81 FR 83892 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Limit Order Protection for Members Accessing the Nasdaq Market Center
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 225 (November 22, 2016)
Federal Register Volume 81, Issue 225 (November 22, 2016)
| Page Range | 83892-83896 | |
| FR Document | 2016-28037 |
[Federal Register Volume 81, Number 225 (Tuesday, November 22, 2016)] [Notices] [Pages 83892-83896] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-28037] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79330; File No. SR-NASDAQ-2016-155] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Limit Order Protection for Members Accessing the Nasdaq Market Center November 16, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on November 4, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Limit Order Protection or ``LOP'' for members accessing the Nasdaq Market Center and adding rule text related to a collar applicable to Primary Pegging and Market Pegging Orders. 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 The Exchange recently adopted a new mechanism to protect against erroneous Limit Orders, which are entered into the Nasdaq Market Center, at Rule 4757(c).\3\ This mechanism addresses risks to market participants of human error in entering Limit Orders at unintended prices. Specifically, LOP prevents certain Limit Orders from executing or being placed on the Order Book at prices outside pre-set standard limits. [[Page 83893]] The System rejects those Limit Orders, rather than executing them automatically. LOP rejects Limit Orders back to the member when the order exceeds certain defined logic. Specifically, LOP prevents certain Limit Orders at prices outside of pre-set standard limits (``LOP Limit'') from being accepted by the System. --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release No. 78246 [sic] (August 24, 2016), 81 FR 59672 (August 30, 2016) (SR-NASDAQ-2016-067). --------------------------------------------------------------------------- Modifications of Orders In its adoptive filing, the Exchange noted that LOP shall apply to all Quotes and Orders, including any modified Orders.\4\ At this time, the Exchange proposes to remove ``including any modified Orders'' from the rule text at rule 4757(c)(i). The Exchange proposes to amend this language because it is misleading and may cause confusion. The Exchange proposes to state that LOP shall apply to all Quotes and Orders, including Quotes and Orders that have been modified, where the modification results in a new timestamp and priority.\5\ Any Order that is modified within the System, but does not lose priority, for example an Order that was decremented, will not be subject to LOP after it was modified because the system does not cancel decremented orders from the Order Book. If an Order is cancelled either by the member or by the system and a new Order entered into the System, the new Order would be subject to LOP. For example, if the price of an Order is modified, the system will cancel the Order and the modified Order would receive a new timestamp and priority and this Order would be subject to LOP. --------------------------------------------------------------------------- \4\ If an Order is modified for price, LOP will review the order anew and, if LOP is triggered, such modification will not take effect and the original order will be rejected. \5\ See Rule 4756 (Entry and Display of Quotes and Orders) at (a)(3). --------------------------------------------------------------------------- Exceptions to LOP The Exchange also noted in its adoptive filing that LOP would not apply to Market Orders, Market Maker Peg Orders \6\ or Intermarket Sweep Orders (ISO).\7\ The Exchange proposes to modify this language to specifically state that LOP would not apply to Orders with Market and Primary Pegging.\8\ --------------------------------------------------------------------------- \6\ A ``Market Maker Peg Order'' is an Order Type designed to allow a Market Maker to maintain a continuous two-sided quotation at a displayed price that is compliant with the quotation requirements for Market Makers set forth in Rule 4613(a)(2). The displayed price of the Market Maker Peg Order is set with reference to a ``Reference Price'' in order to keep the displayed price of the Market Maker Peg Order within a bounded price range. A Market Maker Peg Order may be entered through RASH, FIX or QIX only. A Market Maker Peg Order must be entered with a limit price beyond which the Order may not be priced. The Reference Price for a Market Maker Peg Order to buy (sell) is the then-current National Best Bid (National Best Offer) (including Nasdaq), or if no such National Best Bid or National Best Offer, the most recent reported last-sale eligible trade from the responsible single plan processor for that day, or if none, the previous closing price of the security as adjusted to reflect any corporate actions (e.g., dividends or stock splits) in the security. See Nasdaq Rule 4702(b)(7). \7\ An Intermarket Sweep or ISO Order, which is an Order that is immediately executable within the Nasdaq Market Center against Orders against which they are marketable, is not subject to LOP. See NASDAQ Rule 4702. \8\ Orders with Market and Primary Pegging available through RASH, FIX, and QIX only. --------------------------------------------------------------------------- There are three types of Pegging Orders: Primary Pegging, Market Pegging and Midpoint Pegging. Pegging is an Order Attribute that allows an Order to have its price automatically set with reference to the NBBO; provided, however, that if Nasdaq is the sole market center at the Best Bid or Best Offer (as applicable), then the price of any Displayed Order with Primary Pegging (as defined below) will be set with reference to the highest bid or lowest offer disseminated by a market center other than Nasdaq. An Order with a Pegging Order Attribute may be referred to as a ``Pegged Order.'' \9\ For purposes of this Rule 4703, the price to which an Order is pegged will be referred to as the Inside Quotation, the Inside Bid, or the Inside Offer, as appropriate. There are three varieties of Pegging: --------------------------------------------------------------------------- \9\ Rule 4703(d).Primary Pegging means Pegging with reference to the Inside Quotation on the same side of the market. For example, if the Inside Bid was $11, an Order to buy with Primary Pegging would be priced at $11. Market Pegging means Pegging with reference to the Inside Quotation on the opposite side of the market. For example, if the Inside Offer was $11.06, an Order to buy with Market Pegging would be priced at $11.06. Midpoint Pegging means Pegging with reference to the midpoint between the Inside Bid and the Inside Offer (the ``Midpoint''). Thus, if the Inside Bid was $11 and the Inside Offer was $11.06, an Order with Midpoint Pegging would be priced at $11.03. An Order with Midpoint Pegging is not displayed. An Order with Midpoint Pegging may be executed in sub-pennies if necessary to obtain a midpoint price. Midpoint Pegging will be the only Pegging Order subject to LOP, provided it has a limit price. Pegging is available only during Market Hours. An Order with Pegging may specify a limit price beyond which the Order may not be executed; provided, however, that if an Order has been assigned a Pegging Order Attribute and a Discretion Order \10\ Attribute, the Order may execute at any price within the discretionary price range, even if beyond the limit price specified with respect to the Pegging Order Attribute. A Midpoint Pegging Order may have a discretion attribute. A Midpoint Pegging Order with a discretion price would not be subject to LOP. The Exchange notes that a Midpoint Pegging Order, similar to a Primary or Market Pegging Order, as explained below, may result is [sic] an aggressive or passive price. As a result, the LOP may remove orders that were intended to be more aggressive or passive due to the discretionary attribute. For this reason, the Exchange will not subject a Midpoint Pegging Order with a discretion price to LOP. --------------------------------------------------------------------------- \10\ Discretion is an Order Attribute under which an Order has a non-displayed discretionary price range within which the entering Participant is willing to trade; such an Order may be referred to as a ``Discretionary Order.'' See NASDAQ Rule 4703(g). --------------------------------------------------------------------------- In addition, an Order with Primary Pegging or Market Pegging may specify an Offset Amount,\11\ such that the price of the Order will vary from the Inside Quotation by the selected Offset Amount. The Offset Amount may be either aggressive or passive. Thus, for example, if a Participant entered an Order to buy with Primary Pegging and a passive Offset Amount of $0.05 and the Inside Bid was $11, the Order would be priced at $10.95. If the Participant selected an aggressive Offset Amount of $0.02, however, the Order would be priced at $11.02. An Order with Primary Pegging and an Offset Amount will not be Displayed, unless the Order is Attributable. The Exchange notes that both Market and Primary Pegging may impact the market by effecting the bid or offer. --------------------------------------------------------------------------- \11\ An offset is not supported for a Midpoint Pegging Order. --------------------------------------------------------------------------- The Exchange is not applying LOP to orders with Market or Primary Pegging because it may result in removing orders that were intended to be more aggressive or to set the bid or offer on the market due to the order attributes noted above. These Pegging Orders are also subject to a collar, which is explained in this rule change. In contrast, an Order with Midpoint Pegging will only be at the midpoint and not have the same impact as the other two types of orders and therefore subjecting such an order to LOP does not impact the potential of the order since by definition it is set to the midpoint. An Order with Midpoint Pegging will not be displayed and is not subject to a collar. An Order with Market Pegging and no Offset behaves as a ``market order'' with respect to any liquidity on the Nasdaq Book at the Inside Quotation on the opposite side of the market because it is [[Page 83894]] immediately executable at that price. If, at the time of entry, there is no price to which a Pegged Order can be pegged, the Order will be rejected; provided, however, that a Displayed Order that has Market Pegging, or an Order with a Non-Display Attribute that has Primary Pegging or Market Pegging, will be accepted at its limit price. In the case of an Order with Midpoint Pegging, if the Inside Bid and Inside Offer are locked, the Order will be priced at the locking price, if the Inside Bid and Inside Offer are crossed, the Order will nevertheless be priced at the midpoint between the Inside Bid and Inside Offer, and if there is no Inside Bid and/or Inside Offer, the Order will be rejected.\12\ However, even if the Inside Bid and Inside Offer are locked or crossed, an Order with Midpoint Pegging that locked or crossed an Order on the Nasdaq Book would execute (provided, however, that a Midpoint Peg Post-Only Order would execute or post as described in Rule 4702(b)(5)(A)).\13\ It is important to note that only to the extent that a Midpoint Pegging Order has a limit price that the Order would be subject to LOP, unless the Midpoint Pegging Order also has a discretion attribute. If no limit price is specified, the Midpoint Pegging Order would not be subject to LOP. --------------------------------------------------------------------------- \12\ This provision is subject to change by another rule change. See Securities Exchange Act Release No. 78908 (September 22, 2016), 81 FR 66702 (September 28, 2016) (SR-NASDAQ-2016-111). The Commission notes that it approved SR-NASDAQ-2016-111 on November 10, 2016. See Securities Exchange Act Release No. 79290. \13\ Id. --------------------------------------------------------------------------- LOP will be operational each trading day, except for orders designated for opening, re-opening and closing crosses and initial public offerings. LOP would not be operational during trading halts and pauses. LOP will not apply in the event that there is no established LOP Reference Price.