80 FR 80847 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving a Proposed Rule Change To Amend Rule 4758
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 248 (December 28, 2015)
Federal Register Volume 80, Issue 248 (December 28, 2015)
| Page Range | 80847-80849 | |
| FR Document | 2015-32527 |
[Federal Register Volume 80, Number 248 (Monday, December 28, 2015)] [Notices] [Pages 80847-80849] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-32527] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76718; File No. SR-NASDAQ-2015-112] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving a Proposed Rule Change To Amend Rule 4758 December 21, 2105. I. Introduction On September 21, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to adopt a new routing option, the Retail Order Process (``RTFY''). The proposed rule change was published for comment in the Federal Register on October 1, 2015.\3\ The Commission received two comment letters on the proposed rule change \4\ and a response letter from NASDAQ.\5\ On November 3, 2015, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change, to December 30, 2015.\6\ NASDAQ subsequently submitted a second response letter.\7\ This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 75987 (September 25, 2015), 80 FR 59210 (``Notice''). \4\ See letter from Joseph Saluzzi, Themis Trading LLC to the Commission, dated September 29, 2015 (``Themis Letter''); and letter from Suzanne Shatto to the Commission, dated October 6, 2015 (``Shatto Letter''). \5\ See letter from Jonathan F. Cayne, Senior Associate General Counsel, NASDAQ to Brent J. Fields, Secretary, Commission, dated October 22, 2015 (``NASDAQ Response''). \6\ See Securities Exchange Act Release No. 76335, 80 FR 69256 (November 9, 2015). \7\ See letter from Jonathan F. Cayne, Senior Associate General Counsel, NASDAQ to Brent J. Fields, Secretary, Commission, dated December 11, 2015 (``NASDAQ Supplemental Response''). --------------------------------------------------------------------------- II. Description of the Proposal NASDAQ is proposing to amend Rule 4758 to add a new order routing option--RTFY--for Designated Retail Orders (``DROs'').\8\ NASDAQ states that retail order firms \9\ often send non-marketable order flow to post and display on exchanges. However, some orders that have been deemed to be non-marketable by the entering firm become marketable by the time the exchange receives them.\10\ NASDAQ notes that these orders ultimately remove liquidity from the NASDAQ order book even though the firm entering the order did not intend them to remove liquidity.\11\ --------------------------------------------------------------------------- \8\ A Designated Retail Order is an agency or riskless principal order that meets the criteria of FINRA Rule 5320.03 and that originates from a natural person and is submitted to NASDAQ by a member that designates it pursuant to Rule 7018, provided that no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology. An order from a ``natural person'' can include orders on behalf of accounts that are held in a corporate legal form--such as an Individual Retirement Account, Corporation, or a Limited Liability Company--that has been established for the benefit of an individual or group of related family members, provided that the order is submitted by an individual. Members must submit a signed written attestation, in a form prescribed by NASDAQ, that they have implemented policies and procedures that are reasonably designed to ensure that substantially all orders designated by the member as DROs comply with these requirements. Orders may be designated on an order-by-order basis, or by designating all orders on a particular order entry port as DROs. See NASDAQ Rule 7018. \9\ The term ``retail order firms'' refers to NASDAQ member firms that provide orders that qualify as Designated Retail Orders under NASDAQ Rule 7018. \10\ See Notice, 80 FR at 59210. \11\ See id. --------------------------------------------------------------------------- Under the proposal, a DRO that is marketable upon receipt by NASDAQ and that elects to follow the RTFY routing option will be routed to destinations in the System routing table instead of immediately removing liquidity from the Exchange order book--unless explicitly instructed by the entering party to check the Exchange order book first.\12\ RTFY orders may remove liquidity from the Exchange book after routing to other destinations.\13\ All non-marketable RTFY orders will post on the Exchange book.