81 FR 18911 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Maximum Number of Times an Order on Nasdaq May Be Updated Before The System Cancels The Order

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 63 (April 1, 2016)

[Federal Register Volume 81, Number 63 (Friday, April 1, 2016)]
[Notices]
[Pages 18911-18913]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-07331]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77454; File No. SR-NASDAQ-2016-039]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify the Maximum Number of Times an Order on Nasdaq May Be Updated 
Before The System Cancels The Order

March 28, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 16, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by Nasdaq. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to proposal [sic] to modify the maximum number of 
times an Order on Nasdaq may be updated before the System cancels the 
Order.
    The text of the proposed rule change is available on Nasdaq's Web 
site at http://nasdaq.cchwallstreet.com, at the principal office of 
Nasdaq, 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, Nasdaq 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. Nasdaq has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 18912]]

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

1. Purpose
Background
    Nasdaq will cancel an Order if it is updated a certain number of 
times during any given day. Pursuant to Rule 4702(a), an Order will be 
cancelled if it is repriced and/or reentered 10,000 times for any 
reason.\3\
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    \3\ Orders entered through OUCH and FLITE ports generally are 
not repriced or reentered. As explained in rule 4702(b)(1)(B), 
orders entered through OUCH and FLITE may be updated for display 
once. Further, OUCH and FLITE Orders may only be decremented in 
size, which is not considered repricing or reentry of the Order. See 
http://www.nasdaqtrader.com/Trader.aspx?id=TradingSpecs for a 
description of the various order entry port specifications.
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    Pursuant to Rule 4702(b)(7)(A), a Market Maker Peg Order will be 
canceled if it is repriced 1,000 times. Pursuant to Rule 4703(d), an 
Order with Primary Pegging will be cancelled if it is updated 1,000 
times, and an Order with Market Pegging will be cancelled if it is 
updated 10,000 times.
    Nasdaq applies these limits to conserve System resources by 
limiting the persistence of Orders that update repeatedly without 
execution. These limits are applied daily to each order entered into 
the System. Orders that have a Time-in-Force \4\ that allows them to 
persist longer than a single trading day will have their count reset 
each day. For example, if an Order with a Time-in-Force of Good-till-
Canceled \5\ is repriced 9,999 times during any given day, the Order 
will not be canceled due to the number of updates. Starting the next 
day, the Order would be again allowed to reprice up to 9,999 times 
before it would be canceled by the System.
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    \4\ The ``Time-in-Force'' assigned to an Order means the period 
of time that the Nasdaq Market Center will hold the Order for 
potential execution. See Rule 4703(a).
    \5\ An Order that is designated to deactivate one year after 
entry may be referred to as a ``Good-till-Cancelled.'' See Rule 
4703(a)(3).
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Proposed Changes
    First, Nasdaq is proposing to eliminate rule text under Rules 
4702(a), 4702(b)(7)(A), and 4703(d) concerning cancellation based on 
Order updates and consolidate the concept under a new Rule 4756(a)(4).
    Second, Nasdaq is proposing to no longer state the specific number 
of times a particular Order Type may be updated before it is canceled 
in the new rule and is, instead, noting that the number of permissible 
changes may vary by Order Type or Order Attribute and may change from 
time to time. Further, the proposed rule will note that Nasdaq will 
post on its Web site what is considered a change for a particular Order 
Type and Order Attribute, and the current limits on the number of such 
changes.
    Nasdaq is changing the process by which it counts updates, which 
will allow it to identify a wider range of updates to an Order. Using 
the new process, Nasdaq will be able to track the following Order 
updates: (1) System-generated child orders; (2) display size refreshes 
from reserve; (3) replaces of System-generated child Orders (which 
include Orders with a Pegging Attribute); and (4) cancellation requests 
of System-generated child Orders. Nasdaq notes that all updates 
identified by the current process will be counted under the new 
process. Nasdaq believes these changes will provide it with greater 
flexibility in addressing changes in volume, market participant 
behavior, and Nasdaq's capacity to handle the message volume caused by 
Orders that update a significant number of times throughout the trading 
day.
    Nasdaq will provide at least one day's advanced notice to the 
public of any changes to the number of updates permitted before an 
Order is canceled. Initially, Nasdaq will keep the number of updates 
consistent with what is currently noted in the rules; however, Nasdaq 
may shortly thereafter change the number of updates as needed to 
address market conditions.
    Nasdaq is also making two minor technical corrections to Rule 
4703(d) to remove an erroneous quote from the rule text.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(5) of the Act,\7\ in particular, because it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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    Excessive updating of Orders places a burden on Nasdaq's System, 
which, if left unchecked, could potentially affect overall market 
quality. Nasdaq will continue canceling Orders that reach a certain 
number of updates but, instead of the static number of updates stated 
in the rules, Nasdaq is proposing to provide the number of updates by 
Order type or Order Attribute on its public Web site. Web site posting 
will allow Nasdaq to react more quickly to changes in the marketplace 
by changing the applicable number of updates that will trigger 
cancellation of an Order. Nasdaq will provide advanced notice to market 
participants of any changes to the number of updates applied. Thus, the 
proposed rule change will further promote the protection investors 
[sic] and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.\8\ Nasdaq is 
proposing to make the change because it will allow it to better manage 
market quality for all market participants, who would be negatively 
impacted by issues caused by Orders that tax System resources due to 
the excessive number of updates.
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    \8\ 15 U.S.C. 78f(b)(8).
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    These adjustments will not impact competition among market 
participants because the cancellation parameters will apply equally to 
all market participants. As is the case now, market participants that 
have an Order canceled due to the number of updates may enter a new 
replacement Order. Thus, Nasdaq does not think that the proposed change 
will place a burden on competition not necessary or appropriate in 
furtherance of the Act.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section

[[Page 18913]]

19(b)(3)(A)(iii) of the Act \9\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(a)(iii) [sic].
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2016-039 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-2016-039. 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 Web site (http://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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2016-039 and should 
be submitted on or before April 22, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07331 Filed 3-31-16; 8:45 am]
 BILLING CODE 8011-01-P