360
103,591
103,591
517,955
207,183
1.07745
1.07745
1.07745
1.07745
1.07745
11,162
111,614
111,614
558,071
223,229
1,035,909
1.07745
1,116,140
152,557
3,051,164
1,144,186
22,883,723
1.07745
1.07745
1.07745
1.07745
164,373
3,287,477
1,232,803
24,656,067
15 U.S.C. 80a–41(e) (Investment Company Act sec. 42(e)).
15 U.S.C. 80b–3(i) (Investment Advisers Act sec. 203(i)).
15 U.S.C. 80b–9(e) (Investment Advisers Act sec. 209(e)).
15 U.S.C. 7215(c)(4)(D)(i) (SarbanesOxley Act sec. 105(c)(4)(D)(i)).
15 U.S.C. 7215(c)(4)(D)(ii) (SarbanesOxley Act sec. 105(c)(4)(D)(ii)).
Pursuant to the 2015 Act and 17 CFR
201.1001, the adjusted penalty amounts
in this Notice (and all penalty
adjustments performed pursuant to the
2015 Act) apply to penalties imposed
after the date the adjustment is effective
for violations that occurred after
November 2, 2015, the 2015 Act’s
enactment date. These penalty amounts
supersede the amounts in the 2022
Adjustment.15 For violations that
occurred on or before November 2,
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2022
Adjustment
penalty
amounts
U.S. Code citation
15 The penalty amounts in this Notice are being
published in the Federal Register and will not be
added to the Code of Federal Regulations in
accordance with the 2015 Act and 17 CFR
201.1001(b). See 28 U.S.C. 2461 note sec. 4(a)(2); 17
CFR 201.1001(b). In addition to being published in
the Federal Register, the penalty amounts in this
Notice will be made available on the Commission’s
website at https://www.sec.gov/enforce/civilpenalties-inflation-adjustments.htm, as detailed in
17 CFR 201.1001(b). This website also lists the
penalty amounts for violations that occurred on or
before November 2, 2015.
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17:17 Jan 10, 2023
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2015, the penalty amounts in table I to
17 CFR 201.1001 continue to apply.16
III. Small Business Regulatory
Enforcement Fairness Act Status
Dated: January 6, 2023.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2023–00370 Filed 1–10–23; 8:45 am]
BILLING CODE 8011–01–P
OMB has concurred in our
recommendation that this Notice is not
a ‘‘major rule’’ as defined by section 251
of the Small Business Regulatory
Enforcement Fairness Act (‘‘SBREFA’’),
5 U.S.C. 804(2), because (1) it will not
have an annual effect of $100 million
dollars or more on the economy, (2) it
does not present a major increase in
prices for consumers or individual
industries, and (3) it does not have
significant adverse effects on
competition, investment, or
innovation.17
By the Commission.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96601; File No. SR–
NASDAQ–2022–077]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Amend Rule 4702 To Establish New
‘‘Contra Midpoint Only’’ and ‘‘Contra
Midpoint Only With Post-Only’’ Order
Types
January 5, 2023
16 17
CFR 201.1001(a).
17 See generally SBREFA, Public Law 104–121
(1996).
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
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Federal Register / Vol. 88, No. 7 / Wednesday, January 11, 2023 / Notices
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
22, 2022, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘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
Rule 4702 to establish new ‘‘Contra
Midpoint Only’’ and ‘‘Contra Midpoint
Only with Post-Only’’ Order Types.
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.
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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
Rule 4702(b) to establish ‘‘Contra
Midpoint Only’’ or ‘‘CMO’’ and ‘‘Contra
Midpoint Only with Post-Only’’ or
‘‘CMO+PO’’ as new Order Types on the
Exchange.
A CMO is a non-displayed Order
Type priced at the midpoint between
the National Best Bid and the National
Best Offer (the ‘‘NBBO’’ and the
midpoint of the NBBO, the ‘‘Midpoint’’).
The Exchange will cancel a CMO resting
on the Order Book upon entry of certain
types of incoming Orders that are
indicative of pending price movements
that would be less favorable to the CMO
user than the prevailing price, thus
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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providing protection to the CMO user
against executions at the prevailing
Midpoint price that the user may deem
unfavorable. As explained below, once
the System cancels a CMO under these
circumstances, the user would be free to
submit a new CMO at the new Midpoint
price or, in certain cases, the Exchange
would do so automatically on behalf of
the user.
A CMO+PO is similar to a CMO,
except that it provides for ‘‘post-only’’
functionality, meaning that like a
Midpoint Peg Post-Only Order,3 a
CMO+PO will execute upon entry only
in circumstances where economically
beneficial to the party entering the
Order.
The CMO and CMO+PO are the latest
in a series of innovative Order Types
that the Exchange has developed to
provide market participants with
options that allow them to make their
own determinations with regards to
various trade-offs that exist when
executing their strategies in the markets.
One such trade off might be the amount
of liquidity they can obtain in the near
term versus the potential for market
movement relative to the Midpoint
price. Some participants may value
avoiding immediate executions in order
to wait for a better price while others
would rather obtain the liquidity
instead of waiting. Further, these
options allow similarly-minded market
participants to interact via these Order
Types. In 2018, for example, Nasdaq
introduced the Midpoint Extended Life
Order (‘‘M–ELO’’).4 Like CMO, M–ELO
is also a non-displayed Order Type that
executes only at the Midpoint. It is
eligible to execute only against other M–
ELOs, and it protects users from
interacting with time-sensitive orders by
requiring them to wait a period of time
(a ‘‘Holding Period’’) before their M–
ELO is eligible to execute (originally
one-half second, and subsequently
reduced to 10 milliseconds). 5 In 2019,
the Exchange enhanced the M–ELO
concept by adding the Midpoint
Extended Life Order Plus Continuous
Book (‘‘M–ELO+CB’’).6 A M–ELO+CB
behaves exactly like a M–ELO, except
3 See
Rule 4702(b)(5).
Securities Exchange Act Release No. 34–
82825 (Mar. 7, 2018), 83 FR 10937 (Mar. 13, 2018)
(order approving SR–NASDAQ–2017–074).
5 In 2020, the Commission issued an order
approving the Exchange’s proposal to shorten the
Holding Period for M–ELO and M–ELO+CB Orders
from one-half second to 10 milliseconds. See
Securities Exchange Act Release No. 34–88743
(April 24, 2020), 85 FR 24068 (April 30, 2020)
(order approving SR–NASDAQ–2020–011).
6 See Securities Exchange Act Release No. 34–
86938 (September 11, 2019), 84 FR 48978
(September 17, 2019) (order approving SR–
NASDAQ–2019–048).
4 See
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1617
that it may also interact with Midpoint
Orders on the Exchange’s Continuous
Book (and thus have access to larger
sources of liquidity) to the extent that
such Midpoint Orders, in turn, opt to
rest on the Continuous Book for at least
10 milliseconds before becoming
eligible to execute against a M–ELO+CB.
CMO and CMO+PO are the latest
variations on the M–ELO/M–ELO+CB
theme. M–ELOs only trade against other
Orders from like-minded participants
that are willing to wait the required time
period before trading. CMOs and
CMO+POs, by contrast, can trade in a
wider array of situations, but like M–
ELO, they will not trade in instances
where the incoming order is likely to
impact the prevailing price of the
security. 7 This will provide users of
CMOs and CMO+POs with
opportunities for more liquidity
interaction than M–ELO but with
slightly less protection. On the other
hand, CMOs and CMO+POs will
provide more protection to users than
regular Midpoint Orders, but with less
opportunity to interact with liquidity.