\14\ --------------------------------------------------------------------------- \12\ See id. The term ``System routing table'' refers to the proprietary process for determining the specific trading venues to which the System routes orders and the order in which it routes them. NASDAQ reserves the right to maintain a different System routing table for different routing options and to modify the System routing table at any time without notice. See NASDAQ Rule 4758(a)(1)(A). \13\ See Notice, 80 FR at 59210. \14\ If a RTFY order is posted on the Exchange, either because it was non-marketable when it was received or it has exhausted all available liquidity within its limit price--including on the Exchange, Regulation NMS protected quotations and other destinations in the System routing table--and the order is subsequently locked or crossed by another market center, the System will not route to the locking or crossing market center. See id. --------------------------------------------------------------------------- According to NASDAQ, the destinations in the System routing table for RTFY will include OTC market makers,\15\ which may also be registered NASDAQ market makers.\16\ NASDAQ believes these market makers will likely provide the greatest opportunity for price improvement for the DROs, and the RTFY routing option will benefit DROs by providing additional price improvement opportunities for retail investors.\17\ NASDAQ anticipates that the RTFY routing option will route to trading centers in the System routing table that have experience executing and providing price improvement to DROs.\18\ --------------------------------------------------------------------------- \15\ An ``OTC market maker'' in a stock is defined in Rule 600(b)(52) of Regulation NMS as, in general, a dealer that holds itself out as willing to buy and sell the stock, otherwise than on a national securities exchange, in amounts of less than block size (less than 10,000 shares). \16\ See Notice, 80 FR at 59210. \17\ See id. NASDAQ believes that, because retail orders are generally smaller on average, they are often able to receive better prices than the prevailing national best bid and offer. See id. at 59211. NASDAQ believes that this is achieved by retail order firms sending their orders to OTC market makers that provide some level of price improvement. See id. \18\ See id. NASDAQ believes that approximately 96% of the DROs that will use the RTFY routing option will not be marketable and will add liquidity on the Exchange, while the remainder will be routed to destinations on the System routing table for potential price improvement, including to OTC market makers. See id. --------------------------------------------------------------------------- As proposed, an order using the RTFY routing option will be sent to the primary listing exchange for opening, reopening, and closing auctions.\19\ Orders received in non-NASDAQ listed securities prior to market open that are not eligible for the pre-market session will be submitted to the primary listing market for inclusion in that market's opening process.\20\ Orders received in NASDAQ-listed securities prior to market open that are not eligible for the pre-market session will follow normal pre-market processing.\21\ Orders received prior to the market open that are eligible for the pre-market session will be posted--and routed if [[Page 80848]] marketable--for potential execution.\22\ Approximately two minutes prior to market open, active pre-market session orders in the Exchange's possession will be routed to the primary listing exchange.\23\ When a security that is listed on an exchange other than NASDAQ is halted, RTFY orders--including RTFY orders received during the halt--will be sent to the primary listing exchange for inclusion in that exchange's reopening process.\24\ All RTFY orders will be sent to the primary listing exchange approximately two minutes prior to that exchange's closing process.\25\ --------------------------------------------------------------------------- \19\ See id. \20\ See id. \21\ See id. and NASDAQ Rule 4752. \22\ See Notice, 80 FR at 59211. \23\ See id. \24\ See id. \25\ See id. --------------------------------------------------------------------------- In its proposal, NASDAQ notes that the RTFY routing option is similar to the existing TFTY routing option.\26\ NASDAQ specifically notes that orders using the TFTY routing option do not check the NASDAQ book--unless so instructed by the entering firm--for available shares, and instead route to the TFTY destinations on the System routing table with the goal of executing with lower transaction fees.\27\ NASDAQ states that the RTFY routing option differs from TFTY in three ways: (i) RTFY is only available to DROs; (ii) RTFY uses a separate and distinct routing table; and (iii) RTFY orders will be sent to the primary listing exchange for opening, reopening, and closing auctions.