\14\ The LOP Reference Price shall be the current National Best Bid or Best Offer (NBBO), the bid for sell orders and the offer for buy orders.\15\ LOP will be applicable on all protocols.\16\ The LOP feature will be mandatory for all Nasdaq members. --------------------------------------------------------------------------- \14\ For example, if there is a one-sided quote or if the NBB, when used as the LOP Reference Price, is equal to or less than $0.50. \15\ The Exchange will not accept incoming Limit Orders that exceed the LOP Reference Threshold. Limit Orders will not be accepted if the price of the Limit Order is greater than the LOP Reference Threshold for a buy Limit Order. Limit Orders will not be accepted if the price of the Limit Order is less than the LOP Reference Threshold for a sell Limit Order. The LOP Reference Threshold for buy orders will be the LOP Reference Price (offer) plus the applicable LOP Limit. The LOP Reference Threshold for sell orders will be the LOP Reference Price (bid) minus the applicable LOP Limit. The LOP Limit will be the greater of 10% of the LOP Reference Price or $0.50 for all securities across all trading sessions. The LOP Reference Price will be the current National Best Bid or Best Offer (NBBO), the bid for sell orders and the offer for buy orders. \16\ Nasdaq maintains several communications protocols for Participants to use in entering Orders and sending other messages to the Nasdaq Market Center, such as: OUCH, RASH, QIX, FLITE and FIX. --------------------------------------------------------------------------- Implementation of LOP The Exchange indicated in its adoptive rule change that it would implement this rule within ninety (90) days of the approval of the proposed rule change.\17\ At this time, the Exchange proposes to delay this implementation an additional sixty (60) days from the original timeframe in order to implement the LOP with the changes proposed herein. The Exchange will issue an Equities Trader Alert in advance to inform market participants of such implementation date. --------------------------------------------------------------------------- \17\ See note 3 above. --------------------------------------------------------------------------- Pegging Order Collar In 2009, the Exchange adopted a collar for certain Unpriced Orders.\18\ At that time, the Exchange defined a Collared Order as all Unpriced Orders except: (1) Market On Open Orders as defined in Rule 4752; (2) Market On Close Orders as defined in Rule 4754; (3) Unpriced Orders included by the System in any Nasdaq Halt Cross or Nasdaq Imbalance Cross, each as defined in Rule 4753; or (4) Unpriced Orders that are Reference Price Cross Orders as defined in Rule 4770. Any portion of a Collared Order that would execute (either on NASDAQ or when routed to another market center) at a price more than $0.25 or 5 percent worse than the NBBO at the time when the order reaches the System, whichever is greater, will be cancelled. This rule related to the collar was inadvertently removed from the Exchange's rules.\19\ At this time, the Exchange proposes to amend the Nasdaq rules to add the collar into the rules once again. --------------------------------------------------------------------------- \18\ See Securities Exchange Act Release No. 60371 (July 23, 2009), 74 FR 38075 (July 30, 2009) (SR-NASDAQ-2009-070). An ``Unpriced Order'' was defined in this rule change as any order type permitted by the System to buy or sell shares of a security at the national best bid (best offer) (``NBBO'') at the time when the order reaches the System. \19\ See Securities Exchange Act Release No. 75252 (June 22, 2016), 80 FR 36865 (June 26, 2015) (SR-NASDAQ-2015-024). --------------------------------------------------------------------------- The purpose of the collar is to protect market participants by reducing the risk that Primary and Market Pegging Orders will execute at prices that are significantly worse than the national best bid and offer (``NBBO'') at the time the Exchange receives the order. The Exchange believes that most market participants expect that their order will be executed at its full size at a price reasonably related to the prevailing market. However, market participants may not be aware that there is insufficient liquidity at or near the NBBO to fill the entire order, particularly for more thinly-traded securities. The Exchange proposes to memorialize this collar, which currently exists in its trading and routing systems functionality, and define it specifically as applicable to Primary and Market Pegging Orders. The Exchange seeks to memorialize the rule within Rule 4703, entitled ``Order Attributes.'' The new rule text would state, ``Primary Pegging Orders and Market Pegging Orders are subject to a collar. Any portion of a Primary Pegging Order or Market Pegging Order that would execute, either on the Exchange or when routed to another market center, at a price of more than $0.25 or 5 percent worse than the NBBO at the time when the order reaches the System, whichever is greater, will be cancelled.'' The following example illustrates how the collar works. A market participant submits a routable order to buy 500 shares. The NBBO is $6.00 bid by $6.05 offer, with 100 shares available on each side. Both sides of the NBBO are set by another market center (``Away Market''), but Nasdaq has 100 shares available at the $6.05 to sell at the offer price and also has reserve orders to sell 100 shares at $6.32 and 400 shares at $6.40. No other market center is publishing offers to sell the security in between $6.05 and $6.40. In this example, the order would be executed in the following manner: 100 shares would be executed by Nasdaq at the $6.05; 400 shares would be routed to the Away Market as an immediate or cancel order with a price of $6.05; 100 shares executed by the Away Market; \20\ --------------------------------------------------------------------------- \20\ This assumes that the Away Market's offer was still available and that the Away Market had no additional non-displayed orders at this price. --------------------------------------------------------------------------- 300 shares returned to Nasdaq; 100 shares executed by Nasdaq at $6.32 (more than $0.25 but less than 5 percent worse than the NBBO); and 200 shares, representing the remainder of the order, would be cancelled because the remaining liquidity available at $6.40 is more than 5 percent worse than the NBBO. Implementation of Pegging Order Collar The Exchange intends to implement the Pegging Order Collar as soon as practicable pursuant to this proposal. The Exchange requests a waiver of the [[Page 83895]] operative delay to implement the Pegging Order Collar. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \21\ in general, and furthers the objectives of Section 6(b)(5) of the Act \22\ 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 mitigating risks to market participants of human error in entering Limit Orders at clearly unintended prices. The proposal will allow for protections for Limit Orders, which should encourage price continuity and, in turn, protect investors and the public interest by reducing executions occurring at dislocated prices. --------------------------------------------------------------------------- \21\ 15 U.S.C. 78f(b). \22\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange's proposal to amend the language concerning the modification of Orders is consistent with the Act because only new Orders would be subject to LOP. The proposed new language specifies that Orders that are modified for size and remain in the Order Book with the same priority, because only size was modified to reduce the size, will not be subject to LOP. Other modifications to Orders that amend the timestamp or priority will subject the modified orders to LOP because these Orders will be submitted into the System as new Orders. The LOP functionality protects market participants by reducing the risk that Midpoint Pegging Orders will execute at prices that are significantly worse than the national best bid and offer (``NBBO'') at the time the Exchange receives the order. The LOP feature assists with the maintenance of fair and orderly markets by mitigating the risks associated with errors resulting in executions at prices that are away from the Best Bid or Offer and potentially erroneous. Further, it protects investors from potentially receiving executions away from the prevailing prices at any given time. The Exchange adopted LOP to avoid a series of improperly priced aggressive orders transacting in the Order Book. The Exchange believes that excluding Primary Pegging and Market Pegging Orders is consistent with the Act because including such orders may result in removing orders that were intended to be more aggressive or to set the bid or offer on the market due to the order attributes noted in the Purpose section of this rule change. Market and Primary Pegging Orders are also currently subject to a collar. Market and Primary Pegging Orders that would execute, either on the Exchange or when routed to another market center, at a price of more than $0.25 or 5 percent worse than the NBBO at the time when the order reaches the System, whichever is greater, will be cancelled.\23\ Further, the Market Pegging Order has its own process for rejecting those orders where no price exists to which a Pegged Order can be pegged. --------------------------------------------------------------------------- \23\ The Exchange inadvertently removed the rule from the Nasdaq Rulebook. The Exchange proposes to adopt the rule herein. --------------------------------------------------------------------------- This feature should create a level of protection that prevents the Limit Orders from entering the Order Book outside of an acceptable range for the Limit Order to execute. The LOP should reduce the negative impacts of sudden, unanticipated volatility, and serve to preserve an orderly market in a transparent and uniform manner, increase overall market confidence, and promote fair and orderly markets and the protection of investors. Pegging Order Collar The Exchange believes that the collar proposal is consistent with the Act because 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 avoiding execution of Primary and Market Pegging Orders (either on Nasdaq or on other market centers as a result of orders routed by Nasdaq) at prices that are significantly worse than the NBBO at the time the order is initially received. The NBBO provides reasonable guidance of the current value of a given security and therefore market participants should have confidence that their Market and Primary Pegging Orders will not be executed at a significantly worse price than the NBBO. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The LOP feature should provide market participants with additional price protection from anomalous executions. This feature is not optional and is applicable to all members submitting Limit Orders. Thus, the Exchange does not believe the proposal creates any significant impact on competition. In addition, the proposed collar in Rule 4703 would be applicable to all Market and Primary Pegging Orders entered into the Nasdaq System. Similarly, all Midpoint Pegging Order will be subject to LOP, unless they have a discretion attribute. 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.\24\ --------------------------------------------------------------------------- \24\ 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 \25\ normally does not become operative for 30 days after the date of its filing. However, Rule 19b-4(f)(6)(iii) \26\ 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. When the Exchange first proposed the LOP, the Exchange represented that it would implement the LOP within 90 days of obtaining Commission approval (i.e., by November 22, 2016).