81 FR 71143 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Partial Amendment Nos. 1, 2 and 3, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Partial Amendment Nos. 1, 2 and 3, to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 199 (October 14, 2016)
Federal Register Volume 81, Issue 199 (October 14, 2016)
| Page Range | 71143-71146 | |
| FR Document | 2016-24834 |
[Federal Register Volume 81, Number 199 (Friday, October 14, 2016)] [Notices] [Pages 71143-71146] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-24834] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79075; File No. SR-Nasdaq-2016-126] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Partial Amendment Nos. 1, 2 and 3, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Partial Amendment Nos. 1, 2 and 3, to System Functionality Necessary To Implement the Regulation NMS Plan To Implement a Tick Size Pilot Program October 7, 2016. I. Introduction On September 7, 2016, The Nasdaq Stock Market LLC (``Exchange'' or ``Nasdaq'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to adopt paragraph (d) and Commentary .12 to Nasdaq Rule 4770 to change System \3\ functionality necessary to implement the Regulation NMS Plan to Implement a Tick Size Pilot Program (``Plan'' or ``Pilot'').\4\ The Exchange is also proposing amendments to Nasdaq Rule 4770(a) and (c) to clarify certain exceptions to the Trade-at Prohibition.\5\ The proposed rule change was published for comment in the Federal Register on September 20, 2016.\6\ The Commission received two comment letters in response to the Notice.\7\ On September 29, 2016, the Exchange filed Partial Amendment No. 1 to the proposed rule change.\8\ On October 4, 2016, the Exchange filed Partial Amendment No. 2 to the proposed rule change.\9\ On October 7, 2016, the [[Page 71144]] Exchange filed Partial Amendment No. 3 to the proposed rule change.\10\ --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ The term ``System'' is defined as the automated system for order execution and trade reporting owned and operated by Nasdaq. See Nasdaq Rule 4701(a). \4\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015) (``Approval Order''). Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth in the Plan. \5\ Nasdaq Rule 4770(c)(3)(D)(i) defines the ``Trade-at Prohibition'' as the prohibition against executions by a Trading Center of a sell order for a Pilot Security at the price of a Protected Bid or the execution of a buy order for a Pilot Security at the price of a Protected Offer during regular trading hours. See also Plan Section VI(D). \6\ Securities Exchange Act Release No. 78837 (September 14, 2016), 81 FR 64544 (``Notice''). \7\ See Letters to Brent J. Fields, Secretary, Commission, from Elizabeth K. King, General Counsel and Corporate Secretary, New York Stock Exchange, Inc.; Eric Swanson, EVP, General Counsel and Secretary, BATS Global Markets, Inc.; Thomas A. Wittman, EVP, Global Head of Equities, Nasdaq, Inc., dated September 9, 2016 (``Comment Letter No. 1'') and from Eric Swanson, EVP, General Counsel and Secretary, BATS Global Markets, Inc., dated September 12, 2016 (``Comment Letter No. 2''). \8\ In Partial Amendment No. 1, the Exchange proposes to change references in the rule text from ``added to the Nasdaq Book'' to ``ranked on the Nasdaq Book'' as applicable for Price to Comply Orders, Non-Displayed Orders, Post-Only Orders, and Orders with Reserve Size. The Exchange also proposes to clarify that in certain cases Price to Comply Orders, not attributable Post-Only Orders, and certain Orders with Reserve Size may be ranked on the Nasdaq Book at the midpoint of the National Best Bid or Offer (``NBBO''). Finally, the Exchange proposes three amendments related to the operation of Reserve Size for Test Group Three Pilot Securities: (i) Change references from ``Reserve Order'' to ``Order with Reserve Size''; (ii) clarify that the Reserve Size attribute is only available for Price to Comply Orders and Price to Display Orders entered via the RASH FIX, or QIX protocols; and (iii) clarify the handling of Orders with Reserve Size in scenarios where such Orders are entered at a price that locks a Protected Quotation on an away market center. \9\ In Partial Amendment No. 2, the Exchange proposes to delete certain rule text to remove the proposed re-pricing functionality for resting Price to Comply Orders, resting Non-Displayed Orders, and resting Post-Only Orders entered via OUCH or FLITE protocols for Test group Three Pilot Securities. The Exchange explained that its systems were re-programmed for Test Group Three Pilot Securities to permit resting Price to Comply Orders, resting Non-Displayed Orders, and resting Post-Only Orders entered via OUCH or FLITE protocols to repeatedly re-price in response to changes to the NBBO and/or the Nasdaq best Bid or Offer (``BBO''). Nasdaq noted that it is currently re-programming its systems to remove the proposed functionality. Further, Nasdaq stated that if it appears that the multiple re-pricing functionality will remain operational by October 17, 2016, the Exchange will file a proposed rule change with the Commission and provide notice to market participants sufficiently in advance of that date. The proposed rule change and notice to market participants will describe the current operation of the systems and timing of re-programming. In any event, Nasdaq states that the removal of this functionality shall be completed no later than November 30, 2016. In addition, the Exchange proposes to modify the Block Size Order exception to the Trade-at Prohibition. Finally, the Exchange is making certain non-substantive, clarifying amendments. \10\ In Partial Amendment