Instead of imposing a waiting period,
the Exchange will cancel a resting CMO
when it faces incoming orders that are
likely to shift the Midpoint, while also
providing an opportunity to a
participant to receive price
improvement if or when the participant
resubmits its CMO or CMO+PO to take
advantage of a shift in the Midpoint.
The specific proposed characteristics
of the CMO are as follows.
A CMO is a non-displayed Order
Type with the Midpoint Pegging
Attribute that will be priced and ranked
in time order at the Midpoint. A user
may cancel a CMO at any time.
The System will cancel a CMO Order
automatically if a CMO is resting at the
Midpoint on the Exchange Book, an
incoming Order is priced through the
price of the CMO, the CMO would
otherwise trade against the incoming
Order,8 and one or more of the
following conditions apply, which the
Exchange observes are indicative of a
pending price shift in favor of the CMO
user:
• The incoming Order is Displayed
and its size is greater than that of the
resting CMO;
7 As part of its proposal, the Exchange proposes
to amend Rule 4702(b)(15) to state that a M–
ELO+CB that satisfies the Holding Period of that
Order Type shall be eligible to execute (at the
midpoint of the NBBO) against other eligible Contra
Midpoint Only Orders and Contra Midpoint Only
with Post-Only Orders.
8 For example, if the incoming Order is filled
fully by resting interest with price/time priority
ahead of the resting CMO Order, then the CMO
order will not be cancelled by the System.
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• The incoming Order is not
Displayed, it is priced at the far side of
the NBBO, and its size is greater than
that of the resting CMO; or
• The incoming Order is assigned the
ISO attribute.
Again, in these instances, the
Exchange observes that the incoming
Order will likely cause the NBBO to
shift, such that cancellation of the CMO
will be preferable to allowing the CMO
to execute at a Midpoint price that may
be stale. The user may then choose to
resubmit the CMO manually to take
advantage of the price shift, in the case
of a CMO with a price that the Exchange
fixes at the Midpoint that prevails at the
time of entry (a ‘‘Fixed’’ CMO,
discussed below). In the case of a CMO
entered as a Peg Managed Order in
accordance with Rule 4703(d), and
which has a price that the System
updates in accordance with post-entry
shifts in the Midpoint (a ‘‘Managed’’
CMO, also discussed below), the System
will automatically re-submit a new
CMO on behalf of the user after
cancelling the original CMO.
Additionally, because a CMO
inherently possesses the Midpoint
Pegging Attribute, it will behave in
accordance with Rule 4703(d), which
governs Orders with Midpoint Pegging.9
Thus, consistent with Rule 4703(d), the
following behavior applies to CMOs:
• A CMO user may only enter a CMO
Order during Market Hours.
• A CMO user may specify that a
CMO peg to the Midpoint in one of two
ways, either with fixed pegging (a’’
Fixed CMO’’) or with managed pegging
(a ‘‘Managed CMO’’).
• For a Fixed CMO, the System will
fix the price of the CMO at the Midpoint
prevailing at the time of Order entry.
After posting to the Exchange Book, the
9 In part, this proposal references Rule text that
the Exchange amended in a recent filing with the
Commission but which the Exchange has yet to
implement. See Securities Exchange Act Release
No. 34–95768 (September 14, 2022), 87 FR 57534
(September 20, 2022) (SR–NASDAQ–2022–051);
Securities Exchange Act Release No. 34–96341
(November 17, 2022), 87 FR 71712 (November 23,
2022) (delaying implementation of SR–NASDAQ–
2022–051). To the extent that the Commission
approves the proposal for adoption of the CMO and
CMO+PO prior to implementation of SR–NASDAQ
2022–051, the Exchange may act to implement
those features of the CMO and CMO+PO that do not
require the availability of the Rule text amendments
set forth in SR–NASDAQ–2022–051 to operate—
namely, those features applicable to a Fixed CMO
and Fixed CMO+PO. The Exchange will specify in
an ETA exactly which features of the CMO and
CMO+PO will be available to participants as of the
initial implementation date and which of them will
be available only as of the date of implementation
of SR–NASDAQ–2022–051. A present, the
Exchange expects that SR–NASDAQ–2022–051 will
be ready for full implementation in the second or
third quarter of 2023, although that time frame is
subject to change.
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17:17 Jan 10, 2023
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price of a Fixed CMO will not thereafter
be adjusted based on changes to the
Inside Bid or Offer. However, the
System will cancel a Fixed CMO after
initial entry and posting to the Exchange
Book if any of following conditions are
met (in addition to those cancellation
conditions that will apply specifically to
CMOs in the proposed rule): (i) there is
no Inside Bid and/or Inside Offer; (ii)
the Fixed CMO to buy (sell) is entered
with a limit price above (below) the
Midpoint and is ranked at the Midpoint,
and thereafter, the Inside Bid and/or
Inside Offer change so that the Midpoint
changes and the Fixed CMO is no longer
at the Midpoint); (iii) the Fixed CMO to
buy (sell) is entered at a limit price that
is equal to or less than (greater than) the
Midpoint and is ranked at its limit
price; thereafter, the Inside Bid and/or
Inside Offer change so that the Midpoint
is lower (higher) than the limit price of
the Fixed CMO; (iv) the Fixed CMO to
buy (sell) is entered at a limit price that
is equal to or less than (greater than) the
Midpoint and is ranked at its limit
price, and thereafter, the Inside Bid and
Inside Offer become crossed, such that
the Midpoint of the crossed Quotation
remains equal to or higher (lower) than
the limit price of the Fixed CMO, and
then a new sell (buy) Order is received
at a price that locks or crosses the limit
price of the resting Fixed CMO; or (v)
the Fixed CMO to buy (sell) is entered
at a limit price that is greater than (less
than) the Midpoint and is therefore
ranked at the Midpoint, and thereafter,
the Inside Bid and Inside Offer become
crossed but the Midpoint does not
change, and then a new sell (buy) Order
is received at a price that locks or
crosses the Midpoint of the Inside Bid
and Inside Offer.10
• A Managed CMO 11 will have its
price set upon initial entry and will
thereafter have its price reset in
accordance with changes to the relevant
Inside Quotation. A Managed CMO will
receive a new timestamp whenever its
price is updated and therefore will be
evaluated with respect to possible
execution (and routing, if it has been
assigned a Routing Order Attribute) in
the same manner as a newly entered
Order. If the price to which a Managed
CMO is pegged becomes unavailable,
pegging would lead to a price at which
the Managed CMO cannot be posted, or
10 A user may enter a Fixed CMO using OUCH or
FLITE. See Rule 4703(d).
11 The features of Managed CMOs and Managed
CMO+POs cross-reference a version of Rule 4703(d)
that is set forth in SR–NASDAQ–2022–051 and not
yet implemented. Thus, Managed CMOs and
Managed CMO+POs will not be available for use
prior to implementation of SR–NASDAQ 2022–051.
See n.10, supra.