\28\ --------------------------------------------------------------------------- \26\ See NASDAQ Rule 4758(a)(1)(A)(v). NASDAQ further notes that RFTY is also similar to BATS' TRIM routing option, under which an order checks the BATS system for available shares only if so instructed by the entering firm and then is sent to destinations on the system routing table. See Notice, 80 FR at 59211. \27\ See Notice, 80 FR at 59210. \28\ See id. at 59211. --------------------------------------------------------------------------- NASDAQ notes that there are several alternatives to using an Exchange routing strategy.\29\ NASDAQ also notes that it offers multiple routing options, that each routing option has its own set of strengths and trade-offs, and that these varying routing strategies are designed to meet varying market participants' needs.\30\ NASDAQ believes the RTFY routing option will meet the needs of the retail order firms that opt to use it based on their routing technology, business model, or level of retail order flow.\31\ --------------------------------------------------------------------------- \29\ See id. For example, the Exchange notes that broker-dealers and vendors provide customized routing strategies and order execution algorithms, order flow firms may choose to make their own routing decisions based on proprietary routing processes, and retail order firms may use other firms to enhance their routing capabilities. See id. \30\ See id. \31\ See id. --------------------------------------------------------------------------- NASDAQ states that the RTFY routing table will be monitored and approved by a best execution committee (``Committee'').\32\ NASDAQ states that the Committee determines how to organize the System routing table and which trading destinations are included in the routing table by reviewing various parameters, such as price improvement, fill rate, latency, interaction rate, experience of the execution venue operator, and the volume the execution venue handles on a daily basis.\33\ NASDAQ notes that the parameters considered by the Committee evolve over time; often resulting in new parameters being considered.\34\ --------------------------------------------------------------------------- \32\ See id. at 59212. The Exchange states that the Committee consists of several internal NASDAQ participants representing product management, internal audit, economic research, broker-dealer compliance, and market operations. See id. \33\ See id. \34\ See id. --------------------------------------------------------------------------- NASDAQ states that neither the Exchange, nor any of its affiliates, will accept payment for order flow from any OTC market maker to which an RTFY order is sent.\35\ If the trading venue pays a standard rebate for DROs to all of its subscribers or another exchange pays a rebate to remove liquidity, NASDAQ will accept and retain those rebates.\36\ However, NASDAQ expects that most, if not all, orders routed using the RTFY routing option will be sent to and executed by an OTC market maker that may also be a registered NASDAQ market maker.\37\ --------------------------------------------------------------------------- \35\ See id. \36\ See id. \37\ See id. --------------------------------------------------------------------------- III. Comment Summary and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\38\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\39\ which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, 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. --------------------------------------------------------------------------- \38\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \39\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Commission received two comment letters opposing the proposal, as well as a response and a supplemental response from NASDAQ.\40\ --------------------------------------------------------------------------- \40\ See supra notes 4, 5, and 7. --------------------------------------------------------------------------- The commenters express concern that RFTY is designed to allow leakage of order flow information.\41\ The Commission notes that, in response, NASDAQ states that this claim is factually incorrect and is speculation.\42\ NASDAQ reiterates that RTFY is designed to enhance execution quality and benefit retail investors by providing price improvement opportunities to retail order flow.\43\ According to NASDAQ, it will use the Committee to review and determine the structure and destinations of the System routing table, and if the Committee observes that a particular destination is not providing sufficient price improvement, the destination will have to improve or be dropped from the System routing table.\44\ NASDAQ also notes that RFTY is a voluntary routing type, and retail orders firms can elect not to use RTFY if it fails to benefit their clients.\45\ Moreover, NASDAQ notes that retail investors have a choice when routing their orders and it is up to them to determine whether they will use a broker-provided router or send their orders directly to a particular destination.