81_FR_81441 81 FR 81219 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4702 and Rule 4703 To Add a “Trade Now” Instruction to Certain Order Types

81 FR 81219 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4702 and Rule 4703 To Add a “Trade Now” Instruction to Certain Order Types

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 222 (November 17, 2016)

Page Range81219-81221
FR Document2016-27592

Federal Register, Volume 81 Issue 222 (Thursday, November 17, 2016)
[Federal Register Volume 81, Number 222 (Thursday, November 17, 2016)]
[Notices]
[Pages 81219-81221]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-27592]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79282; File No. SR-NASDAQ-2016-156]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4702 and Rule 4703 To Add a ``Trade Now'' Instruction to 
Certain Order Types

November 10, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 8, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 4702 (Order Types) and Rule 
4703 (Order Attributes) to add a ``Trade Now'' instruction to certain 
order types.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    Nasdaq proposes to amend Rules [sic] 4702 (Order Types) and Rule 
4703 (Order Attributes) to add a ``Trade Now'' instruction to certain 
order types. Nasdaq will offer this functionality through its OUCH, 
RASH, FLITE, and FIX protocols. This instruction will provide resting 
orders with a greater ability to receive an execution when that resting 
order is locked, e.g., the price of a resting non-display buy order 
equals the price of a resting displayed sell order on the Nasdaq book. 
The Trade Now instruction will allow participants to enter an 
instruction to have a locked resting buy (sell) order execute against 
the locking sell (buy) order. Depending on the protocol used by the 
participant to access the Nasdaq system, the participant may either 
specify that the order execute against locking interest automatically, 
or the participant may be required to send a Trade Now instruction to 
the Exchange once the order has become locked. As discussed in greater 
detail below, Nasdaq is offering the Trade Now instruction for all 
orders that may be sent to the continuous Nasdaq book, and will not 
offer the instruction for orders that do not execute on the continuous 
book.
    When a Trade Now instruction is applied to a resting buy (sell) 
order, the order will execute against the available size of the locking 
sell (buy) order at the locked price. The following example illustrates 
this scenario:
     Participant A enters a Non-Display buy order for 200 
shares at $10, and specifies the Trade Now instruction;
     Participant B enters a Post Only sell order for 100 shares 
at $10; \3\
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    \3\ The Exchange recently submitted a proposal to amend Nasdaq 
Rules 4702 and 4703 to change the way in which Post Only Orders 
interact with resting Non-Display orders and preventing the 
execution of midpoint pegged orders during a crossed market. See 
Securities Exchange Act Release No. 78908 (September 22, 2016), 81 
FR 66702 (September 28, 2016) (SR-NASDAQ-2016-111).
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     The Post Only order is posted at $10 and locks the Non-
Display order;
     The buy order will execute for 100 shares at $10 as the 
remover of liquidity.
    If a buy (sell) order with the Trade Now instruction is only 
partially executed, the unexecuted portion of that order remains on the 
Nasdaq book and maintains its priority. When a Trade Now instruction is 
entered through the OUCH or FLITE protocol for a resting buy (sell) 
order and there is no locking

[[Page 81220]]