No. 3, the Exchange clarifies that it would not apply the Trade-at Prohibition outside of Regular Trading Hours. --------------------------------------------------------------------------- This order provides notice of filing of Partial Amendment Nos. 1, 2 and 3, and approves the proposal, as modified by Partial Amendment Nos. 1, 2 and 3, on an accelerated basis. II. Description of the Amended Proposal The Exchange's proposed rule change provides for changed functionality to certain Order Types \11\ and Order Attributes \12\ applicable to Pilot Securities to implement the Plan. Proposed Nasdaq Rule 4770(d) would specify the order handling, executing, re-pricing and displaying for the following Order Types in Pilot Securities: (i) Price to Comply Orders; (ii) Non-Displayed Orders; (iii) Post-Only Orders; (iv) Midpoint Peg Post-Only Orders; (v) Supplemental Orders; and (vi) Market Maker Peg Orders. The following Order Attributes would also be amended: (i) Midpoint Pegging; (ii) Reserve Size; and (iii) Good-till-Cancelled. In addition, amended Nasdaq Rule 4770(d)(1) specifies that any Order Type in a security of any of the Test Groups that requires a price and does not qualify for an exception, will not be accepted if it is in a minimum price increment (``MPI'') other than $0.05.\13\ --------------------------------------------------------------------------- \11\ An ``Order Type'' is a standardized set of instructions associated with an order that define its behavior with respect to pricing, execution, and/or posting to the Nasdaq Book when submitted to the System. See Nasdaq Rule 4701(e). \12\ An ``Order Attribute'' is a further set of variable instructions that may be associated with an Order to further define how it will behave with respect to pricing, execution, and/or posting to the Exchange Book when submitted to the System. See Nasdaq Exchange Rule 4701(e). The availability of, and interaction between, Order Types and Order Attributes is described in Nasdaq Rules 4702 and 4703. \13\ Proposed Nasdaq Rule 4770(d)(1) clarifies that the System will use $0.05 as the MPI when re-pricing or rounding by the System. --------------------------------------------------------------------------- The Exchange also proposes to amend the definition of the term ``Trade-at Intermarket Sweep Order'' (``TA ISO'') and one of the TA ISO exceptions to the Trade-at Prohibition.\14\ Finally, the Exchange is proposing to modify the Block Size Order exception to the Trade-at Prohibition and add a related commentary.\15\ --------------------------------------------------------------------------- \14\ See proposed Nasdaq Rule 4770(a)(1)(D)(ii) and proposed Nasdaq Rule 4770(c)(3)(D)(iii)(j). \15\ See proposed Nasdaq Rule 4770(c)(3)(D)(iii)(c) and Nasdaq Rule 4770, proposed Commentary .12. --------------------------------------------------------------------------- A. Amendments to Order Type Functionality 1. Price To Comply Orders \16\ --------------------------------------------------------------------------- \16\ See proposed Nasdaq Rule 4770(d)(2). See also Partial Amendment No. 2. --------------------------------------------------------------------------- The Exchange proposes that a Price to Comply Order in a Test Group Pilot Security would operate consistent with current Nasdaq Rule 4702(b)(1) except as provided below. Specifically, if a Price to Comply Order for a Test Group Three Pilot Security partially executes on entry and the remainder would lock the Protected Quotation of another market center, the unexecuted portion of the Order would be cancelled. In addition, if a Price to Comply Order for a Test Group Three Pilot Security to buy (sell) is not executable against any orders residing on the Nasdaq Book and its limit price would lock or cross the Protected Quotation of another market center, the Order would display at one MPI below (above) the Protected Quotation and be ranked at the current midpoint of the NBBO on the Nasdaq Book.\17\ --------------------------------------------------------------------------- \17\ See Partial Amendment No. 1. --------------------------------------------------------------------------- 2. Non-Displayed Orders \18\ --------------------------------------------------------------------------- \18\ See proposed Nasdaq Rule 4770(d)(3). See also Partial Amendment No. 2. --------------------------------------------------------------------------- The Exchange proposes that a Non-Displayed Order in a Test Group Pilot Security would operate consistent with current Nasdaq Rule 4702(b)(3) except as provided below. Specifically, a resting Non- Displayed Order in a Test Group Three Pilot Security could not execute at the price of a Protected Quotation of another market center unless the incoming Order qualifies for an exception to the Trade-at Prohibition.\19\ In addition, for Test Group Three Pilot Securities, if the limit price of a buy (sell) Non-Displayed Order would lock or cross a Protected Quotation of another market center, the Order would be ranked on the Nasdaq Book at either one MPI below (above) the National Best Offer (``NBO'') ((National Best Bid) (``NBB'')) or at the midpoint of the NBBO, whichever is higher (lower).