\27\ The Exchange now proposes to extend the LOP implementation date by 60 days in order to include the modifications in this proposed rule change with the implementation of the LOP. Waiver of the 30-day operative delay would allow the Exchange to immediately extend the [[Page 83896]] LOP implementation date. The waiver would also permit the Exchange to immediately clarify the application of the LOP to modified orders. Moreover, the waiver would allow the Exchange to immediately exclude from the LOP Market Pegging Orders, Primary Pegging Orders, and Midpoint Pegging Orders that have a discretion price. As noted above, the Exchange proposes to exclude these Orders because these Orders may be intended to be aggressive or to set the bid or offer on the market. Moreover, as noted above, Market and Primary Pegging Orders are currently subject to collars. Lastly, the waiver would allow the Exchange's rules to immediately and accurately reflect the current collars for Market and Primary Pegging Orders, which were removed inadvertently. Accordingly, the Commission finds that waiving the 30- day operative delay is consistent with the protection of investors and the public interest and designates the proposal operative upon filing.\28\ --------------------------------------------------------------------------- \25\ 17 CFR 240.19b-4(f)(6). \26\ 17 CFR 240.19b-4(f)(6)(iii). \27\ See Securities Exchange Act Release Nos. 78246 (July 7, 2016), 81 FR 45332 (July 13, 2016) (noticing SR-NASDAQ-2016-067) and 78667 (August 24, 2016), 81 FR 59672 (August 30, 2016) (approving SR-NASDAQ-2016-067). \28\ 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. 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of such 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-2016-155 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-2016-155. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASDAQ-2016-155 and should be submitted on or before December 13, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\29\ --------------------------------------------------------------------------- \29\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-28037 Filed 11-21-16; 8:45 am] BILLING CODE 8011-01-P
![83892 Federal Register / Vol. 81, No. 225 / Tuesday, November 22, 2016 / Notices
B. Self-Regulatory Organization’s Commission, 100 F Street NE., (‘‘Act’’),1 and Rule 19b–4 thereunder,2
Statement on Burden on Competition Washington, DC 20549–1090. notice is hereby given that on November
In accordance with Section 6(b)(8) of All submissions should refer to File 4, 2016, The NASDAQ Stock Market
the Act,15 the Exchange does not believe Number SR–NYSEArca–2016–143. This LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
that the proposed rule change would file number should be included on the with the Securities and Exchange
impose any burden on competition that subject line if email is used. To help the Commission (‘‘SEC’’ or ‘‘Commission’’)
is not necessary or appropriate in Commission process and review your the proposed rule change as described
furtherance of the purposes of the Act. comments more efficiently, please use in Items I and II below, which Items
To the contrary, the Exchange believes only one method. The Commission will have been prepared by the Exchange.
that the proposed rule change evidences post all comments on the Commission’s The Commission is publishing this
the strength of competition in the Internet Web site (http://www.sec.gov/ notice to solicit comments on the
options industry. Specifically, the rules/sro.shtml). Copies of the proposed rule change from interested
Exchange believes the proposed rule submission, all subsequent persons.
change will enhance the amendments, all written statements I. Self-Regulatory Organization’s
competitiveness of the Exchange with respect to the proposed rule Statement of the Terms of Substance of
relative to other options exchanges that change that are filed with the the Proposed Rule Change
transact in QCC Orders. Commission, and all written
communications relating to the The Exchange proposes to amend the
C. Self-Regulatory Organization’s proposed rule change between the Limit Order Protection or ‘‘LOP’’ for
Statement on Comments on the Commission and any person, other than members accessing the Nasdaq Market
Proposed Rule Change Received From those that may be withheld from the Center and adding rule text related to a
Members, Participants, or Others public in accordance with the collar applicable to Primary Pegging and
provisions of 5 U.S.C. 552, will be Market Pegging Orders.
No written comments were solicited The text of the proposed rule change
or received with respect to the proposed available for Web site viewing and
printing in the Commission’s Public is available on the Exchange’s Web site
rule change. at http://nasdaq.cchwallstreet.com, at
Reference Room, 100 F Street NE.,
III. Date of Effectiveness of the Washington, DC 20549, on official the principal office of the Exchange, and
Proposed Rule Change and Timing for business days between the hours of at the Commission’s Public Reference
Commission Action 10:00 a.m. and 3:00 p.m. Copies of the Room.
Within 45 days of the date of filing also will be available for II. Self-Regulatory Organization’s
publication of this notice in the Federal inspection and copying at the principal Statement of the Purpose of, and
Register or up to 90 days (i) as the office of the Exchange. All comments Statutory Basis for, the Proposed Rule
Commission may designate if it finds received will be posted without change; Change
such longer period to be appropriate the Commission does not edit personal In its filing with the Commission, the
and publishes its reasons for so finding identifying information from Exchange included statements
or (ii) as to which the self-regulatory submissions. You should submit only concerning the purpose of and basis for
organization consents, the Commission information that you wish to make the proposed rule change and discussed
will: available publicly. All submissions any comments it received on the
(A) By order approve or disapprove should refer to File Number SR– proposed rule change. The text of these
the proposed rule change, or NYSEArca–2016–143 and should be statements may be examined at the
(B) institute proceedings to determine submitted on or before December 13, places specified in Item IV below. The
whether the proposed rule change 2016. Exchange has prepared summaries, set
should be disapproved. For the Commission, by the Division of forth in sections A, B, and C below, of
Trading and Markets, pursuant to delegated the most significant aspects of such
IV. Solicitation of Comments authority.16 statements.
Interested persons are invited to Brent J. Fields,
submit written data, views, and Secretary.