\46\ --------------------------------------------------------------------------- \41\ See Themis Letter and Shatto Letter, supra note 4. \42\ See NASDAQ Response, supra note 5, at 2. \43\ See id. \44\ See id. \45\ See id. \46\ See id. at 4. --------------------------------------------------------------------------- The commenters also express concerns related to best execution. Specifically, one commenter questions whether retail investors will forgo their marketable orders interacting with the NBBO at NASDAQ for ``meaningless'' price improvement at OTC market makers.\47\ This commenter expresses concern that RTFY could result in a failure to obtain best execution, specifically in situations where NASDAQ was at the NBBO when a marketable retail order that has elected the RTFY routing option was received, NASDAQ routes the marketable retail order away but the order does not execute on the away destinations, and by the time the order comes back to NASDAQ, the NBBO has moved so that the retail order is no longer marketable and posts to the book instead of executing.\48\ In addition, both commenters express concerns regarding the transparency of the RTFY routing [[Page 80849]] table and the effectiveness of the Committee.\49\ --------------------------------------------------------------------------- \47\ See Themis Letter, supra note 4. \48\ See id. \49\ See Themis Letter and Shatto Letter, supra note 4. --------------------------------------------------------------------------- In response, NASDAQ states its belief that providing additional price improvement opportunities for retail investors is a ``critical component of its best execution obligations.'' \50\ In its supplemental response letter, NASDAQ states that, in all routing of orders, when one routing destination is chosen over another, there is always a possibility that an execution will be missed.\51\ The Commission notes, however, that NASDAQ believes that any chance of an RTFY order missing a better price at the Exchange is ``miniscule.'' \52\ The Commission notes that, according to NASDAQ, some routing destinations agree to a guaranteed minimum price improvement per share for RTFY orders, some focus more on the average price improvement, and others are unsure of what the level of price improvement will be, but provide assurances that they will compete vigorously with their execution quality.\53\ Consequently, NASDAQ believes that the competition for RTFY orders, and thus the resulting execution quality, will be better than what is experienced today.\54\ --------------------------------------------------------------------------- \50\ See NASDAQ Response, supra note 5, at 4. Moreover, NASDAQ reiterates that it will not accept any negotiated payment for order flow. See NASDAQ Supplemental Response, supra note 7, at 1-2. \51\ See NASDAQ Supplemental Response, supra note 7, at 2. \52\ See id. at 3. \53\ See id. at 2. \54\ See id. --------------------------------------------------------------------------- The Commission notes that, with respect to commenters' concerns regarding the RTFY routing table and the Committee, NASDAQ states that--as with all other routing options, other than Directed Orders-- the RTFY routing table will be monitored and approved by the Committee.\55\ According to NASDAQ, the use of a best execution committee is not novel, and such committees are widely-used at many broker-dealers.\56\ In addition, the Committee is subject to FINRA oversight, as well as oversight by NASDAQ Inc.'s internal audit group, which reports to the audit committee of the Board of Directors of NASDAQ Inc.\57\ According to NASDAQ, the Committee reviews the performance of routing destinations on a regular basis for all routing and the same will be true for RTFY.\58\ If the Committee determines that a particular routing destination is underperforming based on the various parameters, such as price improvement, fill rate, and latency, the Committee may either remove that destination altogether or lower its priority within the routing table.\59\ According to NASDAQ, this process ensures that these destinations will compete aggressively with each other in order to receive RTFY orders.