\20\ Further, for a Non- Displayed Order in a Test Group Three Pilot Security, entered via RASH, QIX or FIX, if after being posted to the Nasdaq Book the NBBO changes such that the Order would not be executable at its posted price due to the requirements of Regulation NMS or the Plan, the Non-Displayed Order to buy (sell) would be re-priced to either one MPI below (above) the NBO (NBB) or the midpoint of the NBBO, whichever is higher (lower) and receive a new timestamp. In the same scenario, if the Non-Displayed Order was entered via OUCH or FLITE, instead of re-pricing, the Order would be cancelled back to the Participant. --------------------------------------------------------------------------- \19\ See Nasdaq Rule 4770(c)(3)(D). \20\ See Partial Amendment No. 1. --------------------------------------------------------------------------- 3. Post-Only Orders \21\ --------------------------------------------------------------------------- \21\ See proposed Nasdaq Rule 4770(d)(4). See also Partial Amendment No. 2. --------------------------------------------------------------------------- The Exchange proposes that Post-Only Orders will operate consistent with current Nasdaq Rule 4702(b)(4) except as provided below. Specifically, for a not attributable Post-Only Order for a Test Group Three Pilot Security, if the limit price to buy (sell) would lock or cross a Protected Quotation of another market center, the Order would display at one MPI below (above) the Protected Quotation and would be ranked at the current midpoint of the NBBO on the Nasdaq Book.\22\ --------------------------------------------------------------------------- \22\ See Partial Amendment No. 1. --------------------------------------------------------------------------- 4. Midpoint Peg Post-Only Orders \23\ --------------------------------------------------------------------------- \23\ See proposed Nasdaq Rule 4770(d)(5). --------------------------------------------------------------------------- The Exchange proposes that a Midpoint Peg Post-Only Order in a Test Group Pilot Security will operate consistent with current Nasdaq Rule 4702(b)(5) and may execute at the midpoint of the NBBO in an increment other than the MPI. 5. Supplemental Orders \24\ --------------------------------------------------------------------------- \24\ See proposed Nasdaq Rule 4770(d)(6). --------------------------------------------------------------------------- The Exchange proposes that Supplemental Orders for Test Group One and Test Group Two Pilot Securities will operate consistent with current Nasdaq Rule 4702(b)(6). In addition, the Exchange proposes to not accept Supplemental Orders for Test Group Three Pilot Securities. 6. Market Maker Peg Orders \25\ --------------------------------------------------------------------------- \25\ See proposed Nasdaq Rule 4770(d)(7). --------------------------------------------------------------------------- The Exchange proposes that a Market Maker Peg Order in a Test Group Pilot Security will operate consistent with current Nasdaq Rule 4702(b)(7), except the displayed price of such an Order would be rounded up for bids (down for offers) to the nearest MPI (i.e., $0.05) if it would otherwise display at an increment smaller than the MPI. B. Amendments To Order Attribute Functionality 1. Midpoint Pegging \26\ --------------------------------------------------------------------------- \26\ See proposed Nasdaq Rule 4770(d)(8). --------------------------------------------------------------------------- The Exchange proposes that an Order with a Midpoint Pegging attribute in a Test Group Pilot Security will operate consistent with current Nasdaq Rule 4703(d). The Exchange also specifies that such Orders may execute at the midpoint of the NBBO in an increment other than the MPI. [[Page 71145]] 2. Reserve Size \27\ --------------------------------------------------------------------------- \27\ See proposed Nasdaq Rule 4770(d)(9). See also Partial Amendment No. 1. --------------------------------------------------------------------------- The Exchange proposes that an Order with Reserve Size in a Test Group Pilot Security will operate consistent with current Nasdaq Rule 4703(h) except as described below. Specifically, a resting Order with Reserve Size in a Test Group Three Pilot Security (i.e., a Price to Comply Order or a Price to Display Order entered via RASH, FIX or QIX) may not execute the non-displayed Reserve Size at the price of a Protected Quotation of another market center unless the incoming Order qualifies for an exception to the Trade-at Prohibition.\28\ If an Order with Reserve Size for a Test Group Three Pilot Security is partially executed upon entry and the remainder would lock a Protected Quotation of another market center, the unexecuted portion of the Order would be cancelled. If a Price to Comply Order with Reserve Size to buy (sell) a Test Group Three Pilot Security is not executable against previously posted Orders on the Nasdaq Book, and has a limit price that would lock or cross a Protected Quotation of another market center, the displayed portion of the Order would display one MPI below (above) the Protected Quotation, and the displayed and non-displayed portions of the Order would be ranked at the current midpoint of the NBBO on the Nasdaq Book. If a Price to Display Order with Reserve Size is not executable against any previously posted Orders on the Nasdaq Book and its limit price would lock or cross a Protected Quotation of another market center, then the displayed portion of the Order would be displayed and ranked one MPI below (above) the Protected Quotation and the non-displayed portion of the Order would be ranked at the midpoint of the NBBO. If after being posted to the Exchange Book, the NBBO changes such that an Order with Reserve Size was not executable at its ranked price due to the requirements of Regulation NMS or the Plan, the Order would adjust as described above. --------------------------------------------------------------------------- \28\ See Nasdaq Rule 4770(c)(3)(D). --------------------------------------------------------------------------- 3. Good-Till-Cancelled \29\ --------------------------------------------------------------------------- \29\ See proposed Nasdaq Rule 4770(d)(10). --------------------------------------------------------------------------- The Exchange proposes that an Order with a Time-in-Force of Good- till-Cancelled in a Test Group Pilot Security will operate consistent with current Nasdaq Rule 4703(a)(3) except such Order would be adjusted based on a $0.05 increment. C. Amendments to Certain Trade-at Prohibition Exceptions 1. TA ISO \30\ --------------------------------------------------------------------------- \30\ See proposed Nasdaq Rule 4770(a)(1)(D)(ii). --------------------------------------------------------------------------- The Exchange proposes to add the phrase ``or Intermarket Sweep Orders'' (``ISO'') to the definition of TA ISO as well as to the related TA ISO exception to the Trade-at Prohibition \31\ to clarify that ISOs may be routed to execute against the full displayed size of the Protected Quotation that was traded at. --------------------------------------------------------------------------- \31\ See proposed Nasdaq Rule 4770(c)(3)(D)(iii)(j). --------------------------------------------------------------------------- 2. Block Size Order Exception for the Trade-at Prohibition \32\ --------------------------------------------------------------------------- \32\ See proposed Nasdaq Rule 4770(c)(3)(D)(iii)(c) and Nasdaq Rule 4770, proposed Commentary .12. --------------------------------------------------------------------------- Currently, Nasdaq Rule 4770(c)(3)(D)(iii)(c) provides an exception to the Trade-at Prohibition for Block Size Orders.\33\ The Exchange proposes in Commentary .12 that for purposes of qualifying for the exception Orders must have a size of 5,000 shares or more and the resulting execution upon entry is for a size of 5,000 shares or more in aggregate. In addition, Nasdaq proposes to amend the Block Size Order exception to the Trade-at Prohibition to allow execution on multiple Trading Centers to comply with Regulation NMS.\34\ --------------------------------------------------------------------------- \33\ The plan defines Block Size as ``an order (1) of at least 5,000 shares or (2) for a quantity of stock having a market value of at least $100,000. See Plan Section I(F). \34\ See proposed Nasdaq Rule 4770(c)(3)(D)(iii)(c). See also Partial Amendment No. 2. --------------------------------------------------------------------------- III. Summary of Comments Received \35\ --------------------------------------------------------------------------- \35\ See supra note 7. --------------------------------------------------------------------------- Both comment letters express support for the proposal and suggest that the Commission should approve the proposal. In Comment Letter No. 1, the commenters stated that if the proposal is approved as proposed, then the Exchange would be able to meet the implementation date. Further, in Comment Letter No. 1, the commenters stated their belief that the requirements from the Commission have been unclear. In Comment Letter No. 2, the commenter questioned the Commission staff's authority. IV. Discussion and Commission's Findings After careful review of the proposed rule change, as modified by Partial Amendment Nos. 1, 2 and 3, and the comment letters, the Commission finds that the proposal, as modified by Partial Amendment Nos. 1, 2 and 3, is consistent with the requirements of the Act, Rule 608 of Regulation NMS,\36\ and the rules and regulations thereunder that are applicable to a national securities exchange.\37\ Specifically, the Commission finds that the rule change is consistent with Section 6(b)(5) of the Act,\38\ which requires that the rules of a national securities exchange be designed, among other things, 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 to protect investors and the public interest; and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \36\ 17 CFR 242.608. \37\ In approving this rule change, the Commission has considered the rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \38\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- As noted in the Approval Order, the Plan is by design, an objective, data-driven test to evaluate how a wider tick size would impact trading, liquidity, and market quality of securities of smaller capitalization companies. In addition, the Plan is designed with three Test Groups and a Control Group, to allow analysis and comparison of incremental market structure changes on the Pilot Securities and is designed to produce empirical data that could inform future policy decisions. As such, any proposed changes targeted at particular Test Groups during the Pilot Period should be necessary for compliance with the Plan. The Exchange proposes to modify its handling of certain Order Types and Order Attributes during the Pilot Period. First, the Exchange proposes to clarify that it will not accept Orders in a Test Group Pilot Security in an increment other than $0.05 unless there is an applicable exception to the MPI. Second, the Exchange proposes to clarify that the displayed price of Market Maker Peg Orders for any Test Group Pilot Security would be rounded to the nearest MPI and that Good-till-Cancelled Orders for a Test Group Pilot Security would be adjusted based on the $0.05 increment. Finally, the Exchange proposes to clarify that Midpoint Peg Post-Only Orders and Orders with the Midpoint Pegging Attribute in a Test Group Pilot Security may execute at the midpoint of the NBBO in an increment other than the MPI. The Exchange also proposes to modify the handling of certain Orders and Order Attributes in Test Group Three Pilot Securities, including: (i) Price to Comply Orders, (ii) Non-Displayed Orders, (iii) Post-Only Orders; (iv) Supplemental Orders, and (v) Orders [[Page 71146]] with Reserve Size. The proposed changes are intended to facilitate compliance with the Trade-at Prohibition.