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Fmt 4703
Sfmt 4703
if the Inside Bid and Inside Offer
become crossed, then the System will
cancel the Managed CMO back to the
participant if assigned a Routing Order
Attribute. If Managed CMO is not
assigned a Routing Order Attribute, and
the price to which it is pegged becomes
unavailable, pegging would lead to a
price at which the Managed CMO
cannot be posted, or if the Inside Bid
and Inside Offer become crossed, them
the Managed CMO will be removed
from the Exchange Book and will be reentered once there is a permissible
price, provided however, that the
System will cancel the Managed CMO if
no permissible pegging price becomes
available within one second after the
Managed CMO 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).12
• If at the time of entry, there is no
price to which a Managed CMO, that
has not been assigned a Routing Order
Attribute or a Time in Force of
Immediate-or-Cancel, can be pegged or
pegging would lead to a price at which
the Order cannot be posted, or if the
Inside Bid and Inside Offer are Crossed,
then the CMO 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 Managed CMO if no
permissible pegging price becomes
available within one second after Order
entry (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).
• For a Managed CMO Order that has
been assigned a Routing Order
Attribute, if there is no permissible
price to which the Order can be pegged
at the time of entry, pegging would lead
to a price at which the Order cannot be
posted, or the Inside Bid and Inside
Offer are crossed, the Order will be
rejected.
• A CMO will have its price set upon
initial entry to the Midpoint, unless the
CMO has a limit price, and that limit
price is lower than the Midpoint for a
CMO to buy (higher than the Midpoint
for CMO to sell), in which case the
Order will be ranked on the Exchange
Book at its limit price. If the Inside Bid
and Inside Offer are locked, a CMO will
be priced at the locking price; and for
Fixed CMOs, if the Inside Bid and
Inside Offer are crossed or if there is no
12 A user may enter a Managed CMO using RASH,
FIX, QIX, or OUCH. See Rule 4703(d).
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Federal Register / Vol. 88, No. 7 / Wednesday, January 11, 2023 / Notices
Inside Bid and/or Inside Offer, the Fixed
CMO will not be accepted. However,
even if the Inside Bid and Inside Offer
are locked, an Order with CMO that
locked an Order on the Exchange Book
would execute.
• If a CMO has been assigned a
Discretion Order Attribute, the CMO
may execute at any price within the
discretionary price range, even if
beyond the limit price specified with
respect to the Midpoint Pegging Order
Attribute. If CMO is priced at its limit
price, the price of the CMO may
nevertheless be changed to a less
aggressive price based on changes to the
Inside Quotation.
• Like other Orders with Pegging,
CMOs are subject to a collar. Any
portion of a CMO 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. A CMO entered
without a Routing attribute will be
cancelled, if it would, as a result of the
price determined by a Pegging Attribute,
execute or post to the Exchange Book at
a price through the Collar Price.
• The System will cancel CMOs when
a trading halt is declared, and the
System will reject any CMOs entered
during a trading halt.
As noted above, a CMO will not be
accepted outside of Market Hours, but it
will be eligible to participate in the
Nasdaq Closing Cross. A CMO
remaining unexecuted after the Nasdaq
Closing Cross occurs will be cancelled
by the System unless, in the case of a
Fixed CMO, the user selects a Time in
Force for the Fixed CMO that provides
for it to persist thereafter.
A CMO user may opt to apply the
Minimum Quantity, Trade Now, or
Discretion Order Attributes to a CMO.
Again, the Non-Display and Midpoint
Pegging Attributes always apply to
CMOs.
A CMO+PO will possess all of the
characteristics and attributes of a CMO,
as described above, as well as those of
a Midpoint Peg Post-Only Order, as set
forth in Rule 4702(b)(5), with certain
exceptions set forth below.
Like a Midpoint Peg Post-Only Order,
a CMO+PO is a non-displayed Order
that is priced at the Midpoint and
executes upon entry only in
circumstances where economically
beneficial to the party entering the
Order. If a CMO+PO has a Fixed
Midpoint, then it may be adjusted after
initial entry and posting to the Exchange
Book. The price at which a Fixed
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Jkt 259001
CMO+PO is ranked on the Nasdaq Book
is the midpoint between the NBBO,
unless the Order has a limit price that
is lower than the midpoint between the
NBBO for an Order to buy (higher than
the midpoint between the NBBO for an
Order to sell), in which case the Order
will be ranked on the Nasdaq Book at
its limit price. The price of the Fixed
CMO+PO will not thereafter be adjusted
based on changes to the NBBO.
However, a Fixed CMO+PO will be
cancelled back to the Participant after
initial entry and posting to the Nasdaq
Book if any of the following conditions
are met:
• There is no National Best Bid and/
or National Best Offer;
• The Fixed CMO+PO to buy (sell) is
entered with a limit price above (below)
the Midpoint of the NBBO and is ranked
at the Midpoint of the NBBO; thereafter,
the NBBO changes so that the Midpoint
changes and the Fixed CMO+PO is no
longer at the NBBO Midpoint;
• The Fixed CMO+PO to buy (sell) is
entered at a limit price that is equal to
or less than (greater than) the Midpoint
of the NBBO and is ranked at its limit
price; thereafter, the NBBO changes so
that the Midpoint of the NBBO is lower
(higher) than the limit price of the Fixed
CMO+PO;
• The Fixed CMO+PO to buy (sell) is
entered at a limit price that is equal to
or less than (greater than) the Midpoint
of the NBBO and is ranked at its limit
price, thereafter the NBBO becomes
crossed, such that the Midpoint of the
crossed NBBO remains equal to or
higher (lower) than the limit price of the
Fixed CMO+PO, and then a new sell
(buy) Order is received at a price that
locks or crosses the limit price of the
resting Fixed CMO+PO; or
• The Fixed CMO+PO to buy (sell) is
entered at a limit price that is greater
than (less than) the Midpoint of the
NBBO and is therefore ranked at the
Midpoint of the NBBO, thereafter the
NBBO becomes crossed but the
Midpoint does not change, and then a
new sell (buy) Order is received at a
price that locks or crosses the Midpoint
of the NBBO.
If a CMO+PO has a Managed
Midpoint, then also like a Midpoint Peg
Post-Only Order, the price of the
CMO+PO will be updated repeatedly to
equal the midpoint between the NBBO;
provided, however, that the CMO+PO
will not be priced higher (lower) than its
limit price. In the event that the
midpoint between the NBBO becomes
higher than (lower than) the limit price
of a CMO+PO to buy (sell), the price of
the CMO+PO will stop updating and the
CMO+PO will post (with a Non-Display
Attribute) at its limit price, but will
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
1619
resume updating if the midpoint
becomes lower than (higher than) the
limit price of the CMO+PO to buy (sell).
Similarly, if a CMO+PO is on the
Nasdaq Book and subsequently the
NBBO is crossed, or if there is no NBBO,
the Order will be removed from the
Nasdaq Book and will be re-entered at
the new midpoint once there is a valid
NBBO that is not crossed. The CMO+PO
receives a new timestamp each time its
price is changed.
Like a Midpoint Peg Post-Only Order,
but unlike an ordinary CMO, a
CMO+PO will not be eligible to
participate in the Nasdaq Opening
Cross, Closing Cross, or Halt Cross, and
all CMO+POs will be cancelled if they
remain on the Exchange Book at the end
of Market Hours.13 Also like a Midpoint
Peg Post-Only Order, but unlike an
ordinary CMO, a CMO+PO may not
possess the Discretion or Routing Order
Attributes, and a CMO+PO must be
priced at more than $1 per share.
Finally, unlike a Midpoint Peg PostOnly Order, RASH may be used to enter
a CMO+PO with a Time in Force of IOC
(as well as OUCH, which can be used
for such purposes with respect to a
MPPO), and in such cases the Order will
be canceled after determining whether it
can be executed.
CMO and CMO+PO executions will
be reported to Securities Information
Processors and provided in the
Exchange’s proprietary data feed
without any new or special indication.