\60\ --------------------------------------------------------------------------- \55\ See NASDAQ Response, supra note 5, at 3. NASDAQ notes that many factors are weighed when making best execution determinations, and that price improvement opportunities for retail investors are an ``integral component of such decisions by both the Committee and by retail order firms.'' See id. \56\ See id. \57\ See id. at 3-4. \58\ See NASDAQ Supplemental Response, supra note 7, at 2. \59\ See id. NASDAQ notes that missed executions often may be due to latency in away destinations systems. See id. at 3. According to NASDAQ, because latency is one of the parameters that the Committee considers in its regular reviews of routing destinations, destinations causing undue latency that may lead to missed executions or inferior execution prices would lose their priority within the routing table or be removed altogether. See id. NASDAQ also notes that, if the Committee determines that a particular routing destination is not providing sufficient price improvement opportunities, then that destination will likely be removed from the RTFY routing table. See NASDAQ Response, supra note 5, at 4. \60\ See NASDAQ Supplemental Response, supra note 7, at 2. NASDAQ states that, in the past, the Committee has moved venues down within the routing table due, in part, to unsatisfactory fill rate, unsatisfactory price improvement, and/or unsatisfactory latency profile. See id. --------------------------------------------------------------------------- Based on the foregoing, the Commission believes that the proposed rule change is consistent with the Act. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\61\ that the proposed rule change (SR-NASDAQ-2015-112) be and hereby is approved. --------------------------------------------------------------------------- \61\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\62\ --------------------------------------------------------------------------- \62\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2015-32527 Filed 12-24-15; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 80, No. 248 / Monday, December 28, 2015 / Notices 80847
inspection and copying at the principal December 30, 2015.6 NASDAQ remove liquidity from the Exchange
office of the Exchange. All comments subsequently submitted a second book after routing to other
received will be posted without change; response letter.7 This order approves the destinations.13 All non-marketable
the Commission does not edit personal proposed rule change. RTFY orders will post on the Exchange
identifying information from book.14
II. Description of the Proposal According to NASDAQ, the
submissions. You should submit only
information that you wish to make NASDAQ is proposing to amend Rule destinations in the System routing table
available publicly. All submissions 4758 to add a new order routing for RTFY will include OTC market
should refer to File No. SR–BATS– option—RTFY—for Designated Retail makers,15 which may also be registered
2015–116 and should be submitted on Orders (‘‘DROs’’).8 NASDAQ states that NASDAQ market makers.16 NASDAQ
or before January 19, 2016. retail order firms 9 often send non- believes these market makers will likely
marketable order flow to post and provide the greatest opportunity for
For the Commission, by the Division of
display on exchanges. However, some price improvement for the DROs, and
Trading and Markets, pursuant to delegated
authority.22 orders that have been deemed to be non- the RTFY routing option will benefit
marketable by the entering firm become DROs by providing additional price
Brent J. Fields,
marketable by the time the exchange improvement opportunities for retail
Secretary. receives them.10 NASDAQ notes that investors.17 NASDAQ anticipates that
[FR Doc. 2015–32534 Filed 12–24–15; 8:45 am] these orders ultimately remove liquidity the RTFY routing option will route to
BILLING CODE 8011–01–P from the NASDAQ order book even trading centers in the System routing
though the firm entering the order did table that have experience executing
not intend them to remove liquidity.11 and providing price improvement to
SECURITIES AND EXCHANGE Under the proposal, a DRO that is DROs.18
COMMISSION marketable upon receipt by NASDAQ As proposed, an order using the RTFY
and that elects to follow the RTFY routing option will be sent to the
[Release No. 34–76718; File No. SR–
NASDAQ–2015–112] routing option will be routed to primary listing exchange for opening,
destinations in the System routing table reopening, and closing auctions.19
Self-Regulatory Organizations; The instead of immediately removing Orders received in non-NASDAQ listed
NASDAQ Stock Market LLC; Order liquidity from the Exchange order securities prior to market open that are
Approving a Proposed Rule Change To book—unless explicitly instructed by not eligible for the pre-market session
Amend Rule 4758 the entering party to check the Exchange will be submitted to the primary listing
order book first.12 RTFY orders may market for inclusion in that market’s
December 21, 2105. opening process.20 Orders received in
I. Introduction
6 See Securities Exchange Act Release No. 76335,
NASDAQ-listed securities prior to
80 FR 69256 (November 9, 2015). market open that are not eligible for the
On September 21, 2015, The 7 See letter from Jonathan F. Cayne, Senior
pre-market session will follow normal
NASDAQ Stock Market LLC Associate General Counsel, NASDAQ to Brent J.