order on the opposite side of the market, the Trade Now instruction 
will be ignored and the buy (sell) order will remain on the Nasdaq 
book, retaining its priority.
    As noted above, Nasdaq is proposing to offer the Trade Now 
instruction for all orders that may be sent to the continuous Nasdaq 
book (as opposed to the opening and closing book), and will not offer 
the instruction for orders that do not execute on the continuous book. 
Accordingly, the Trade Now instruction shall not be available for 
Supplemental Orders (Rule 4702(b)(6)), Market On Open Orders (Rule 
4702(b)(8)), Limit On Open Orders (Rule 4702(b)(9)), Opening Imbalance 
Only Orders (Rule 4702(b)(10)), Market On Close Orders (Rule 
4702(b)(11)), Limit on Close Orders (Rule 4702(b)(12)), and Imbalance 
Only Orders (Rule 4702(b)(13)). These order types are subject to other 
Nasdaq rules regarding the display and execution of those orders, and 
the use of the Trade Now instruction would be inconsistent with those 
other Nasdaq rules.\4\ Accordingly, Nasdaq is not offering the Trade 
Now instruction for those order types.
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    \4\ For example, a Supplemental Order is an order type with a 
Non-Display Order attribute that is held on the Nasdaq Book in order 
to provide liquidity at the NBBO through a special execution process 
described in Rule 4757(a)(1)(D). Rule 4757(a)(1)(D) provides that a 
Supplemental Order will be matched against an order only at the 
National Best Bid or Offer, and only if the size of the order is 
less than or equal to the aggregate size of Supplemental Order 
interest available at the price of the order. In addition, a 
Supplemental Order will not execute if the NBBO is locked or 
crossed. See Rule 4757(a)(1)(D). To the extent that a Supplemental 
Order will only be matched at the National Best Bid or Offer, and 
the Trade-Now instruction allows a locked resting order to execute 
at a price that is potentially better than the NBBO, the function of 
the Trade-Now instruction is inconsistent with the function of the 
Supplemental Order. Similarly, the purpose of the various Cross 
mechanisms is to establish a price that maximizes the number of 
applicable quotes and orders that may be executed. See, e.g., Rule 
4752(d)(2). Allowing an order to automatically execute against 
locking interest without regard to the price of other same-side 
interest is inconsistent with a process that establishes a price at 
which the maximum number of shares may be paired.
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    Depending on the interface being used by the participant, the Trade 
Now attribute may either allow the order to execute against locking 
interest automatically (``Reactive Trade Now''), or the participant may 
be required to send a Trade Now instruction to the Exchange once the 
order has become locked (``Non-Reactive Trade Now''). All orders that 
are entered through the RASH and FIX protocols with a Trade Now order 
attribute will be Reactive Trade Now, and those orders shall execute 
against locking interest automatically.
    The Reactive Trade Now instruction will be available on an order-
by-order basis, and will also be available as an optional port level 
setting. If the Reactive Trade Now setting is enabled on a specific 
port, all orders entered via the specific port will, by default, be 
designated with the Reactive Trade Now instruction. If the Reactive 
Trade Now setting is enabled on a specific port, participants will have 
the ability to designate on an order-by-order basis that a particular 
order entered via the specific port will not be designated with the 
Reactive Trade Now instruction, thereby overriding the port level 
setting for the order. If the Reactive Trade Now instruction is 
specified for an order for which the Trade Now instruction does not 
apply, e.g., a Supplemental Order or a Market On Open Order, the system 
will not invoke the Trade Now instruction for that order.
    In contrast, orders entered through the OUCH and FLITE protocols 
will use the Non-Reactive Trade Now functionality, and participants 
must send the Trade Now instruction after the order becomes locked. If 
a participant enters a Non-Reactive Trade Now instruction when there is 
no locking interest, the instruction will be ignored by the system and 
the order will remain on the Nasdaq Book with the same priority.
    The Non-Reactive Trade Now instruction will be available to 
participants on order-by-order basis. If the Non-Reactive Trade Now 
instruction is entered for an order for which the Trade Now instruction 
does not apply, the system will not invoke the Trade Now instruction 
for that order.
    Nasdaq is offering two different variations of the Trade Now 
instruction to reflect the differences in behavior among participants 
who use the different Nasdaq protocols. For example, Nasdaq typically 
assumes a more active role in managing the order flow submitted by 
users of the RASH and FIX protocols. Allowing these participants to use 
the Reactive Trade Now instruction at the time of order entry will 
allow for the automatic execution of orders, and reflects the order 
flow management practices of these participants. In contrast, users of 
the OUCH and FLITE protocols generally assume a more active role in 
managing their order flow. Offering the Non-Reactive Trade Now 
instruction for these protocols, and its requirement that the 
instruction must be sent after the order becomes locked, reflects the 
order flow management practices of these participants.
    Nasdaq notes that a similar functionality currently exists on NYSE 
Arca, Inc. (``NYSE Arca''), which NYSE Arca refers to as a ``Non-
Display Remove Modifier.'' As set forth in NYSE Arca Rule 7.31, a Limit 
Non-Displayed Order may be designated with a Non-Display Remove 
Modifier. If so designated, a Limit Non-Displayed Order to buy (sell) 
will trade as the liquidity-taking order with an incoming Adding 
Liquidity Only Order (``ALO Order'') to sell (buy) that has a working 
price equal to the working price of the Limit Non-Displayed Order.\5\ 
NYSE Arca also provides this functionality for other orders, such as 
Mid-Point Passive Liquidity Orders (``MPL Orders'') designated Day and 
MPL-ALO Orders \6\ and Arca Only Orders.\7\
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    \5\ See NYSE Arca Rule 7.31(d)(2)(B).
    \6\ See NYSE Arca Rule 7.31(d)(3)(G).
    \7\ See NYSE Arca Rule 7.31(e)(1)(C). To the extent that the 
Trade-Now functionality will be made available for Price to Comply 
Orders, Price to Display Orders, Non-Displayed Orders, Post-Only 
Orders, Midpoint Peg Post-Only Orders, and Market Maker Peg Orders, 
Nasdaq notes that the Trade-Now functionality will apply to 
different order types than the NYSE Arca Non-Display Remove Modifier 
functionality.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest, 
by offering participants an additional functionality that will 
facilitate the execution of locked orders, thereby increasing the 
efficient functioning of the Nasdaq market. The Trade Now functionality 
is an optional feature that is being offered at no additional charge, 
and is designed to reflect both the objectives of the Nasdaq market, 
and the order flow management practices of various market participants. 
For these reasons, the Trade Now functionality will only be made 
available for orders that are entered in the continuous Nasdaq book, 
and, depending on the protocol, will be offered as either the Reactive 
Trade Now or Non-Reactive Trade Now functionality.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. This is an optional 
functionality that is being