\39\ --------------------------------------------------------------------------- \39\ In Partial Amendment No. 3, the Exchange clarified that it would not apply the Trade-at Prohibition outside of Regular Trading Hours. The Commission notes that this is consistent with the Plan. See Plan Section I(LL). --------------------------------------------------------------------------- Finally, the Exchange proposes to amend provisions related to two exceptions to the Trade-at Prohibition. First, the Exchange proposes to amend the definition of TA ISO to reflect that ISOs may be routed to the full displayed size of a Protected Quotation that is traded-at and to make the corresponding change to the applicable Trade-at Prohibition exception. Second, the Exchange proposes to amend the Trade-at Prohibition exception for Block Size Orders to allow such Orders to be executed on multiple Trading Centers. Further, the Exchange proposes that for purposes of the Block Size Order exception to the Trade-at Prohibition, the Order must have a size of 5,000 shares and the resulting execution upon entry must have a size of 5,000 shares or more in aggregate.\40\ --------------------------------------------------------------------------- \40\ See also Exchange Rule 4770(c)(3)(D)(iii)(c). --------------------------------------------------------------------------- The Commission believes that the proposed changes are reasonably designed to comply with the Plan. Further, the Commission believes that the proposed changes that target particular Test Groups are necessary for compliance with the Plan.\41\ Accordingly, the Commission finds that these changes are consistent with Section 6(b)(5) of the Act \42\ and Rule 608 of Regulation NMS \43\ because they implement the Plan and clarify Exchange Rules. --------------------------------------------------------------------------- \41\ The Commission notes that the Exchange originally proposed to modify the operation of Post to Comply Orders, Non-Displayed Orders, and Post Only Orders entered via OUCH and FLITE for Test Group Three Pilot Securities only. In Partial Amendment No. 2, the Exchange proposes to remove the proposed functionality. Thus, the Commission believes that the proposal, as modified, is consistent with the Plan. The Exchange has committed to make the system changes necessary to implement Partial Amendment No. 2. If it appears that the system changes will not be completed by October 17, 2016, the date on which the Participants will begin implementation of Test Group 3, Nasdaq will file a proposed rule change with the Commission to propose any necessary changes to the Exchange's rules, and provide notice to market participants sufficiently in advance of this date to adequately inform market participants of the current operation of Nasdaq's systems. See Partial Amendment No. 2. \42\ 15 U.S.C. 78f(b)(5). \43\ 17 CFR 242.608. --------------------------------------------------------------------------- For these reasons, the Commission finds that the proposed rule change, as modified by Partial Amendment Nos. 1, 2 and 3, is consistent with the requirements of the Act \44\ and Rule 608 of Regulation NMS.\45\ --------------------------------------------------------------------------- \44\ 15 U.S.C. 78f(b)(5). \45\ 17 CFR 242.608. --------------------------------------------------------------------------- V. Solicitation of Comments on Partial Amendment Nos. 1, 2 and 3 to the Proposed Rule Change Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal, as modified by Partial Amendment Nos. 1, 2 and 3, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse 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-2016-126 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-2016-126. 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 20549-1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also 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-2016-126 and should be submitted on or before November 4, 2016. VI. Accelerated Approval of Proposed Rule Change, as Modified by Partial Amendment Nos. 1, 2 and 3 The Commission finds good cause to approve the proposed rule change, as modified by Partial Amendment Nos. 1, 2 and 3, prior to the thirtieth day after the date of publication of notice of the proposed rule change, as modified by Partial Amendment Nos. 1, 2 and 3 in the Federal Register. As described above, the Exchange proposes to amend its rules to comply with the Plan. The Commission notes that the Pilot started implementation on October 3, 2016, and accelerated approval of the proposal would ensure that the rules of the Exchange would be in place during implementation. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Exchange Act,\46\ to approve the proposed rule change, as modified by Partial Amendment Nos. 1, 2 and 3, on an accelerated basis. --------------------------------------------------------------------------- \46\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- VII. Conclusion It is therefore ordered that, pursuant to Section 19(b)(2) of the Exchange Act,\47\ that the proposed rule change (SR-NASDAQ-2016-126), as modified by Partial Amendment Nos. 1, 2 and 3, be and hereby is approved on an accelerated basis. --------------------------------------------------------------------------- \47\ Id. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\48\ --------------------------------------------------------------------------- \48\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-24834 Filed 10-13-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 199 / Friday, October 14, 2016 / Notices 71143