Fields, Secretary, Commission, dated December 11, pre-market processing.21 Orders
(‘‘NASDAQ’’ or ‘‘Exchange’’) filed with 2015 (‘‘NASDAQ Supplemental Response’’). received prior to the market open that
the Securities and Exchange 8 A Designated Retail Order is an agency or
are eligible for the pre-market session
Commission (‘‘Commission’’), pursuant riskless principal order that meets the criteria of will be posted—and routed if
to Section 19(b)(1) of the Securities FINRA Rule 5320.03 and that originates from a
natural person and is submitted to NASDAQ by a
Exchange Act of 1934 (‘‘Act’’) 1 and Rule member that designates it pursuant to Rule 7018,
13 See Notice, 80 FR at 59210.
19b–4 thereunder,2 a proposed rule provided that no change is made to the terms of the 14 If a RTFY order is posted on the Exchange,
change to adopt a new routing option, order with respect to price or side of market and either because it was non-marketable when it was
the Retail Order Process (‘‘RTFY’’). The the order does not originate from a trading received or it has exhausted all available liquidity
algorithm or any other computerized methodology. within its limit price—including on the Exchange,
proposed rule change was published for An order from a ‘‘natural person’’ can include Regulation NMS protected quotations and other
comment in the Federal Register on orders on behalf of accounts that are held in a destinations in the System routing table—and the
October 1, 2015.3 The Commission corporate legal form—such as an Individual order is subsequently locked or crossed by another
Retirement Account, Corporation, or a Limited market center, the System will not route to the
received two comment letters on the locking or crossing market center. See id.
Liability Company—that has been established for
proposed rule change 4 and a response the benefit of an individual or group of related 15 An ‘‘OTC market maker’’ in a stock is defined
letter from NASDAQ.5 On November 3, family members, provided that the order is in Rule 600(b)(52) of Regulation NMS as, in general,
2015, the Commission extended the submitted by an individual. Members must submit a dealer that holds itself out as willing to buy and
time period within which to approve a signed written attestation, in a form prescribed by sell the stock, otherwise than on a national
NASDAQ, that they have implemented policies and securities exchange, in amounts of less than block
the proposed rule change, disapprove procedures that are reasonably designed to ensure size (less than 10,000 shares).
the proposed rule change, or institute that substantially all orders designated by the 16 See Notice, 80 FR at 59210.
proceedings to determine whether to member as DROs comply with these requirements. 17 See id. NASDAQ believes that, because retail
disapprove the proposed rule change, to Orders may be designated on an order-by-order orders are generally smaller on average, they are
basis, or by designating all orders on a particular often able to receive better prices than the
order entry port as DROs. See NASDAQ Rule 7018. prevailing national best bid and offer. See id. at
22 17 CFR 200.30–3(a)(12). 9 The term ‘‘retail order firms’’ refers to NASDAQ 59211. NASDAQ believes that this is achieved by
1 15 U.S.C. 78s(b)(1). retail order firms sending their orders to OTC
member firms that provide orders that qualify as
2 17 CFR 240.19b–4. Designated Retail Orders under NASDAQ Rule market makers that provide some level of price
3 See Securities Exchange Act Release No. 75987 7018. improvement. See id.
18 See id. NASDAQ believes that approximately
(September 25, 2015), 80 FR 59210 (‘‘Notice’’). 10 See Notice, 80 FR at 59210.
mstockstill on DSK4VPTVN1PROD with NOTICES
4 See letter from Joseph Saluzzi, Themis Trading 11 See id. 96% of the DROs that will use the RTFY routing
LLC to the Commission, dated September 29, 2015 12 See id. The term ‘‘System routing table’’ refers option will not be marketable and will add liquidity
(‘‘Themis Letter’’); and letter from Suzanne Shatto to the proprietary process for determining the on the Exchange, while the remainder will be
to the Commission, dated October 6, 2015 (‘‘Shatto specific trading venues to which the System routes routed to destinations on the System routing table
Letter’’). orders and the order in which it routes them. for potential price improvement, including to OTC
5 See letter from Jonathan F. Cayne, Senior NASDAQ reserves the right to maintain a different market makers. See id.
19 See id.
Associate General Counsel, NASDAQ to Brent J. System routing table for different routing options
20 See id.
Fields, Secretary, Commission, dated October 22, and to modify the System routing table at any time
2015 (‘‘NASDAQ Response’’). without notice. See NASDAQ Rule 4758(a)(1)(A). 21 See id. and NASDAQ Rule 4752.