[[Page 81221]]

offered at no charge, and which may be used equally by similarly-
situated participants. Although the functionality of the Trade Now 
instruction will differ depending upon the protocol that is being used 
to access Nasdaq, Nasdaq believes that the difference in functionality 
reflects the different ways in which participants enter and manage 
their order flow.
    As noted above, Nasdaq will offer the Trade Now functionality 
through the OUCH, RASH, FLITE, and FIX protocols. Nasdaq will not offer 
the Trade Now functionality through the QIX protocol.\10\ Nasdaq notes 
that, although the QIX protocol can support the removing of liquidity, 
QIX is designed to provide two-sided quote messages to the trading 
system, unlike the OUCH, RASH, FLITE and FIX protocols, which are 
designed to facilitate order submission. Nasdaq also notes that QIX is 
an infrequently-used protocol,\11\ and that this protocol cannot 
support the expansion of fields that adopting the Trade Now instruction 
would require. Nasdaq therefore believes that its decision to offer the 
Trade Now instruction through the OUCH, RASH, FLITE, and FIX protocols 
will not impose any burden on competition that is not necessary or 
appropriate.
---------------------------------------------------------------------------

    \10\ Although participants may use other protocols, such as 
DROP, those protocols are not related to order entry, and so the 
Trade Now functionality is not being offered for those protocols.
    \11\ As of September 15, 2016, of the 5,090 customer ports for 
the various Nasdaq protocols, only 124 of those ports are QIX 
protocol.
---------------------------------------------------------------------------

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 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\12\
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    \12\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \13\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \14\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
states that the Trade Now functionality is complementary to its recent 
proposal to change the way in which Post Only Orders interact with 
resting Non-Display orders.\15\ The Exchange believes that releasing 
both complementary functionalities at the same time will be easier for 
market participants to manage and implement. The Exchange further 
believes that the Trade Now functionality will facilitate the execution 
of locked orders, thereby increasing the efficient functioning of the 
Nasdaq market, and that waiver of the operative delay will allow this 
functionality to be made available at an earlier date. Finally, the 
Exchange notes that NYSE Arca currently utilizes a similar 
functionality in the form of its Non-Display Remove Modifier. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposed rule change operative upon filing.\16\
---------------------------------------------------------------------------

    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See supra note 3.
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2016-156 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-156. 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 such 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-2016-156, and should 
be submitted on or before December 8, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Brent J. Fields,
Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-27592 Filed 11-16-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                                                Federal Register / Vol. 81, No. 222 / Thursday, November 17, 2016 / Notices                                                    81219