As part of the surveillance the
Exchange currently performs, CMOs and
CMO+POs will be subject to real-time
surveillance to determine if they are
being abused by market participants.
The Exchange is committed to
determining whether there is
opportunity or prevalence of behavior
that is inconsistent with normal risk
management behavior. Manipulative
abuse is subject to potential disciplinary
action under the Exchange’s Rules, and
other behavior that is not necessarily
manipulative but nonetheless frustrates
the purposes of the CMO or CMO+PO
may be subject to penalties or other
participant requirements to discourage
such behavior, should it occur.14
The Exchange plans to implement
CMO and CMO+PO within thirty days
after Commission approval of the
13 A CMO+PO entered prior to the beginning of
Market Hours will be rejected. A CMO+PO will be
cancelled by the System when a trading halt is
declared, and any CMO+PO entered during a
trading halt will be rejected.
14 Punitive fees or other participant requirements
tied to CMO and CMO+PO usage will be
implemented by rule filing under Section 19(b) of
the Act, 15 U.S.C. 78s(b), should the Exchange
determine that they are necessary to maintain a fair
and orderly market.
E:\FR\FM\11JAN1.SGM
11JAN1
1620
Federal Register / Vol. 88, No. 7 / Wednesday, January 11, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
proposal. The Exchange will make the
CMO and CMO+PO available to all
members and to all securities upon
implementation. The Exchange will
announce the implementation date by
Equity Trader Alert.15
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,16 in general, and furthers the
objectives of Section 6(b)(5) of the Act,17
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. In
particular, the proposal is consistent
with the Act because it would create
additional options with respect to how
participants can manage trading at the
Midpoint. These additional options
allow participants to more finely tune
their interactions in the market, which
can lead to more efficient trading
opportunities on the Exchange for
investors with similar investment
objectives.18 Much like the analogous
M–ELO Order Type, which Nasdaq
introduced a few years ago, CMO and
CMO+PO would provide market
participants with a means to avoid
certain execution scenarios which they
may deem unfavorable. Unlike M–ELO,
however, which imposes a waiting
period upon participants to bring likeminded participants together, the CMO
and CMO+PO would have no such
waiting period. That is, the Exchange
designed CMO and CMO+PO for
participants that want Midpoint
executions, but have a greater urgency
to execute their orders and are not
concerned about interacting with other
participants acting with similar urgency.
At the same time, the CMO and
CMO+PO will avoid interacting with
orders that are likely to shift the
midpoint even without a holding period
by providing for the System to cancel a
CMO or CMO+PO when faced with
incoming Order that cross the Midpoint
or are otherwise likely to cause a shift
in the Midpoint. For Fixed CMOs and
CMO+POs, users could then choose to
enter a new CMO to take advantage of
a better ensuing Midpoint; for Managed
CMOs and CMO+PO, the System will do
this automatically.
The CMO and CMO+PO will be
available for voluntary use by all
Exchange members. Moreover, the
proposal is not unfair to participants
with incoming Orders that trigger
cancellation of CMOs because exchange
functionality which permits likeminded participants the ability to
achieve their objectives in an efficient
manner will improve overall execution
quality on the market, to the benefit of
all market participants. Moreover, the
protections that these Order Types
provide are narrowly tailored to mitigate
the risk of adverse executions.19
Like all other Order Types, the
Exchange will conduct real-time
surveillance to monitor the use of CMOs
and CMO+POs to ensure that such usage
is appropriately tied to the intent of the
Order Type. Transactions in CMOs and
CMO+POs will be reported to the
Securities Information Processor and
will be provided in the Exchange’s
proprietary data feed in the same
manner as all other transactions
occurring on the Exchange, without any
new or special indication that it is a
CMO or CMO+PO execution. The
Exchange believes that doing so is
important to ensuring that investors are
protected from any market impact that
may occur if CMO executions were
reported with a special indication.
The Exchange does not believe that
the proposed CMO or CMO+PO will
negatively affect the quality of the
market. To the contrary, the Exchange
believes that the addition of CMO and
CMO+PO will draw new market
participants to the Exchange’s
transparent and well-regulated market,
including participants that were
previously not utilizing M–ELOs or M–
ELO+CBs. Moreover, like these other
Order Types, the CMO and CMO+PO
will allow investors an opportunity to
find like-minded counterparties at the
midpoint on the Exchange, while also
15 The Exchange plans to propose a fee structure
for the CMO and CMO+PO in a subsequent
Commission rule filing.
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(5).
18 Cf. Securities Exchange Act Release No. 34–
82825 (March 7, 2018), 83 FR 10937 (March 13,
2018) (SR–NASDAQ–2017–074) (approving the
Midpoint Extended Life Order (‘‘M–ELO’’) because
it could ‘‘create additional and more efficient
trading opportunities on the Exchange for investors
with longer investment time horizons, including
institutional investors, and could provide these
investors with an ability to limit the information
leakage and the market impact that could result
from their orders.’’).
19 Cf. Order Approving a Proposed Rule Change
to Add a New Discretionary Limit Order Type
Called D-Limit, Securities Exchange Act Release
No. 34–89686 (August 26, 2020), 85 FR 54438
(September 1, 2020) (SR–IEX–2019–15) (‘‘D-Limit
orders will encourage long term investors to
participate in the displayed exchange market by
protecting them against one particular strategy
employed by short term traders. It is not unfairly
discriminatory for an exchange to address that
advantage in a narrowly tailored manner that
promotes investor protection and the public
interest. Accordingly, the Commission concludes
that IEX’s proposal is not designed to permit unfair
discrimination between customers, issuers, brokers,
or dealers.’’).
VerDate Sep<11>2014
17:17 Jan 10, 2023
Jkt 259001
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
limiting executions users may deem
unfavorable and providing
opportunities for price improvement.
Insofar as the CMO and CMO+PO would
provide new options for participants to
achieve efficient, high-quality midpoint
executions, the CMO and CMO+PO
stands to increase participation on the
Exchange and to improve the quality of
executions on the Exchange, to the
benefit of all market participants.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange believes that the
introduction of the CMO and CMO+PO
will draw new market participants to
the Exchange while also providing a
new option for existing participants that
wish to achieve benefits similar to M–
ELO or M–ELO+CB—high-quality
Midpoint executions—but do not wish
for their Orders to be subject to a
Holding Period or care about their
counterparties being subject to the same.
To the extent the proposed change is
successful in attracting additional
market participants or increasing
existing participation on the Exchange,
Nasdaq believes that the proposed
change will promote competition among
trading venues by making the Exchange
a more attractive trading venue for
investors and participants.
Additionally, adoption of the CMO
and CMO+PO will not burden
competition among market participants.
The CMO and CMO+PO will be
available to all Exchange members and
it will be available on an optional basis.
Thus, any member that seeks to avail
itself of the benefits of a CMO or
CMO+PO can choose accordingly.
Although the proposal provides
potential benefits for investors that
select the CMO and CMO+PO, the
Exchange believes that all market
participants will benefit to the extent
that this proposal contributes to a
healthy and attractive market that is
attentive to the needs of all types of
investors.
The proposal also will not adversely
impact market participants that choose
not to use these Order Types because no
changes need to be made to participants’
systems to account for it. As discussed
above, CMO and CMO+PO executions
will be reported the same as other
executions, without any new or special
indicator.