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![Federal Register / Vol. 80, No. 248 / Monday, December 28, 2015 / Notices 80849
table and the effectiveness of the for all routing and the same will be true thereunder,2 notice is hereby given that
Committee.49 for RTFY.58 If the Committee on December 14, 2015, Miami
In response, NASDAQ states its belief determines that a particular routing International Securities Exchange LLC
that providing additional price destination is underperforming based on (‘‘MIAX’’ or ‘‘Exchange’’) filed with the
improvement opportunities for retail the various parameters, such as price Securities and Exchange Commission
investors is a ‘‘critical component of its improvement, fill rate, and latency, the (‘‘Commission’’) a proposed rule change
best execution obligations.’’ 50 In its Committee may either remove that as described in Items I, II, and III below,
supplemental response letter, NASDAQ destination altogether or lower its which Items have been prepared by the
states that, in all routing of orders, when priority within the routing table.59 Exchange. The Commission is
one routing destination is chosen over According to NASDAQ, this process publishing this notice to solicit
another, there is always a possibility ensures that these comments on the proposed rule change
that an execution will be missed.51 The destinations will compete from interested persons.
Commission notes, however, that aggressively with each other in order to
NASDAQ believes that any chance of an receive RTFY orders.60 I. Self-Regulatory Organization’s
RTFY order missing a better price at the Based on the foregoing, the Statement of the Terms of Substance of
Exchange is ‘‘miniscule.’’ 52 The Commission believes that the proposed the Proposed Rule Change
Commission notes that, according to rule change is consistent with the Act. The Exchange is filing a proposal to
NASDAQ, some routing destinations amend the MIAX Options Fee Schedule
IV. Conclusion
agree to a guaranteed minimum price (the ‘‘Fee Schedule’’).
improvement per share for RTFY orders, It is therefore ordered, pursuant to The text of the proposed rule change
some focus more on the average price Section 19(b)(2) of the Act,61 that the is available on the Exchange’s Web site
improvement, and others are unsure of proposed rule change (SR–NASDAQ– at http://www.miaxoptions.com/filter/
what the level of price improvement 2015–112) be and hereby is approved. wotitle/rule_filing, at MIAX’s principal
will be, but provide assurances that they For the Commission, by the Division of office, and at the Commission’s Public
will compete vigorously with their Trading and Markets, pursuant to delegated Reference Room.
execution quality.53 Consequently, authority.62
II. Self-Regulatory Organization’s
NASDAQ believes that the competition Brent J. Fields,
Statement of the Purpose of, and
for RTFY orders, and thus the resulting Secretary.
Statutory Basis for, the Proposed Rule
execution quality, will be better than [FR Doc. 2015–32527 Filed 12–24–15; 8:45 am] Change
what is experienced today.54 BILLING CODE 8011–01–P
The Commission notes that, with In its filing with the Commission, the
respect to commenters’ concerns Exchange included statements
regarding the RTFY routing table and SECURITIES AND EXCHANGE concerning the purpose of and basis for
the Committee, NASDAQ states that—as COMMISSION the proposed rule change and discussed
with all other routing options, other any comments it received on the
[Release No. 34–76717; File No. SR–MIAX– proposed rule change. The text of these
than Directed Orders—the RTFY routing
2015–73]
table will be monitored and approved statements may be examined at the
by the Committee.55 According to Self-Regulatory Organizations; Miami places specified in Item IV below. The
NASDAQ, the use of a best execution International Securities Exchange LLC; Exchange has prepared summaries, set
committee is not novel, and such Notice of Filing and Immediate forth in sections A, B, and C below, of
committees are widely-used at many Effectiveness of a Proposed Rule the most significant aspects of such
broker-dealers.56 In addition, the Change To Amend Its Fee Schedule statements.