                                                    Electronic Comments                                       SECURITIES AND EXCHANGE                                 A. Self-Regulatory Organization’s
                                                                                                              COMMISSION                                              Statement of the Purpose of, and
                                                       • Use the Commission’s Internet                                                                                Statutory Basis for, the Proposed Rule
                                                    comment form (http://www.sec.gov/                                                                                 Change
                                                                                                              [Release No. 34–79282; File No. SR–
                                                    rules/sro.shtml); or
                                                                                                              NASDAQ–2016–156]                                        1. Purpose
                                                       • Send an email to rule-comments@
                                                    sec.gov. Please include File Number SR–                   Self-Regulatory Organizations; The                         Nasdaq proposes to amend Rules [sic]
                                                    NYSEMKT–2016–100 on the subject                           NASDAQ Stock Market LLC; Notice of                      4702 (Order Types) and Rule 4703
                                                    line.                                                     Filing and Immediate Effectiveness of                   (Order Attributes) to add a ‘‘Trade Now’’
                                                                                                                                                                      instruction to certain order types.
                                                                                                              Proposed Rule Change To Amend Rule
                                                    Paper Comments                                                                                                    Nasdaq will offer this functionality
                                                                                                              4702 and Rule 4703 To Add a ‘‘Trade
                                                                                                                                                                      through its OUCH, RASH, FLITE, and
                                                      • Send paper comments in triplicate                     Now’’ Instruction to Certain Order                      FIX protocols. This instruction will
                                                    to Brent J. Fields, Secretary, Securities                 Types                                                   provide resting orders with a greater
                                                    and Exchange Commission, 100 F Street                                                                             ability to receive an execution when
                                                                                                              November 10, 2016.
                                                    NE., Washington, DC 20549–1090.                                                                                   that resting order is locked, e.g., the
                                                                                                                 Pursuant to Section 19(b)(1) of the                  price of a resting non-display buy order
                                                    All submissions should refer to File                      Securities Exchange Act of 1934 (the
                                                    Number SR–NYSEMKT–2016–100. This                                                                                  equals the price of a resting displayed
                                                                                                              ‘‘Act’’),1 and Rule 19b–4 thereunder,2                  sell order on the Nasdaq book. The
                                                    file number should be included on the                     notice is hereby given that on November
                                                    subject line if email is used. To help the                                                                        Trade Now instruction will allow
                                                                                                              8, 2016, The NASDAQ Stock Market                        participants to enter an instruction to
                                                    Commission process and review your                        LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed                  have a locked resting buy (sell) order
                                                    comments more efficiently, please use                     with the Securities and Exchange                        execute against the locking sell (buy)
                                                    only one method. The Commission will                      Commission (‘‘SEC’’ or ‘‘Commission’’)                  order. Depending on the protocol used
                                                    post all comments on the Commission’s                     the proposed rule change as described                   by the participant to access the Nasdaq
                                                    Internet Web site (http://www.sec.gov/                    in Items I and II below, which Items                    system, the participant may either
                                                    rules/sro.shtml). Copies of the                           have been prepared by the Exchange.                     specify that the order execute against
                                                    submission, all subsequent                                The Commission is publishing this                       locking interest automatically, or the
                                                    amendments, all written statements                        notice to solicit comments on the                       participant may be required to send a
                                                    with respect to the proposed rule                         proposed rule change from interested                    Trade Now instruction to the Exchange
                                                    change that are filed with the                            persons.                                                once the order has become locked. As
                                                    Commission, and all written                                                                                       discussed in greater detail below,
                                                    communications relating to the                            I. Self-Regulatory Organization’s                       Nasdaq is offering the Trade Now
                                                    proposed rule change between the                          Statement of the Terms of the Substance                 instruction for all orders that may be
                                                    Commission and any person, other than                     of the Proposed Rule Change                             sent to the continuous Nasdaq book, and
                                                    those that may be withheld from the                                                                               will not offer the instruction for orders
                                                    public in accordance with the                                The Exchange proposes to amend                       that do not execute on the continuous
                                                    provisions of 5 U.S.C. 552, will be                       Rule 4702 (Order Types) and Rule 4703                   book.
                                                    available for Web site viewing and                        (Order Attributes) to add a ‘‘Trade Now’’                  When a Trade Now instruction is
                                                    printing in the Commission’s Public                       instruction to certain order types.                     applied to a resting buy (sell) order, the
                                                    Reference Room, 100 F Street NE.,                            The text of the proposed rule change                 order will execute against the available
                                                    Washington, DC 20549 on official                          is available on the Exchange’s Web site                 size of the locking sell (buy) order at the
                                                    business days between the hours of                        at http://nasdaq.cchwallstreet.com/, at                 locked price. The following example
                                                    10:00 a.m. and 3:00 p.m. Copies of such                   the principal office of the Exchange, and               illustrates this scenario:
                                                                                                              at the Commission’s Public Reference                       • Participant A enters a Non-Display
                                                    filing also will be available for
                                                                                                              Room.                                                   buy order for 200 shares at $10, and
                                                    inspection and copying at the principal
                                                                                                                                                                      specifies the Trade Now instruction;
                                                    office of the Exchange. All comments                      II. Self-Regulatory Organization’s                         • Participant B enters a Post Only sell
                                                    received will be posted without change;                   Statement of the Purpose of, and                        order for 100 shares at $10; 3
                                                    the Commission does not edit personal                     Statutory Basis for, the Proposed Rule                     • The Post Only order is posted at
                                                    identifying information from                              Change                                                  $10 and locks the Non-Display order;
                                                    submissions. You should submit only                                                                                  • The buy order will execute for 100
                                                    information that you wish to make                           In its filing with the Commission, the                shares at $10 as the remover of liquidity.
                                                    available publicly. All submissions                       Exchange included statements                               If a buy (sell) order with the Trade
                                                    should refer to File Number SR–                           concerning the purpose of and basis for                 Now instruction is only partially
                                                    NYSEMKT–2016–100, and should be                           the proposed rule change and discussed                  executed, the unexecuted portion of that
                                                    submitted on or before December 8,                        any comments it received on the                         order remains on the Nasdaq book and
                                                    2016.                                                     proposed rule change. The text of these                 maintains its priority. When a Trade
                                                                                                              statements may be examined at the                       Now instruction is entered through the
                                                      For the Commission, by the Division of
                                                                                                              places specified in Item IV below. The                  OUCH or FLITE protocol for a resting
                                                    Trading and Markets, pursuant to delegated
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                    authority.16                                              Exchange has prepared summaries, set                    buy (sell) order and there is no locking
                                                    Brent J. Fields,                                          forth in sections A, B, and C below, of
                                                                                                                                                                        3 The Exchange recently submitted a proposal to