A. Self-Regulatory Organization’s
arguments concerning the foregoing, Statement of the Purpose of, and
[FR Doc. 2016–28034 Filed 11–21–16; 8:45 am]
including whether the proposed rule Statutory Basis for, the Proposed Rule
BILLING CODE 8011–01–P
change, as modified by Amendment No. Change
1, is consistent with the Act. Comments 1. Purpose
may be submitted by any of the SECURITIES AND EXCHANGE
following methods: The Exchange recently adopted a new
COMMISSION mechanism to protect against erroneous
Electronic Comments [Release No. 34–79330; File No. SR– Limit Orders, which are entered into the
• Use the Commission’s Internet NASDAQ–2016–155] Nasdaq Market Center, at Rule 4757(c).3
comment form (http://www.sec.gov/ This mechanism addresses risks to
Self-Regulatory Organizations; The market participants of human error in
rules/sro.shtml); or
NASDAQ Stock Market LLC; Notice of entering Limit Orders at unintended
• Send an email to rule-comments@ Filing and Immediate Effectiveness of
sec.gov. Please include File Number SR– prices. Specifically, LOP prevents
Proposed Rule Change To Amend the certain Limit Orders from executing or
NYSEArca–2016–143 on the subject
sradovich on DSK3GMQ082PROD with NOTICES
Limit Order Protection for Members being placed on the Order Book at
line. Accessing the Nasdaq Market Center prices outside pre-set standard limits.
Paper Comments
November 16, 2016.
• Send paper comments in triplicate
1 15 U.S.C. 78s(b)(1).
Pursuant to Section 19(b)(1) of the 2 17 CFR 240.19b–4.
to Secretary, Securities and Exchange Securities Exchange Act of 1934 3 See Securities Exchange Act Release No. 78246
[sic] (August 24, 2016), 81 FR 59672 (August 30,
15 15 U.S.C. 78f(b)(8). 16 17 CFR 200.30–3(a)(12). 2016) (SR–NASDAQ–2016–067).
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![Federal Register / Vol. 81, No. 225 / Tuesday, November 22, 2016 / Notices 83893
The System rejects those Limit Orders, Orders (ISO).7 The Exchange proposes execute at any price within the
rather than executing them to modify this language to specifically discretionary price range, even if
automatically. LOP rejects Limit Orders state that LOP would not apply to beyond the limit price specified with
back to the member when the order Orders with Market and Primary respect to the Pegging Order Attribute.
exceeds certain defined logic. Pegging.8 A Midpoint Pegging Order may have a
Specifically, LOP prevents certain Limit There are three types of Pegging discretion attribute. A Midpoint Pegging
Orders at prices outside of pre-set Orders: Primary Pegging, Market Order with a discretion price would not
standard limits (‘‘LOP Limit’’) from Pegging and Midpoint Pegging. Pegging be subject to LOP. The Exchange notes
being accepted by the System. is an Order Attribute that allows an that a Midpoint Pegging Order, similar
Order to have its price automatically set to a Primary or Market Pegging Order,
Modifications of Orders
with reference to the NBBO; provided, as explained below, may result is [sic]
In its adoptive filing, the Exchange however, that if Nasdaq is the sole an aggressive or passive price. As a
noted that LOP shall apply to all Quotes market center at the Best Bid or Best result, the LOP may remove orders that
and Orders, including any modified Offer (as applicable), then the price of were intended to be more aggressive or
Orders.4 At this time, the Exchange any Displayed Order with Primary passive due to the discretionary
proposes to remove ‘‘including any Pegging (as defined below) will be set attribute. For this reason, the Exchange
modified Orders’’ from the rule text at with reference to the highest bid or will not subject a Midpoint Pegging
rule 4757(c)(i). The Exchange proposes lowest offer disseminated by a market Order with a discretion price to LOP.
to amend this language because it is center other than Nasdaq. An Order In addition, an Order with Primary
misleading and may cause confusion. with a Pegging Order Attribute may be Pegging or Market Pegging may specify
The Exchange proposes to state that referred to as a ‘‘Pegged Order.’’ 9 For an Offset Amount,11 such that the price
LOP shall apply to all Quotes and purposes of this Rule 4703, the price to of the Order will vary from the Inside
Orders, including Quotes and Orders which an Order is pegged will be Quotation by the selected Offset
that have been modified, where the referred to as the Inside Quotation, the Amount. The Offset Amount may be
modification results in a new timestamp Inside Bid, or the Inside Offer, as either aggressive or passive. Thus, for
and priority.5 Any Order that is appropriate. There are three varieties of example, if a Participant entered an
modified within the System, but does Pegging: Order to buy with Primary Pegging and
not lose priority, for example an Order a passive Offset Amount of $0.05 and
that was decremented, will not be • Primary Pegging means Pegging with
reference to the Inside Quotation on the same the Inside Bid was $11, the Order would
subject to LOP after it was modified side of the market. For example, if the Inside be priced at $10.95. If the Participant
because the system does not cancel Bid was $11, an Order to buy with Primary selected an aggressive Offset Amount of
decremented orders from the Order Pegging would be priced at $11. $0.02, however, the Order would be
Book. If an Order is cancelled either by • Market Pegging means Pegging with priced at $11.02. An Order with Primary
the member or by the system and a new reference to the Inside Quotation on the
opposite side of the market. For example, if
Pegging and an Offset Amount will not
Order entered into the System, the new
the Inside Offer was $11.06, an Order to buy be Displayed, unless the Order is
Order would be subject to LOP. For
with Market Pegging would be priced at Attributable. The Exchange notes that
example, if the price of an Order is
$11.06. both Market and Primary Pegging may
modified, the system will cancel the
• Midpoint Pegging means Pegging with impact the market by effecting the bid
Order and the modified Order would reference to the midpoint between the Inside
receive a new timestamp and priority or offer.