In any event, the Exchange notes that
it operates in a highly competitive
market in which market participants can
E:\FR\FM\11JAN1.SGM
11JAN1
Federal Register / Vol. 88, No. 7 / Wednesday, January 11, 2023 / Notices
readily choose between competing
venues if they deem participation in the
Exchange’s market is no longer
desirable. In such an environment, the
Exchange must carefully consider the
impact that any change it proposes may
have on its participants, understanding
that it will likely lose participants to the
extent a change is viewed as
unfavorable by them. Because
competitors are free to modify the
incentives and structure of their
markets, the Exchange believes that the
degree to which modifying the market
structure of an individual market may
impose any burden on competition is
limited. Last, to the extent the proposed
change is successful in attracting
additional market participants or
additional activity by existing
participants, the Exchange also believes
that the proposed change will promote
competition among trading venues by
making the Exchange a more attractive
trading venue for participants and
investors.
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 Exchange consents, the Commission
shall: (a) by order approve or disapprove
such proposed rule change, or (b)
institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
lotter on DSK11XQN23PROD with NOTICES1
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2022–077 on the subject line.
17:17 Jan 10, 2023
Jkt 259001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–00320 Filed 1–10–23; 8:45 am]
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:
VerDate Sep<11>2014
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–2022–077. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2022–077 and
should be submitted on or before
February 1,2023.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34796; 812–15397]
Fidelity Multi-Strategy Credit Fund and
Fidelity Diversifying Solutions LLC
January 5, 2023.
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
AGENCY:
20 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00066
Fmt 4703
Sfmt 4703
ACTION:
1621
Notice.
Notice of an application under section
6(c) of the Investment Company Act of
1940 (the ‘‘Act’’) for an exemption from
sections 18(a)(2), 18(c), and 18(i) of the
Act, pursuant to sections 6(c) and 23(c)
of the Act for certain exemptions from
rule 23c–3 under the Act, and pursuant
to section 17(d) of the Act and rule 17d–
1 thereunder.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
registered closed-end management
investment companies to issue multiple
classes of shares and to impose assetbased service and/or distribution fees
and early withdrawal charges.
APPLICANTS: Fidelity Multi-Strategy
Credit Fund, and Fidelity Diversifying
Solutions LLC.
FILING DATES: The application was filed
on October 19, 2022, and amended on
November 28, 2022 and December 13,
2022.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing on any application by
emailing the SEC’s Secretary at
Secretarys-Office@sec.gov and serving
the Applicants with a copy of the
request by email, if an email address is
listed for the relevant Applicant below,
or personally or by mail, if a physical
address is listed for the relevant
Applicant below. Hearing requests
should be received by the Commission
by 5:30 p.m. on January 30, 2023, and
should be accompanied by proof of
service on the Applicants, in the form
of an affidavit, or, for lawyers, a
certificate of service. Pursuant to rule 0–
5 under the Act, hearing requests should
state the nature of the writer’s interest,
any facts bearing upon the desirability
of a hearing on the matter, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
emailing the Commission’s Secretary.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicant:
Cynthia Lo Bessette,
cynthia.lo.bessette@fmr.com.
FOR FURTHER INFORMATION CONTACT:
Terri Jordan, Branch Chief, at (202) 551–
6825 (Division of Investment
Management, Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: For
Applicants’ representations, legal
analysis, and conditions, please refer to
Applicants’ second amended and
restated application, dated December
13, 2022, which may be obtained via the
Commission’s website by searching for
the file number at the top of this
E:\FR\FM\11JAN1.SGM
11JAN1
]]>Agencies
[Federal Register Volume 88, Number 7 (Wednesday, January 11, 2023)]
[Notices]
[Pages 1616-1621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00320]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96601; File No. SR-NASDAQ-2022-077]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 4702 To
Establish New ``Contra Midpoint Only'' and ``Contra Midpoint Only With
Post-Only'' Order Types
January 5, 2023
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 1617]]
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 22, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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 Rule 4702 to establish new ``Contra
Midpoint Only'' and ``Contra Midpoint Only with Post-Only'' Order
Types.
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 Exchange proposes to amend Rule 4702(b) to establish ``Contra
Midpoint Only'' or ``CMO'' and ``Contra Midpoint Only with Post-Only''
or ``CMO+PO'' as new Order Types on the Exchange.
A CMO is a non-displayed Order Type priced at the midpoint between
the National Best Bid and the National Best Offer (the ``NBBO'' and the
midpoint of the NBBO, the ``Midpoint''). The Exchange will cancel a CMO
resting on the Order Book upon entry of certain types of incoming
Orders that are indicative of pending price movements that would be
less favorable to the CMO user than the prevailing price, thus
providing protection to the CMO user against executions at the
prevailing Midpoint price that the user may deem unfavorable. As
explained below, once the System cancels a CMO under these
circumstances, the user would be free to submit a new CMO at the new
Midpoint price or, in certain cases, the Exchange would do so
automatically on behalf of the user.
A CMO+PO is similar to a CMO, except that it provides for ``post-
only'' functionality, meaning that like a Midpoint Peg Post-Only
Order,\3\ a CMO+PO will execute upon entry only in circumstances where
economically beneficial to the party entering the Order.
---------------------------------------------------------------------------
\3\ See Rule 4702(b)(5).
---------------------------------------------------------------------------
The CMO and CMO+PO are the latest in a series of innovative Order
Types that the Exchange has developed to provide market participants
with options that allow them to make their own determinations with
regards to various trade-offs that exist when executing their
strategies in the markets. One such trade off might be the amount of
liquidity they can obtain in the near term versus the potential for
market movement relative to the Midpoint price. Some participants may
value avoiding immediate executions in order to wait for a better price
while others would rather obtain the liquidity instead of waiting.
Further, these options allow similarly-minded market participants to
interact via these Order Types. In 2018, for example, Nasdaq introduced
the Midpoint Extended Life Order (``M-ELO'').\4\ Like CMO, M-ELO is
also a non-displayed Order Type that executes only at the Midpoint. It
is eligible to execute only against other M-ELOs, and it protects users
from interacting with time-sensitive orders by requiring them to wait a
period of time (a ``Holding Period'') before their M-ELO is eligible to
execute (originally one-half second, and subsequently reduced to 10
milliseconds). \5\ In 2019, the Exchange enhanced the M-ELO concept by
adding the Midpoint Extended Life Order Plus Continuous Book (``M-
ELO+CB'').\6\ A M-ELO+CB behaves exactly like a M-ELO, except that it
may also interact with Midpoint Orders on the Exchange's Continuous
Book (and thus have access to larger sources of liquidity) to the
extent that such Midpoint Orders, in turn, opt to rest on the
Continuous Book for at least 10 milliseconds before becoming eligible
to execute against a M-ELO+CB. CMO and CMO+PO are the latest variations
on the M-ELO/M-ELO+CB theme. M-ELOs only trade against other Orders
from like-minded participants that are willing to wait the required
time period before trading. CMOs and CMO+POs, by contrast, can trade in
a wider array of situations, but like M-ELO, they will not trade in
instances where the incoming order is likely to impact the prevailing
price of the security. \7\ This will provide users of CMOs and CMO+POs
with opportunities for more liquidity interaction than M-ELO but with
slightly less protection. On the other hand, CMOs and CMO+POs will
provide more protection to users than regular Midpoint Orders, but with
less opportunity to interact with liquidity. Instead of imposing a
waiting period, the Exchange will cancel a resting CMO when it faces
incoming orders that are likely to shift the Midpoint, while also
providing an opportunity to a participant to receive price improvement
if or when the participant resubmits its CMO or CMO+PO to take
advantage of a shift in the Midpoint.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 34-82825 (Mar. 7,
2018), 83 FR 10937 (Mar. 13, 2018) (order approving SR-NASDAQ-2017-
074).