upon principles and rules currently that result from, e.g., technology also proposing amendments to Nasdaq
operative on the Exchange in the Simple issues.144 Rule 4770(a) and (c) to clarify certain
Order Book.135 In addition, MIAX notes exceptions to the Trade-at Prohibition.5
IV. Conclusion
that affording priority in the Strategy The proposed rule change was
Book to Market Makers with a Complex It is therefore ordered, pursuant to published for comment in the Federal
priority quote should provide incentive Section 19(b)(2) of the Act,145 that the Register on September 20, 2016.6 The
for MIAX participants to submit proposed rule change (SR–MIAX–2016– Commission received two comment
complex quotes at the best prices and 26) is approved. letters in response to the Notice.7 On
rewards Market Makers who are quoting For the Commission, by the Division of September 29, 2016, the Exchange filed
in the Strategy Book at the best Trading and Markets, pursuant to delegated Partial Amendment No. 1 to the
prices.136 authority.146 proposed rule change.8 On October 4,
Robert W. Errett, 2016, the Exchange filed Partial
H. Price Protection and Other Features Deputy Secretary. Amendment No. 2 to the proposed rule
[FR Doc. 2016–24837 Filed 10–13–16; 8:45 am] change.9 On October 7, 2016, the
MIAX’s proposed price and order
protection features are intended to BILLING CODE 8011–01–P
5 Nasdaq Rule 4770(c)(3)(D)(i) defines the ‘‘Trade-
provide market participants with price at Prohibition’’ as the prohibition against
and order size protection in order to executions by a Trading Center of a sell order for
SECURITIES AND EXCHANGE a Pilot Security at the price of a Protected Bid or
allow them to better manage their risk
COMMISSION the execution of a buy order for a Pilot Security at
exposure.137 The VSV and CSV price the price of a Protected Offer during regular trading
protections are similar to functionalities [Release No. 34–79075; File No. SR– hours. See also Plan Section VI(D).
already available on other options Nasdaq–2016–126] 6 Securities Exchange Act Release No. 78837
(September 14, 2016), 81 FR 64544 (‘‘Notice’’).
exchanges.138 In addition, according to
MIAX, the cMOM functionality may Self-Regulatory Organizations; The 7 See Letters to Brent J. Fields, Secretary,
Nasdaq Stock Market LLC; Notice of Commission, from Elizabeth K. King, General
help ensure a fair and orderly market by Counsel and Corporate Secretary, New York Stock
Filing of Partial Amendment Nos. 1, 2
rejecting inbound complex orders Exchange, Inc.; Eric Swanson, EVP, General
and 3, and Order Granting Accelerated Counsel and Secretary, BATS Global Markets, Inc.;
whose prices may be erroneous or
Approval of a Proposed Rule Change, Thomas A. Wittman, EVP, Global Head of Equities,
disruptive.139 The cMOM functionality Nasdaq, Inc., dated September 9, 2016 (‘‘Comment
as Modified by Partial Amendment
is similar to an existing functionality on Nos. 1, 2 and 3, to System Letter No. 1’’) and from Eric Swanson, EVP, General
MIAX’s simple market.140 MIAX’s Counsel and Secretary, BATS Global Markets, Inc.,
Functionality Necessary To Implement dated September 12, 2016 (‘‘Comment Letter No.
provisions regarding wide market the Regulation NMS Plan To Implement 2’’).
conditions, SMAT events, and halts a Tick Size Pilot Program 8 In Partial Amendment No. 1, the Exchange
could help protect investors by pausing proposes to change references in the rule text from
trading during potentially disruptive October 7, 2016. ‘‘added to the Nasdaq Book’’ to ‘‘ranked on the
Nasdaq Book’’ as applicable for Price to Comply
conditions.141 Finally, according to I. Introduction Orders, Non-Displayed Orders, Post-Only Orders,
MIAX, adding complex orders to the and Orders with Reserve Size. The Exchange also
Risk Protection Monitor should allow On September 7, 2016, The Nasdaq proposes to clarify that in certain cases Price to
MIAX members to better manage their Stock Market LLC (‘‘Exchange’’ or Comply Orders, not attributable Post-Only Orders,
‘‘Nasdaq’’) filed with the Securities and and certain Orders with Reserve Size may be ranked
risk and encourage them to submit on the Nasdaq Book at the midpoint of the National
additional liquidity to the Exchange.142 Exchange Commission (‘‘SEC’’ or Best Bid or Offer (‘‘NBBO’’). Finally, the Exchange
The Commission believes the proposed ‘‘Commission’’) pursuant to Section proposes three amendments related to the operation
new price protection features are 19(b)(1) of the Securities Exchange Act of Reserve Size for Test Group Three Pilot
of 1934 (‘‘Exchange Act’’ or ‘‘Act’’) 1 and Securities: (i) Change references from ‘‘Reserve
reasonably designed to promote just and Order’’ to ‘‘Order with Reserve Size’’; (ii) clarify
equitable principles of trade to the Rule 19b–4 thereunder,2 a proposed rule that the Reserve Size attribute is only available for
extent they are able to mitigate potential change to adopt paragraph (d) and Price to Comply Orders and Price to Display Orders
risks associated with market Commentary .12 to Nasdaq Rule 4770 to entered via the RASH FIX, or QIX protocols; and
change System 3 functionality necessary (iii) clarify the handling of Orders with Reserve Size
participants entering orders or executing in scenarios where such Orders are entered at a
trades at what MIAX believes are to implement the Regulation NMS Plan price that locks a Protected Quotation on an away
erroneous or disruptive prices.143 In to Implement a Tick Size Pilot Program market center.