Bid and the Inside Offer (the ‘‘Midpoint’’). The Exchange is not applying LOP to
and this Order would be subject to LOP. Thus, if the Inside Bid was $11 and the orders with Market or Primary Pegging
Exceptions to LOP Inside Offer was $11.06, an Order with
Midpoint Pegging would be priced at $11.03.
because it may result in removing orders
The Exchange also noted in its An Order with Midpoint Pegging is not that were intended to be more
adoptive filing that LOP would not displayed. An Order with Midpoint Pegging aggressive or to set the bid or offer on
apply to Market Orders, Market Maker may be executed in sub-pennies if necessary the market due to the order attributes
Peg Orders 6 or Intermarket Sweep to obtain a midpoint price. noted above. These Pegging Orders are
Midpoint Pegging will be the only also subject to a collar, which is
4 If an Order is modified for price, LOP will Pegging Order subject to LOP, provided explained in this rule change.
review the order anew and, if LOP is triggered, such
it has a limit price. Pegging is available In contrast, an Order with Midpoint
modification will not take effect and the original Pegging will only be at the midpoint
order will be rejected. only during Market Hours. An Order
5 See Rule 4756 (Entry and Display of Quotes and with Pegging may specify a limit price and not have the same impact as the
Orders) at (a)(3). beyond which the Order may not be other two types of orders and therefore
6 A ‘‘Market Maker Peg Order’’ is an Order Type
executed; provided, however, that if an subjecting such an order to LOP does
designed to allow a Market Maker to maintain a
Order has been assigned a Pegging not impact the potential of the order
continuous two-sided quotation at a displayed price since by definition it is set to the
that is compliant with the quotation requirements Order Attribute and a Discretion
for Market Makers set forth in Rule 4613(a)(2). The Order 10 Attribute, the Order may midpoint. An Order with Midpoint
displayed price of the Market Maker Peg Order is Pegging will not be displayed and is not
set with reference to a ‘‘Reference Price’’ in order subject to a collar.
any corporate actions (e.g., dividends or stock
to keep the displayed price of the Market Maker Peg
Order within a bounded price range. A Market
splits) in the security. See Nasdaq Rule 4702(b)(7). An Order with Market Pegging and no
Maker Peg Order may be entered through RASH,
7 An Intermarket Sweep or ISO Order, which is
Offset behaves as a ‘‘market order’’ with
FIX or QIX only. A Market Maker Peg Order must an Order that is immediately executable within the respect to any liquidity on the Nasdaq
sradovich on DSK3GMQ082PROD with NOTICES
be entered with a limit price beyond which the Nasdaq Market Center against Orders against which
they are marketable, is not subject to LOP. See Book at the Inside Quotation on the
Order may not be priced. The Reference Price for
a Market Maker Peg Order to buy (sell) is the then- NASDAQ Rule 4702. opposite side of the market because it is
8 Orders with Market and Primary Pegging
current National Best Bid (National Best Offer)
(including Nasdaq), or if no such National Best Bid available through RASH, FIX, and QIX only. willing to trade; such an Order may be referred to
9 Rule 4703(d). as a ‘‘Discretionary Order.’’ See NASDAQ Rule
or National Best Offer, the most recent reported last-
sale eligible trade from the responsible single plan 10 Discretion is an Order Attribute under which 4703(g).
processor for that day, or if none, the previous an Order has a non-displayed discretionary price 11 An offset is not supported for a Midpoint
closing price of the security as adjusted to reflect range within which the entering Participant is Pegging Order.
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![83896 Federal Register / Vol. 81, No. 225 / Tuesday, November 22, 2016 / Notices
LOP implementation date. The waiver All submissions should refer to File thereunder,2 notice is hereby given that
would also permit the Exchange to Number SR–NASDAQ–2016–155. This on November 3, 2016, Miami
immediately clarify the application of file number should be included on the International Securities Exchange LLC
the LOP to modified orders. Moreover, subject line if email is used. To help the (‘‘MIAX’’ or ‘‘Exchange’’) filed with the
the waiver would allow the Exchange to Commission process and review your Securities and Exchange Commission
immediately exclude from the LOP comments more efficiently, please use (‘‘Commission’’) a proposed rule change
Market Pegging Orders, Primary Pegging only one method. The Commission will as described in Items I, II, and III below,
Orders, and Midpoint Pegging Orders post all comments on the Commission’s which Items have been prepared by the
that have a discretion price. As noted Internet Web site (http://www.sec.gov/ Exchange. The Commission is
above, the Exchange proposes to rules/sro.shtml). publishing this notice to solicit
exclude these Orders because these Copies of the submission, all comments on the proposed rule change
Orders may be intended to be aggressive subsequent amendments, all written from interested persons.
or to set the bid or offer on the market. statements with respect to the proposed
I. Self-Regulatory Organization’s
Moreover, as noted above, Market and rule change that are filed with the
Statement of the Terms of Substance of
Primary Pegging Orders are currently Commission, and all written
the Proposed Rule Change
subject to collars. Lastly, the waiver communications relating to the
would allow the Exchange’s rules to proposed rule change between the The Exchange is filing a proposal to
immediately and accurately reflect the Commission and any person, other than amend Exchange Rule 605 (Market
current collars for Market and Primary those that may be withheld from the Maker Orders).