\5\ In 2020, the Commission issued an order approving the
Exchange's proposal to shorten the Holding Period for M-ELO and M-
ELO+CB Orders from one-half second to 10 milliseconds. See
Securities Exchange Act Release No. 34-88743 (April 24, 2020), 85 FR
24068 (April 30, 2020) (order approving SR-NASDAQ-2020-011).
\6\ See Securities Exchange Act Release No. 34-86938 (September
11, 2019), 84 FR 48978 (September 17, 2019) (order approving SR-
NASDAQ-2019-048).
\7\ As part of its proposal, the Exchange proposes to amend Rule
4702(b)(15) to state that a M-ELO+CB that satisfies the Holding
Period of that Order Type shall be eligible to execute (at the
midpoint of the NBBO) against other eligible Contra Midpoint Only
Orders and Contra Midpoint Only with Post-Only Orders.
---------------------------------------------------------------------------
The specific proposed characteristics of the CMO are as follows.
A CMO is a non-displayed Order Type with the Midpoint Pegging
Attribute that will be priced and ranked in time order at the Midpoint.
A user may cancel a CMO at any time.
The System will cancel a CMO Order automatically if a CMO is
resting at the Midpoint on the Exchange Book, an incoming Order is
priced through the price of the CMO, the CMO would otherwise trade
against the incoming Order,\8\ and one or more of the following
conditions apply, which the Exchange observes are indicative of a
pending price shift in favor of the CMO user:
---------------------------------------------------------------------------
\8\ For example, if the incoming Order is filled fully by
resting interest with price/time priority ahead of the resting CMO
Order, then the CMO order will not be cancelled by the System.
---------------------------------------------------------------------------
The incoming Order is Displayed and its size is greater
than that of the resting CMO;
[[Page 1618]]
The incoming Order is not Displayed, it is priced at the
far side of the NBBO, and its size is greater than that of the resting
CMO; or
The incoming Order is assigned the ISO attribute.
Again, in these instances, the Exchange observes that the incoming
Order will likely cause the NBBO to shift, such that cancellation of
the CMO will be preferable to allowing the CMO to execute at a Midpoint
price that may be stale. The user may then choose to resubmit the CMO
manually to take advantage of the price shift, in the case of a CMO
with a price that the Exchange fixes at the Midpoint that prevails at
the time of entry (a ``Fixed'' CMO, discussed below). In the case of a
CMO entered as a Peg Managed Order in accordance with Rule 4703(d), and
which has a price that the System updates in accordance with post-entry
shifts in the Midpoint (a ``Managed'' CMO, also discussed below), the
System will automatically re-submit a new CMO on behalf of the user
after cancelling the original CMO.
Additionally, because a CMO inherently possesses the Midpoint
Pegging Attribute, it will behave in accordance with Rule 4703(d),
which governs Orders with Midpoint Pegging.\9\ Thus, consistent with
Rule 4703(d), the following behavior applies to CMOs:
---------------------------------------------------------------------------
\9\ In part, this proposal references Rule text that the
Exchange amended in a recent filing with the Commission but which
the Exchange has yet to implement. See Securities Exchange Act
Release No. 34-95768 (September 14, 2022), 87 FR 57534 (September
20, 2022) (SR-NASDAQ-2022-051); Securities Exchange Act Release No.
34-96341 (November 17, 2022), 87 FR 71712 (November 23, 2022)
(delaying implementation of SR-NASDAQ-2022-051). To the extent that
the Commission approves the proposal for adoption of the CMO and
CMO+PO prior to implementation of SR-NASDAQ 2022-051, the Exchange
may act to implement those features of the CMO and CMO+PO that do
not require the availability of the Rule text amendments set forth
in SR-NASDAQ-2022-051 to operate--namely, those features applicable
to a Fixed CMO and Fixed CMO+PO. The Exchange will specify in an ETA
exactly which features of the CMO and CMO+PO will be available to
participants as of the initial implementation date and which of them
will be available only as of the date of implementation of SR-
NASDAQ-2022-051. A present, the Exchange expects that SR-NASDAQ-
2022-051 will be ready for full implementation in the second or
third quarter of 2023, although that time frame is subject to
change.
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A CMO user may only enter a CMO Order during Market Hours.
A CMO user may specify that a CMO peg to the Midpoint in
one of two ways, either with fixed pegging (a'' Fixed CMO'') or with
managed pegging (a ``Managed CMO'').
For a Fixed CMO, the System will fix the price of the CMO
at the Midpoint prevailing at the time of Order entry. After posting to
the Exchange Book, the price of a Fixed CMO will not thereafter be
adjusted based on changes to the Inside Bid or Offer. However, the
System will cancel a Fixed CMO after initial entry and posting to the
Exchange Book if any of following conditions are met (in addition to
those cancellation conditions that will apply specifically to CMOs in
the proposed rule): (i) there is no Inside Bid and/or Inside Offer;
(ii) the Fixed CMO to buy (sell) is entered with a limit price above
(below) the Midpoint and is ranked at the Midpoint, and thereafter, the
Inside Bid and/or Inside Offer change so that the Midpoint changes and
the Fixed CMO is no longer at the Midpoint); (iii) the Fixed CMO to buy
(sell) is entered at a limit price that is equal to or less than
(greater than) the Midpoint and is ranked at its limit price;
thereafter, the Inside Bid and/or Inside Offer change so that the
Midpoint is lower (higher) than the limit price of the Fixed CMO; (iv)
the Fixed CMO to buy (sell) is entered at a limit price that is equal
to or less than (greater than) the Midpoint and is ranked at its limit
price, and thereafter, the Inside Bid and Inside Offer become crossed,
such that the Midpoint of the crossed Quotation remains equal to or
higher (lower) than the limit price of the Fixed CMO, and then a new
sell (buy) Order is received at a price that locks or crosses the limit
price of the resting Fixed CMO; or (v) the Fixed CMO to buy (sell) is
entered at a limit price that is greater than (less than) the Midpoint
and is therefore ranked at the Midpoint, and thereafter, the Inside Bid
and Inside Offer become crossed but the Midpoint does not change, and
then a new sell (buy) Order is received at a price that locks or
crosses the Midpoint of the Inside Bid and Inside Offer.\10\
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\10\ A user may enter a Fixed CMO using OUCH or FLITE. See Rule
4703(d).
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A Managed CMO \11\ will have its price set upon initial
entry and will thereafter have its price reset in accordance with
changes to the relevant Inside Quotation. A Managed CMO will receive a
new timestamp whenever its price is updated and therefore will be
evaluated with respect to possible execution (and routing, if it has
been assigned a Routing Order Attribute) in the same manner as a newly
entered Order. If the price to which a Managed CMO is pegged becomes
unavailable, pegging would lead to a price at which the Managed CMO
cannot be posted, or if the Inside Bid and Inside Offer become crossed,
then the System will cancel the Managed CMO back to the participant if
assigned a Routing Order Attribute. If Managed CMO is not assigned a
Routing Order Attribute, and the price to which it is pegged becomes
unavailable, pegging would lead to a price at which the Managed CMO
cannot be posted, or if the Inside Bid and Inside Offer become crossed,
them the Managed CMO 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 Managed CMO if no permissible pegging price
becomes available within one second after the Managed CMO 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).\12\
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\11\ The features of Managed CMOs and Managed CMO+POs cross-
reference a version of Rule 4703(d) that is set forth in SR-NASDAQ-
2022-051 and not yet implemented. Thus, Managed CMOs and Managed
CMO+POs will not be available for use prior to implementation of SR-
NASDAQ 2022-051. See n.10, supra.