                                                    Secretary.
                                                                                                              the most significant aspects of such                    amend Nasdaq Rules 4702 and 4703 to change the
                                                                                                              statements.                                             way in which Post Only Orders interact with resting
                                                    [FR Doc. 2016–27597 Filed 11–16–16; 8:45 am]
                                                                                                                                                                      Non-Display orders and preventing the execution of
                                                    BILLING CODE 8011–01–P                                                                                            midpoint pegged orders during a crossed market.
                                                                                                                                                                      See Securities Exchange Act Release No. 78908
                                                                                                                1 15   U.S.C. 78s(b)(1).                              (September 22, 2016), 81 FR 66702 (September 28,
                                                      16 17   CFR 200.30–3(a)(12).                              2 17   CFR 240.19b–4.                                 2016) (SR–NASDAQ–2016–111).



                                               VerDate Sep<11>2014     21:24 Nov 16, 2016   Jkt 241001   PO 00000   Frm 00167     Fmt 4703   Sfmt 4703   E:\FR\FM\17NON1.SGM   17NON1


                                                    81220                      Federal Register / Vol. 81, No. 222 / Thursday, November 17, 2016 / Notices

                                                    order on the opposite side of the market,                    The Reactive Trade Now instruction                Arca refers to as a ‘‘Non-Display
                                                    the Trade Now instruction will be                         will be available on an order-by-order               Remove Modifier.’’ As set forth in NYSE
                                                    ignored and the buy (sell) order will                     basis, and will also be available as an              Arca Rule 7.31, a Limit Non-Displayed
                                                    remain on the Nasdaq book, retaining its                  optional port level setting. If the                  Order may be designated with a Non-
                                                    priority.                                                 Reactive Trade Now setting is enabled                Display Remove Modifier. If so
                                                       As noted above, Nasdaq is proposing                    on a specific port, all orders entered via           designated, a Limit Non-Displayed
                                                    to offer the Trade Now instruction for                    the specific port will, by default, be               Order to buy (sell) will trade as the
                                                    all orders that may be sent to the                        designated with the Reactive Trade Now               liquidity-taking order with an incoming
                                                    continuous Nasdaq book (as opposed to                     instruction. If the Reactive Trade Now               Adding Liquidity Only Order (‘‘ALO
                                                    the opening and closing book), and will                   setting is enabled on a specific port,               Order’’) to sell (buy) that has a working
                                                    not offer the instruction for orders that                 participants will have the ability to                price equal to the working price of the
                                                    do not execute on the continuous book.                    designate on an order-by-order basis                 Limit Non-Displayed Order.5 NYSE
                                                    Accordingly, the Trade Now instruction                    that a particular order entered via the              Arca also provides this functionality for
                                                    shall not be available for Supplemental                   specific port will not be designated with            other orders, such as Mid-Point Passive
                                                    Orders (Rule 4702(b)(6)), Market On                       the Reactive Trade Now instruction,                  Liquidity Orders (‘‘MPL Orders’’)
                                                    Open Orders (Rule 4702(b)(8)), Limit On                   thereby overriding the port level setting            designated Day and MPL–ALO Orders 6
                                                    Open Orders (Rule 4702(b)(9)), Opening                    for the order. If the Reactive Trade Now             and Arca Only Orders.7
                                                    Imbalance Only Orders (Rule                               instruction is specified for an order for
                                                    4702(b)(10)), Market On Close Orders                                                                           2. Statutory Basis
                                                                                                              which the Trade Now instruction does
                                                    (Rule 4702(b)(11)), Limit on Close                        not apply, e.g., a Supplemental Order or                The Exchange believes that its
                                                    Orders (Rule 4702(b)(12)), and                            a Market On Open Order, the system                   proposal is consistent with Section 6(b)
                                                    Imbalance Only Orders (Rule                               will not invoke the Trade Now                        of the Act,8 in general, and furthers the
                                                    4702(b)(13)). These order types are                       instruction for that order.                          objectives of Section 6(b)(5) of the Act,9
                                                    subject to other Nasdaq rules regarding                      In contrast, orders entered through the           in particular, in that it is designed to
                                                    the display and execution of those                        OUCH and FLITE protocols will use the                promote just and equitable principles of
                                                    orders, and the use of the Trade Now                      Non-Reactive Trade Now functionality,                trade, to remove impediments to and
                                                    instruction would be inconsistent with                    and participants must send the Trade                 perfect the mechanism of a free and
                                                    those other Nasdaq rules.4 Accordingly,                   Now instruction after the order becomes              open market and a national market
                                                    Nasdaq is not offering the Trade Now                      locked. If a participant enters a Non-               system, and, in general to protect
                                                    instruction for those order types.                        Reactive Trade Now instruction when                  investors and the public interest, by
                                                       Depending on the interface being used                  there is no locking interest, the                    offering participants an additional
                                                    by the participant, the Trade Now                         instruction will be ignored by the                   functionality that will facilitate the
                                                    attribute may either allow the order to                   system and the order will remain on the              execution of locked orders, thereby