Pegging Orders, which were removed public in accordance with the The text of the proposed rule change
inadvertently. Accordingly, the provisions of 5 U.S.C. 552, will be is available on the Exchange’s Web site
Commission finds that waiving the 30- available for Web site viewing and at http://www.miaxoptions.com/filter/
day operative delay is consistent with printing in the Commission’s Public wotitle/rule_filing, at MIAX’s principal
the protection of investors and the Reference Room, 100 F Street NE., office, and at the Commission’s Public
public interest and designates the Washington, DC 20549, on official Reference Room.
proposal operative upon filing.28 business days between the hours of II. Self-Regulatory Organization’s
At any time within 60 days of the 10:00 a.m. and 3:00 p.m. Copies of the Statement of the Purpose of, and
filing of such proposed rule change, the filing also will be available for Statutory Basis for, the Proposed Rule
Commission summarily may inspection and copying at the principal Change
temporarily suspend such rule change if office of the Exchange. All comments
it appears to the Commission that such received will be posted without change; In its filing with the Commission, the
action is necessary or appropriate in the the Commission does not edit personal Exchange included statements
public interest, for the protection of identifying information from concerning the purpose of and basis for
investors, or otherwise in furtherance of submissions. You should submit only the proposed rule change and discussed
the purposes of the Act. If the information that you wish to make any comments it received on the
Commission takes such action, the available publicly. All submissions proposed rule change. The text of these
Commission shall institute proceedings should refer to File Number SR– statements may be examined at the
to determine whether the proposed rule NASDAQ–2016–155 and should be places specified in Item IV below. The
change should be approved or submitted on or before December 13, Exchange has prepared summaries, set
disapproved. 2016. forth in sections A, B, and C below, of
the most significant aspects of such
IV. Solicitation of Comments For the Commission, by the Division of statements.
Trading and Markets, pursuant to delegated
Interested persons are invited to authority.29 A. Self-Regulatory Organization’s
submit written data, views, and Brent J. Fields, Statement of the Purpose of, and
arguments concerning the foregoing, Secretary. Statutory Basis for, the Proposed Rule
including whether the proposed rule Change
[FR Doc. 2016–28037 Filed 11–21–16; 8:45 am]
change is consistent with the Act.
Comments may be submitted by any of BILLING CODE 8011–01–P 1. Purpose
the following methods: The purpose of the proposed rule
Electronic Comments SECURITIES AND EXCHANGE change is to amend Exchange Rule 605
COMMISSION (Market Maker Orders) to (i) provide
• Use the Commission’s Internet that a MIAX Market Maker 3 may not
comment form (http://www.sec.gov/ [Release No. 34–79331; File No. SR–MIAX– enter good ‘til cancelled (‘‘GTC’’)
rules/sro.shtml); or 2016–43] orders 4 in option classes to which the
• Send an email to rule- MIAX Market Maker is not appointed,
comments@sec.gov. Please include File Self-Regulatory Organizations; Miami and (ii) add a comparable provision
Number SR–NASDAQ–2016–155 on the International Securities Exchange LLC; setting forth the types of orders that an
subject line. Notice of Filing and Immediate Electronic Exchange Member (‘‘EEM’’) 5
Effectiveness of a Proposed Rule
Paper Comments Change To Amend Exchange Rule 605 2 17 CFR 240.19b–4.
• Send paper comments in triplicate Market Maker Orders 3 The term ‘‘Market Maker’’ refers to ‘‘Lead
sradovich on DSK3GMQ082PROD with NOTICES
to Brent J. Fields, Secretary, Securities Market Makers’’, ‘‘Primary Lead Market Makers’’
November 16, 2016. and ‘‘Registered Market Makers’’, collectively. See
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090. Pursuant to the provisions of Section Exchange Rule 100.
4 A Good ‘til Cancelled or ‘‘GTC’’ order is an order
19(b)(1) of the Securities Exchange Act
to buy or sell which remains in effect until it is
28 For purposes only of waiving the 30-day
of 1934 (‘‘Act’’) 1 and Rule 19b–4 either executed, cancelled or the underlying option
operative delay, the Commission has considered the expires. See Exchange Rule 516(l).
29 17 CFR 200.30–3(a)(12).
proposed rule’s impact on efficiency, competition, 5 The term ‘‘Electronic Exchange Member’’ means
and capital formation. 15 U.S.C. 78c(f). 1 15 U.S.C. 78s(b)(1). the holder of a Trading permit who is not a Market
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Document Created: 2018-02-14 08:29:01
Document Modified: 2018-02-14 08:29:01
| 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 83892 |
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