Committee is subject to FINRA A. Self-Regulatory Organization’s
oversight, as well as oversight by December 21, 2015.
Pursuant to the provisions of Section Statement of the Purpose of, and
NASDAQ Inc.’s internal audit group, Statutory Basis for, the Proposed Rule
which reports to the audit committee of 19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4 Change
the Board of Directors of NASDAQ
Inc.57 According to NASDAQ, the 1. Purpose
58 See NASDAQ Supplemental Response, supra
Committee reviews the performance of The Exchange proposes to amend the
note 7, at 2.
routing destinations on a regular basis 59 See id. NASDAQ notes that missed executions Fee Schedule to modify the transaction
often may be due to latency in away destinations fees for Members that participate in the
49 See Themis Letter and Shatto Letter, supra note systems. See id. at 3. According to NASDAQ, price improvement auction (‘‘PRIME
4. because latency is one of the parameters that the
50 See NASDAQ Response, supra note 5, at 4. Committee considers in its regular reviews of Auction’’ or ‘‘PRIME’’) pursuant to Rule
Moreover, NASDAQ reiterates that it will not accept routing destinations, destinations causing undue 515A.3 Specifically, the Exchange
any negotiated payment for order flow. See latency that may lead to missed executions or proposes to: (i) Increase the fee for a
NASDAQ Supplemental Response, supra note 7, at inferior execution prices would lose their priority
within the routing table or be removed altogether.
PRIME AOC Response 4 from $0.49 per
1–2.
51 See NASDAQ Supplemental Response, supra See id. NASDAQ also notes that, if the Committee
2 17 CFR 240.19b–4.
note 7, at 2. determines that a particular routing destination is
52 See id. at 3.
not providing sufficient price improvement 3 See Exchange Rule 515A. See also Securities
opportunities, then that destination will likely be Exchange Act Release Nos. 75408 (July 9, 2015) 80
53 See id. at 2.
removed from the RTFY routing table. See FR 41530 (July 15, 2015)(SR–MIAX–2015–45);
54 See id.
NASDAQ Response, supra note 5, at 4. 72943 (August 28, 2014), 79 FR 52785 (September
mstockstill on DSK4VPTVN1PROD with NOTICES
55 See NASDAQ Response, supra note 5, at 3. 60 See NASDAQ Supplemental Response, supra 4, 2014) (SR–MIAX–2014–45); MIAX Options Fee
NASDAQ notes that many factors are weighed note 7, at 2. NASDAQ states that, in the past, the Schedule, Section (1)(a)(iv).
when making best execution determinations, and Committee has moved venues down within the 4 See Exchange Rule 515A(a)(2)(i). When the
that price improvement opportunities for retail routing table due, in part, to unsatisfactory fill rate, Exchange receives a properly designated Agency
investors are an ‘‘integral component of such unsatisfactory price improvement, and/or Order for auction processing, a Request for
decisions by both the Committee and by retail order unsatisfactory latency profile. See id. Responses (‘‘RFR’’) detailing the option, side, size,
firms.’’ See id. 61 15 U.S.C. 78s(b)(2).
and initiating price will be sent to all subscribers
56 See id. 62 17 CFR 200.30–3(a)(12).
of the Exchange’s data feeds. Members may submit
57 See id. at 3–4. 1 15 U.S.C. 78s(b)(1). Continued
VerDate Sep<11>2014 13:31 Dec 24, 2015 Jkt 238001 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 E:\FR\FM\28DEN1.SGM 28DEN1](https://thefederalregister.org/doc/80_FR_81095/page/3.svg)
Document Created: 2018-03-02 09:24:23
Document Modified: 2018-03-02 09:24:23
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