                                                    execute against locking interest                          Nasdaq Book with the same priority.                  increasing the efficient functioning of
                                                    automatically (‘‘Reactive Trade Now’’),                      The Non-Reactive Trade Now                        the Nasdaq market. The Trade Now
                                                    or the participant may be required to                     instruction will be available to                     functionality is an optional feature that
                                                    send a Trade Now instruction to the                       participants on order-by-order basis. If             is being offered at no additional charge,
                                                    Exchange once the order has become                        the Non-Reactive Trade Now instruction               and is designed to reflect both the
                                                    locked (‘‘Non-Reactive Trade Now’’). All                  is entered for an order for which the                objectives of the Nasdaq market, and the
                                                    orders that are entered through the                       Trade Now instruction does not apply,                order flow management practices of
                                                    RASH and FIX protocols with a Trade                       the system will not invoke the Trade                 various market participants. For these
                                                    Now order attribute will be Reactive                      Now instruction for that order.                      reasons, the Trade Now functionality
                                                    Trade Now, and those orders shall                            Nasdaq is offering two different                  will only be made available for orders
                                                    execute against locking interest                          variations of the Trade Now instruction              that are entered in the continuous
                                                    automatically.                                            to reflect the differences in behavior               Nasdaq book, and, depending on the
                                                                                                              among participants who use the                       protocol, will be offered as either the
                                                       4 For example, a Supplemental Order is an order        different Nasdaq protocols. For                      Reactive Trade Now or Non-Reactive
                                                    type with a Non-Display Order attribute that is held      example, Nasdaq typically assumes a                  Trade Now functionality.
                                                    on the Nasdaq Book in order to provide liquidity          more active role in managing the order
                                                    at the NBBO through a special execution process           flow submitted by users of the RASH                  B. Self-Regulatory Organization’s
                                                    described in Rule 4757(a)(1)(D). Rule 4757(a)(1)(D)
                                                                                                              and FIX protocols. Allowing these                    Statement on Burden on Competition
                                                    provides that a Supplemental Order will be
                                                    matched against an order only at the National Best        participants to use the Reactive Trade                 The Exchange does not believe that
                                                    Bid or Offer, and only if the size of the order is less   Now instruction at the time of order                 the proposed rule change will impose
                                                    than or equal to the aggregate size of Supplemental       entry will allow for the automatic                   any burden on competition not
                                                    Order interest available at the price of the order. In
                                                    addition, a Supplemental Order will not execute if        execution of orders, and reflects the                necessary or appropriate in furtherance
                                                    the NBBO is locked or crossed. See Rule                   order flow management practices of                   of the purposes of the Act. This is an
                                                    4757(a)(1)(D). To the extent that a Supplemental          these participants. In contrast, users of            optional functionality that is being
                                                    Order will only be matched at the National Best Bid       the OUCH and FLITE protocols
                                                    or Offer, and the Trade-Now instruction allows a
                                                    locked resting order to execute at a price that is        generally assume a more active role in                 5 See NYSE Arca Rule 7.31(d)(2)(B).
                                                                                                                                                                     6 See NYSE Arca Rule 7.31(d)(3)(G).
                                                    potentially better than the NBBO, the function of         managing their order flow. Offering the
                                                                                                                                                                     7 See NYSE Arca Rule 7.31(e)(1)(C). To the extent
                                                                                                              Non-Reactive Trade Now instruction for
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                                                    the Trade-Now instruction is inconsistent with the
                                                    function of the Supplemental Order. Similarly, the                                                             that the Trade-Now functionality will be made
                                                                                                              these protocols, and its requirement that            available for Price to Comply Orders, Price to
                                                    purpose of the various Cross mechanisms is to
                                                    establish a price that maximizes the number of            the instruction must be sent after the               Display Orders, Non-Displayed Orders, Post-Only
                                                    applicable quotes and orders that may be executed.        order becomes locked, reflects the order             Orders, Midpoint Peg Post-Only Orders, and Market
                                                    See, e.g., Rule 4752(d)(2). Allowing an order to          flow management practices of these                   Maker Peg Orders, Nasdaq notes that the Trade-
                                                    automatically execute against locking interest                                                                 Now functionality will apply to different order
                                                                                                              participants.                                        types than the NYSE Arca Non-Display Remove
                                                    without regard to the price of other same-side
                                                    interest is inconsistent with a process that
                                                                                                                 Nasdaq notes that a similar                       Modifier functionality.
                                                    establishes a price at which the maximum number           functionality currently exists on NYSE                 8 15 U.S.C. 78f(b).