addition, the Commission has noted that (‘‘Plan’’ or ‘‘Pilot’’).4 The Exchange is 9 In Partial Amendment No. 2, the Exchange
proposes to delete certain rule text to remove the
the Risk Protection Monitor may help 144 See Securities Exchange Act Release No. proposed re-pricing functionality for resting Price to
members, and member groups, mitigate 74496 (March 13, 2015), 80 FR 14421 (March 19, Comply Orders, resting Non-Displayed Orders, and
potential risk associated with the 2015) (SR–MIAX–2015–03), at 14423. The resting Post-Only Orders entered via OUCH or
execution an unacceptable level of order Commission reminds members electing to use the FLITE protocols for Test group Three Pilot
Risk Protection Monitor to be mindful of their Securities. The Exchange explained that its systems
obligations to, among other things, seek best were re-programmed for Test Group Three Pilot
135 The Exchange currently follows the Securities to permit resting Price to Comply Orders,
execution of orders they handle on an agency basis.
established hierarchy that generally affords priority See id. resting Non-Displayed Orders, and resting Post-
to Priority Customer Orders, then to Market Makers 145 15 U.S.C. 78s(b)(2). Only Orders entered via OUCH or FLITE protocols
with priority quotes, followed by Professional 146 17 CFR 200.30–3(a)(12). to repeatedly re-price in response to changes to the
Interest at the same price. See Notice, 81 FR at 1 15 U.S.C. 78s(b)(1).
NBBO and/or the Nasdaq best Bid or Offer (‘‘BBO’’).
58773, n. 24 and MIAX Rule 514. Nasdaq noted that it is currently re-programming its
2 17 CFR 240.19b–4.
136 See Notice, 81 FR at 58798. systems to remove the proposed functionality.
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3 The term ‘‘System’’ is defined as the automated
137 See Notice, 81 FR at 58800. Further, Nasdaq stated that if it appears that the
138 See ISE Rule 722, Supplementary Material system for order execution and trade reporting multiple re-pricing functionality will remain
owned and operated by Nasdaq. See Nasdaq Rule operational by October 17, 2016, the Exchange will
.07(c) and PHLX Rule 1098(g).
139 See Notice, 81 FR at 58800.
4701(a). file a proposed rule change with the Commission
4 See Securities Exchange Act Release No. 74892 and provide notice to market participants
140 See MIAX Rule 519.
(May 6, 2015), 80 FR 27513 (May 13, 2015) sufficiently in advance of that date. The proposed
141 See Notice, 81 FR at 58800.
(‘‘Approval Order’’). Unless otherwise specified, rule change and notice to market participants will
142 See id.
capitalized terms used in this rule filing are defined describe the current operation of the systems and
143 See id. as set forth in the Plan. Continued
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![71146 Federal Register / Vol. 81, No. 199 / Friday, October 14, 2016 / Notices
with Reserve Size. The proposed requirements of the Act 44 and Rule 608 submitted on or before November 4,
changes are intended to facilitate of Regulation NMS.45 2016.
compliance with the Trade-at V. Solicitation of Comments on Partial VI. Accelerated Approval of Proposed
Prohibition.39 Amendment Nos. 1, 2 and 3 to the Rule Change, as Modified by Partial
Finally, the Exchange proposes to Proposed Rule Change Amendment Nos. 1, 2 and 3
amend provisions related to two Interested persons are invited to The Commission finds good cause to
exceptions to the Trade-at Prohibition. submit written data, views, and approve the proposed rule change, as
First, the Exchange proposes to amend arguments concerning the foregoing, modified by Partial Amendment Nos. 1,
the definition of TA ISO to reflect that including whether the proposal, as 2 and 3, prior to the thirtieth day after
ISOs may be routed to the full displayed modified by Partial Amendment Nos. 1, the date of publication of notice of the
size of a Protected Quotation that is 2 and 3, is consistent with the Act. proposed rule change, as modified by
traded-at and to make the corresponding Comments may be submitted by any of Partial Amendment Nos. 1, 2 and 3 in
change to the applicable Trade-at the following methods: the Federal Register. As described
Prohibition exception. Second, the above, the Exchange proposes to amend
Exchange proposes to amend the Trade- Electronic Comments
its rules to comply with the Plan. The
at Prohibition exception for Block Size • Use the Commission’s Internet Commission notes that the Pilot started
Orders to allow such Orders to be comment form (http://www.sec.gov/ implementation on October 3, 2016, and
executed on multiple Trading Centers. rules/sro.shtml); or accelerated approval of the proposal
Further, the Exchange proposes that for • Send an email to rule-comments@ would ensure that the rules of the
purposes of the Block Size Order sec.gov. Please include File Number SR– Exchange would be in place during
exception to the Trade-at Prohibition, NASDAQ–2016–126 on the subject line. implementation. Accordingly, the
the Order must have a size of 5,000 Paper Comments Commission finds good cause, pursuant
shares and the resulting execution upon to Section 19(b)(2) of the Exchange
entry must have a size of 5,000 shares • Send paper comments in triplicate
to Secretary, Securities and Exchange Act,46 to approve the proposed rule
or more in aggregate.40 change, as modified by Partial
Commission, 100 F Street NE.,
The Commission believes that the Washington, DC 20549–1090. Amendment Nos. 1, 2 and 3, on an
proposed changes are reasonably accelerated basis.