\12\ A user may enter a Managed CMO using RASH, FIX, QIX, or
OUCH. See Rule 4703(d).
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If at the time of entry, there is no price to which a
Managed CMO, that has not been assigned a Routing Order Attribute or a
Time in Force of Immediate-or-Cancel, can be pegged or pegging would
lead to a price at which the Order cannot be posted, or if the Inside
Bid and Inside Offer are Crossed, then the CMO 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
Managed CMO if no permissible pegging price becomes available within
one second after Order entry (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).
For a Managed CMO Order that has been assigned a Routing
Order Attribute, if there is no permissible price to which the Order
can be pegged at the time of entry, pegging would lead to a price at
which the Order cannot be posted, or the Inside Bid and Inside Offer
are crossed, the Order will be rejected.
A CMO will have its price set upon initial entry to the
Midpoint, unless the CMO has a limit price, and that limit price is
lower than the Midpoint for a CMO to buy (higher than the Midpoint for
CMO to sell), in which case the Order will be ranked on the Exchange
Book at its limit price. If the Inside Bid and Inside Offer are locked,
a CMO will be priced at the locking price; and for Fixed CMOs, if the
Inside Bid and Inside Offer are crossed or if there is no
[[Page 1619]]
Inside Bid and/or Inside Offer, the Fixed CMO will not be accepted.
However, even if the Inside Bid and Inside Offer are locked, an Order
with CMO that locked an Order on the Exchange Book would execute.
If a CMO has been assigned a Discretion Order Attribute,
the CMO may execute at any price within the discretionary price range,
even if beyond the limit price specified with respect to the Midpoint
Pegging Order Attribute. If CMO is priced at its limit price, the price
of the CMO may nevertheless be changed to a less aggressive price based
on changes to the Inside Quotation.
Like other Orders with Pegging, CMOs are subject to a
collar. Any portion of a CMO 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. A CMO
entered without a Routing attribute will be cancelled, if it would, as
a result of the price determined by a Pegging Attribute, execute or
post to the Exchange Book at a price through the Collar Price.
The System will cancel CMOs when a trading halt is
declared, and the System will reject any CMOs entered during a trading
halt.
As noted above, a CMO will not be accepted outside of Market Hours,
but it will be eligible to participate in the Nasdaq Closing Cross. A
CMO remaining unexecuted after the Nasdaq Closing Cross occurs will be
cancelled by the System unless, in the case of a Fixed CMO, the user
selects a Time in Force for the Fixed CMO that provides for it to
persist thereafter.
A CMO user may opt to apply the Minimum Quantity, Trade Now, or
Discretion Order Attributes to a CMO. Again, the Non-Display and
Midpoint Pegging Attributes always apply to CMOs.
A CMO+PO will possess all of the characteristics and attributes of
a CMO, as described above, as well as those of a Midpoint Peg Post-Only
Order, as set forth in Rule 4702(b)(5), with certain exceptions set
forth below.
Like a Midpoint Peg Post-Only Order, a CMO+PO is a non-displayed
Order that is priced at the Midpoint and executes upon entry only in
circumstances where economically beneficial to the party entering the
Order. If a CMO+PO has a Fixed Midpoint, then it may be adjusted after
initial entry and posting to the Exchange Book. The price at which a
Fixed CMO+PO is ranked on the Nasdaq Book is the midpoint between the
NBBO, unless the Order has a limit price that is lower than the
midpoint between the NBBO for an Order to buy (higher than the midpoint
between the NBBO for an Order to sell), in which case the Order will be
ranked on the Nasdaq Book at its limit price. The price of the Fixed
CMO+PO will not thereafter be adjusted based on changes to the NBBO.
However, a Fixed CMO+PO will be cancelled back to the Participant after
initial entry and posting to the Nasdaq Book if any of the following
conditions are met:
There is no National Best Bid and/or National Best Offer;
The Fixed CMO+PO to buy (sell) is entered with a limit
price above (below) the Midpoint of the NBBO and is ranked at the
Midpoint of the NBBO; thereafter, the NBBO changes so that the Midpoint
changes and the Fixed CMO+PO is no longer at the NBBO Midpoint;
The Fixed CMO+PO to buy (sell) is entered at a limit price
that is equal to or less than (greater than) the Midpoint of the NBBO
and is ranked at its limit price; thereafter, the NBBO changes so that
the Midpoint of the NBBO is lower (higher) than the limit price of the
Fixed CMO+PO;
The Fixed CMO+PO to buy (sell) is entered at a limit price
that is equal to or less than (greater than) the Midpoint of the NBBO
and is ranked at its limit price, thereafter the NBBO becomes crossed,
such that the Midpoint of the crossed NBBO remains equal to or higher
(lower) than the limit price of the Fixed CMO+PO, and then a new sell
(buy) Order is received at a price that locks or crosses the limit
price of the resting Fixed CMO+PO; or
The Fixed CMO+PO to buy (sell) is entered at a limit price
that is greater than (less than) the Midpoint of the NBBO and is
therefore ranked at the Midpoint of the NBBO, thereafter the NBBO
becomes crossed but the Midpoint does not change, and then a new sell
(buy) Order is received at a price that locks or crosses the Midpoint
of the NBBO.
If a CMO+PO has a Managed Midpoint, then also like a Midpoint Peg
Post-Only Order, the price of the CMO+PO will be updated repeatedly to
equal the midpoint between the NBBO; provided, however, that the CMO+PO
will not be priced higher (lower) than its limit price. In the event
that the midpoint between the NBBO becomes higher than (lower than) the
limit price of a CMO+PO to buy (sell), the price of the CMO+PO will
stop updating and the CMO+PO will post (with a Non-Display Attribute)
at its limit price, but will resume updating if the midpoint becomes
lower than (higher than) the limit price of the CMO+PO to buy (sell).
Similarly, if a CMO+PO is on the Nasdaq Book and subsequently the NBBO
is crossed, or if there is no NBBO, the Order will be removed from the
Nasdaq Book and will be re-entered at the new midpoint once there is a
valid NBBO that is not crossed. The CMO+PO receives a new timestamp
each time its price is changed.
Like a Midpoint Peg Post-Only Order, but unlike an ordinary CMO, a
CMO+PO will not be eligible to participate in the Nasdaq Opening Cross,
Closing Cross, or Halt Cross, and all CMO+POs will be cancelled if they
remain on the Exchange Book at the end of Market Hours.\13\ Also like a
Midpoint Peg Post-Only Order, but unlike an ordinary CMO, a CMO+PO may
not possess the Discretion or Routing Order Attributes, and a CMO+PO
must be priced at more than $1 per share. Finally, unlike a Midpoint
Peg Post-Only Order, RASH may be used to enter a CMO+PO with a Time in
Force of IOC (as well as OUCH, which can be used for such purposes with
respect to a MPPO), and in such cases the Order will be canceled after
determining whether it can be executed.
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\13\ A CMO+PO entered prior to the beginning of Market Hours
will be rejected. A CMO+PO will be cancelled by the System when a
trading halt is declared, and any CMO+PO entered during a trading
halt will be rejected.
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CMO and CMO+PO executions will be reported to Securities
Information Processors and provided in the Exchange's proprietary data
feed without any new or special indication.