                                                    of shares may be paired.                                  Arca, Inc. (‘‘NYSE Arca’’), which NYSE                 9 15 U.S.C. 78f(b)(5).




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                                                                               Federal Register / Vol. 81, No. 222 / Thursday, November 17, 2016 / Notices                                               81221

                                                    offered at no charge, and which may be                      A proposed rule change filed                      Comments may be submitted by any of
                                                    used equally by similarly-situated                       pursuant to Rule 19b–4(f)(6) under the               the following methods:
                                                    participants. Although the functionality                 Act 13 normally does not become
                                                    of the Trade Now instruction will differ                 operative for 30 days after the date of its          Electronic Comments
                                                    depending upon the protocol that is                      filing. However, Rule 19b–4(f)(6)(iii) 14              • Use the Commission’s Internet
                                                    being used to access Nasdaq, Nasdaq                      permits the Commission to designate a                comment form (http://www.sec.gov/
                                                    believes that the difference in                          shorter time if such action is consistent            rules/sro.shtml); or
                                                    functionality reflects the different ways                with the protection of investors and the
                                                    in which participants enter and manage                   public interest. The Exchange has asked                • Send an email to rule-comments@
                                                    their order flow.                                        the Commission to waive the 30-day                   sec.gov. Please include File Number SR–
                                                       As noted above, Nasdaq will offer the                 operative delay so that the proposal may             NASDAQ–2016–156 on the subject line.
                                                    Trade Now functionality through the                      become operative immediately upon                    Paper Comments
                                                    OUCH, RASH, FLITE, and FIX                               filing. The Exchange states that the
                                                    protocols. Nasdaq will not offer the                     Trade Now functionality is                             • Send paper comments in triplicate
                                                    Trade Now functionality through the                      complementary to its recent proposal to              to Brent J. Fields, Secretary, Securities
                                                    QIX protocol.10 Nasdaq notes that,                       change the way in which Post Only                    and Exchange Commission, 100 F Street
                                                    although the QIX protocol can support                    Orders interact with resting Non-                    NE., Washington, DC 20549–1090.
                                                    the removing of liquidity, QIX is                        Display orders.15 The Exchange believes
                                                    designed to provide two-sided quote                      that releasing both complementary                    All submissions should refer to File
                                                    messages to the trading system, unlike                   functionalities at the same time will be             Number SR–NASDAQ–2016–156. This
                                                    the OUCH, RASH, FLITE and FIX                            easier for market participants to manage             file number should be included on the
                                                    protocols, which are designed to                         and implement. The Exchange further                  subject line if email is used. To help the
                                                    facilitate order submission. Nasdaq also                 believes that the Trade Now                          Commission process and review your
                                                    notes that QIX is an infrequently-used                   functionality will facilitate the                    comments more efficiently, please use
                                                    protocol,11 and that this protocol cannot                execution of locked orders, thereby                  only one method. The Commission will
                                                    support the expansion of fields that                     increasing the efficient functioning of              post all comments on the Commission’s
                                                    adopting the Trade Now instruction                       the Nasdaq market, and that waiver of                Internet Web site (http://www.sec.gov/
                                                    would require. Nasdaq therefore                          the operative delay will allow this                  rules/sro.shtml). Copies of the
                                                    believes that its decision to offer the                  functionality to be made available at an             submission, all subsequent
                                                    Trade Now instruction through the                        earlier date. Finally, the Exchange notes            amendments, all written statements
                                                    OUCH, RASH, FLITE, and FIX protocols                     that NYSE Arca currently utilizes a                  with respect to the proposed rule
                                                    will not impose any burden on                            similar functionality in the form of its             change that are filed with the
                                                    competition that is not necessary or                     Non-Display Remove Modifier. The                     Commission, and all written
                                                    appropriate.                                             Commission believes that waiving the                 communications relating to the
                                                    C. Self-Regulatory Organization’s                        30-day operative delay is consistent                 proposed rule change between the
                                                    Statement on Comments on the                             with the protection of investors and the             Commission and any person, other than
                                                    Proposed Rule Change Received From                       public interest. Therefore, the                      those that may be withheld from the
                                                    Members, Participants, or Others                         Commission hereby waives the                         public in accordance with the
                                                                                                             operative delay and designates the                   provisions of 5 U.S.C. 552, will be
                                                      No written comments were either                        proposed rule change operative upon