All submissions should refer to File
designed to comply with the Plan. VII. Conclusion
Number SR–NASDAQ–2016–126. This
Further, the Commission believes that file number should be included on the
the proposed changes that target It is therefore ordered that, pursuant
subject line if email is used. To help the to Section 19(b)(2) of the Exchange
particular Test Groups are necessary for Commission process and review your
compliance with the Plan.41 Act,47 that the proposed rule change
comments more efficiently, please use (SR–NASDAQ–2016–126), as modified
Accordingly, the Commission finds that only one method. The Commission will
these changes are consistent with by Partial Amendment Nos. 1, 2 and 3,
post all comments on the Commission’s be and hereby is approved on an
Section 6(b)(5) of the Act 42 and Rule Internet Web site (http://www.sec.gov/
608 of Regulation NMS 43 because they accelerated basis.
rules/sro.shtml). Copies of the
implement the Plan and clarify submission, all subsequent For the Commission, by the Division of
Exchange Rules. Trading and Markets, pursuant to delegated
amendments, all written statements authority.48
For these reasons, the Commission with respect to the proposed rule Robert W. Errett,
finds that the proposed rule change, as change that are filed with the
Deputy Secretary.
modified by Partial Amendment Nos. 1, Commission, and all written
2 and 3, is consistent with the [FR Doc. 2016–24834 Filed 10–13–16; 8:45 am]
communications relating to the
proposed rule change between the BILLING CODE 8011–01–P
39 In Partial Amendment No. 3, the Exchange Commission and any person, other than
clarified that it would not apply the Trade-at those that may be withheld from the
Prohibition outside of Regular Trading Hours. The SECURITIES AND EXCHANGE
public in accordance with the
Commission notes that this is consistent with the COMMISSION
Plan. See Plan Section I(LL). provisions of 5 U.S.C. 552, will be
40 See also Exchange Rule 4770(c)(3)(D)(iii)(c). available for Web site viewing and [Release No. 34–79070; File No. SR-
41 The Commission notes that the Exchange printing in the Commission’s Public BatsBZX–2016–66]
originally proposed to modify the operation of Post Reference Room, 100 F Street NE.,
to Comply Orders, Non-Displayed Orders, and Post
Washington, DC 20549–1090, on official Self-Regulatory Organizations; Bats
Only Orders entered via OUCH and FLITE for Test BZX Exchange, Inc.; Notice of Filing
Group Three Pilot Securities only. In Partial business days between the hours of
Amendment No. 2, the Exchange proposes to 10:00 a.m. and 3:00 p.m. Copies of such and Immediate Effectiveness of a
remove the proposed functionality. Thus, the filing will also be available for Proposed Rule Change Related to Fees
Commission believes that the proposal, as modified,
inspection and copying at the principal for Use of Bats BZX Exchange, Inc.
is consistent with the Plan. The Exchange has
committed to make the system changes necessary to office of the Exchange. All comments October 7, 2016.
implement Partial Amendment No. 2. If it appears received will be posted without change; Pursuant to Section 19(b)(1) of the
that the system changes will not be completed by the Commission does not edit personal
October 17, 2016, the date on which the Securities Exchange Act of 1934 (the
Participants will begin implementation of Test
identifying information from ‘‘Act’’),1 and Rule 19b–4 thereunder,2
submissions. You should submit only notice is hereby given that on
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Group 3, Nasdaq will file a proposed rule change
with the Commission to propose any necessary information that you wish to make September 30, 2016, Bats BZX
changes to the Exchange’s rules, and provide notice available publicly. All submissions
to market participants sufficiently in advance of
this date to adequately inform market participants
should refer to File Number SR– 46 15 U.S.C. 78s(b)(2).
of the current operation of Nasdaq’s systems. See NASDAQ–2016–126 and should be 47 Id.
Partial Amendment No. 2. 48 17 CFR 200.30–3(a)(12).
42 15 U.S.C. 78f(b)(5). 44 15 U.S.C. 78f(b)(5). 1 15 U.S.C. 78s(b)(1).
43 17 CFR 242.608. 45 17 CFR 242.608. 2 17 CFR 240.19b–4.
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Document Created: 2016-10-14 00:00:28
Document Modified: 2016-10-14 00:00:28
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 71143 |
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