As part of the surveillance the Exchange currently performs, CMOs
and CMO+POs will be subject to real-time surveillance to determine if
they are being abused by market participants. The Exchange is committed
to determining whether there is opportunity or prevalence of behavior
that is inconsistent with normal risk management behavior. Manipulative
abuse is subject to potential disciplinary action under the Exchange's
Rules, and other behavior that is not necessarily manipulative but
nonetheless frustrates the purposes of the CMO or CMO+PO may be subject
to penalties or other participant requirements to discourage such
behavior, should it occur.\14\
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\14\ Punitive fees or other participant requirements tied to CMO
and CMO+PO usage will be implemented by rule filing under Section
19(b) of the Act, 15 U.S.C. 78s(b), should the Exchange determine
that they are necessary to maintain a fair and orderly market.
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The Exchange plans to implement CMO and CMO+PO within thirty days
after Commission approval of the
[[Page 1620]]
proposal. The Exchange will make the CMO and CMO+PO available to all
members and to all securities upon implementation. The Exchange will
announce the implementation date by Equity Trader Alert.\15\
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\15\ The Exchange plans to propose a fee structure for the CMO
and CMO+PO in a subsequent Commission rule filing.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\16\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\17\ 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. In particular, the proposal is consistent with the Act
because it would create additional options with respect to how
participants can manage trading at the Midpoint. These additional
options allow participants to more finely tune their interactions in
the market, which can lead to more efficient trading opportunities on
the Exchange for investors with similar investment objectives.\18\ Much
like the analogous M-ELO Order Type, which Nasdaq introduced a few
years ago, CMO and CMO+PO would provide market participants with a
means to avoid certain execution scenarios which they may deem
unfavorable. Unlike M-ELO, however, which imposes a waiting period upon
participants to bring like-minded participants together, the CMO and
CMO+PO would have no such waiting period. That is, the Exchange
designed CMO and CMO+PO for participants that want Midpoint executions,
but have a greater urgency to execute their orders and are not
concerned about interacting with other participants acting with similar
urgency. At the same time, the CMO and CMO+PO will avoid interacting
with orders that are likely to shift the midpoint even without a
holding period by providing for the System to cancel a CMO or CMO+PO
when faced with incoming Order that cross the Midpoint or are otherwise
likely to cause a shift in the Midpoint. For Fixed CMOs and CMO+POs,
users could then choose to enter a new CMO to take advantage of a
better ensuing Midpoint; for Managed CMOs and CMO+PO, the System will
do this automatically.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ Cf. Securities Exchange Act Release No. 34-82825 (March 7,
2018), 83 FR 10937 (March 13, 2018) (SR-NASDAQ-2017-074) (approving
the Midpoint Extended Life Order (``M-ELO'') because it could
``create additional and more efficient trading opportunities on the
Exchange for investors with longer investment time horizons,
including institutional investors, and could provide these investors
with an ability to limit the information leakage and the market
impact that could result from their orders.'').
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The CMO and CMO+PO will be available for voluntary use by all
Exchange members. Moreover, the proposal is not unfair to participants
with incoming Orders that trigger cancellation of CMOs because exchange
functionality which permits like-minded participants the ability to
achieve their objectives in an efficient manner will improve overall
execution quality on the market, to the benefit of all market
participants. Moreover, the protections that these Order Types provide
are narrowly tailored to mitigate the risk of adverse executions.\19\
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\19\ Cf. Order Approving a Proposed Rule Change to Add a New
Discretionary Limit Order Type Called D-Limit, Securities Exchange
Act Release No. 34-89686 (August 26, 2020), 85 FR 54438 (September
1, 2020) (SR-IEX-2019-15) (``D-Limit orders will encourage long term
investors to participate in the displayed exchange market by
protecting them against one particular strategy employed by short
term traders. It is not unfairly discriminatory for an exchange to
address that advantage in a narrowly tailored manner that promotes
investor protection and the public interest. Accordingly, the
Commission concludes that IEX's proposal is not designed to permit
unfair discrimination between customers, issuers, brokers, or
dealers.'').
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Like all other Order Types, the Exchange will conduct real-time
surveillance to monitor the use of CMOs and CMO+POs to ensure that such
usage is appropriately tied to the intent of the Order Type.
Transactions in CMOs and CMO+POs will be reported to the Securities
Information Processor and will be provided in the Exchange's
proprietary data feed in the same manner as all other transactions
occurring on the Exchange, without any new or special indication that
it is a CMO or CMO+PO execution. The Exchange believes that doing so is
important to ensuring that investors are protected from any market
impact that may occur if CMO executions were reported with a special
indication.
The Exchange does not believe that the proposed CMO or CMO+PO will
negatively affect the quality of the market. To the contrary, the
Exchange believes that the addition of CMO and CMO+PO will draw new
market participants to the Exchange's transparent and well-regulated
market, including participants that were previously not utilizing M-
ELOs or M-ELO+CBs. Moreover, like these other Order Types, the CMO and
CMO+PO will allow investors an opportunity to find like-minded
counterparties at the midpoint on the Exchange, while also limiting
executions users may deem unfavorable and providing opportunities for
price improvement. Insofar as the CMO and CMO+PO would provide new
options for participants to achieve efficient, high-quality midpoint
executions, the CMO and CMO+PO stands to increase participation on the
Exchange and to improve the quality of executions on the Exchange, to
the benefit of all market participants.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange believes that the introduction of the CMO and CMO+PO
will draw new market participants to the Exchange while also providing
a new option for existing participants that wish to achieve benefits
similar to M-ELO or M-ELO+CB--high-quality Midpoint executions--but do
not wish for their Orders to be subject to a Holding Period or care
about their counterparties being subject to the same. To the extent the
proposed change is successful in attracting additional market
participants or increasing existing participation on the Exchange,
Nasdaq believes that the proposed change will promote competition among
trading venues by making the Exchange a more attractive trading venue
for investors and participants.
Additionally, adoption of the CMO and CMO+PO will not burden
competition among market participants. The CMO and CMO+PO will be
available to all Exchange members and it will be available on an
optional basis. Thus, any member that seeks to avail itself of the
benefits of a CMO or CMO+PO can choose accordingly. Although the
proposal provides potential benefits for investors that select the CMO
and CMO+PO, the Exchange believes that all market participants will
benefit to the extent that this proposal contributes to a healthy and
attractive market that is attentive to the needs of all types of
investors.
The proposal also will not adversely impact market participants
that choose not to use these Order Types because no changes need to be
made to participants' systems to account for it. As discussed above,
CMO and CMO+PO executions will be reported the same as other
executions, without any new or special indicator.
In any event, the Exchange notes that it operates in a highly
competitive market in which market participants can
[[Page 1621]]
readily choose between competing venues if they deem participation in
the Exchange's market is no longer desirable. In such an environment,
the Exchange must carefully consider the impact that any change it
proposes may have on its participants, understanding that it will
likely lose participants to the extent a change is viewed as
unfavorable by them. Because competitors are free to modify the
incentives and structure of their markets, the Exchange believes that
the degree to which modifying the market structure of an individual
market may impose any burden on competition is limited. Last, to the
extent the proposed change is successful in attracting additional
market participants or additional activity by existing participants,
the Exchange also believes that the proposed change will promote
competition among trading venues by making the Exchange a more
attractive trading venue for participants and investors.
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 Exchange consents, the Commission shall: (a) by order approve
or disapprove such 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-2022-077 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-2022-077. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2022-077 and should be submitted
on or before February 1, 2023.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00320 Filed 1-10-23; 8:45 am]
BILLING CODE 8011-01-P