                                                    solicited or received.                                                                                        available for Web site viewing and
                                                                                                             filing.16                                            printing in the Commission’s Public
                                                    III. Date of Effectiveness of the                           At any time within 60 days of the                 Reference Room, 100 F Street NE.,
                                                    Proposed Rule Change and Timing for                      filing of the proposed rule change, the
                                                                                                                                                                  Washington, DC 20549 on official
                                                    Commission Action                                        Commission summarily may
                                                                                                                                                                  business days between the hours of
                                                                                                             temporarily suspend such rule change if
                                                       Because the foregoing proposed rule                                                                        10:00 a.m. and 3:00 p.m. Copies of such
                                                                                                             it appears to the Commission that such
                                                    change does not: (i) Significantly affect                                                                     filing also will be available for
                                                                                                             action is necessary or appropriate in the
                                                    the protection of investors or the public                                                                     inspection and copying at the principal
                                                                                                             public interest, for the protection of
                                                    interest; (ii) impose any significant                    investors, or otherwise in furtherance of            office of the Exchange. All comments
                                                    burden on competition; and (iii) become                  the purposes of the Act. If the                      received will be posted without change;
                                                    operative for 30 days from the date on                   Commission takes such action, the                    the Commission does not edit personal
                                                    which it was filed, or such shorter time                 Commission shall institute proceedings               identifying information from
                                                    as the Commission may designate, it has                  to determine whether the proposed rule               submissions. You should submit only
                                                    become effective pursuant to Section                     change should be approved or                         information that you wish to make
                                                    19(b)(3)(A) of the Act and Rule 19b–                     disapproved.                                         available publicly. All submissions
                                                    4(f)(6) thereunder.12                                                                                         should refer to File Number SR–
                                                                                                             IV. Solicitation of Comments                         NASDAQ–2016–156, and should be
                                                      10 Although    participants may use other protocols,     Interested persons are invited to                  submitted on or before December 8,
                                                    such as DROP, those protocols are not related to                                                              2016.
                                                    order entry, and so the Trade Now functionality is
                                                                                                             submit written data, views, and
                                                    not being offered for those protocols.                   arguments concerning the foregoing,                    For the Commission, by the Division of
                                                                                                             including whether the proposed rule
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                                                      11 As of September 15, 2016, of the 5,090
                                                                                                                                                                  Trading and Markets, pursuant to delegated
                                                    customer ports for the various Nasdaq protocols,         change is consistent with the Act.
                                                    only 124 of those ports are QIX protocol.                                                                     authority.17
                                                      12 17 CFR 240.19b–4(f)(6). As required under Rule
                                                                                                               13 17
                                                                                                                                                                  Brent J. Fields,
                                                                                                                     CFR 240.19b–4(f)(6).
                                                    19b–4(f)(6)(iii), the Exchange provided the
                                                                                                               14 17 CFR 240.19b–4(f)(6)(iii).                    Secretary.
                                                    Commission with written notice of its intent to file
                                                                                                               15 See supra note 3.                               [FR Doc. 2016–27592 Filed 11–16–16; 8:45 am]
                                                    the proposed rule change, along with a brief
                                                    description and the text of the proposed rule              16 For purposes only of waiving the 30-day
                                                                                                                                                                  BILLING CODE 8011–01–P
                                                    change, at least five business days prior to the date    operative delay, the Commission has considered the
                                                    of filing of the proposed rule change, or such           proposed rule’s impact on efficiency, competition,
                                                    shorter time as designated by the Commission.            and capital formation. See 15 U.S.C. 78c(f).           17 17   CFR 200.30–3(a)(12).



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Document Created: 2016-11-17 03:00:23
Document Modified: 2016-11-17 03:00:23
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 81219 

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