82 FR 21858 - Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4703 (Order Attributes)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 89 (May 10, 2017)

[Federal Register Volume 82, Number 89 (Wednesday, May 10, 2017)]
[Notices]
[Pages 21858-21860]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-09423]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80594; File No. SR-BX-2017-021]


Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4703 
(Order Attributes)

May 4, 2017.
    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 April 21, 2017, NASDAQ BX, Inc. (``BX'' 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 Rule 4703 (Order Attributes) to 
specify the behavior of Orders with Midpoint Pegging after initial 
entry and posting to the Exchange Book when the market is crossed, or 
when there is no best bid and/or offer. The Exchange also proposes to 
change a reference to cancelling or rejecting orders in Rule 4703.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqbx.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
    BX proposes to amend Rule 4703 (Order Attributes) to specify the 
behavior of Orders with Midpoint Pegging that are cancelled or rejected 
when the market is crossed, or when there is no best bid and/or offer 
after initial entry and posting to the Exchange Book. BX also proposes 
to change a reference to cancelling or rejecting orders in Rule 4703.
    Rule 4703(d) describes the Pegging Order Attribute, including 
Midpoint Pegging. Pegging is an Order Attribute that allows an Order to 
have its price automatically set with reference to the NBBO. Midpoint 
Pegging means Pegging with reference to the midpoint between the Inside 
Bid and the Inside Offer (the ``Midpoint'').\3\ An Order with Midpoint 
Pegging is not displayed.
---------------------------------------------------------------------------

    \3\ 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.
---------------------------------------------------------------------------

    BX recently proposed changes to Orders with Midpoint Pegging, which 
were approved by the SEC on November 10, 2016.\4\ With this change, if 
the Inside Bid and Inside Offer are crossed or if there is no Insider 
Bid and Inside Offer, any existing Order with Midpoint Pegging would be 
cancelled and any new Order with Midpoint Pegging would be rejected.\5\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 79290 (November 10, 
2016), 81 FR 81184 (November 17, 2016) (SR-BX-2016-046).
    \5\ Id.
---------------------------------------------------------------------------

    BX now proposes to add language to Rule 4703(d) to specify the 
treatment of Orders with Midpoint Pegging after initial entry and 
posting to the Exchange Book when the Inside Bid and Inside Offer are 
subsequently crossed, or if there is subsequently no Inside Bid and/or 
Inside Offer. Specifically, for Orders with Midpoint Pegging entered 
through RASH or FIX, if the Order is on the Exchange Book and 
subsequently the Inside Bid and Inside Offer become crossed, or if 
there is no Inside Bid and/or Inside Offer, the Order will be removed 
from the Exchange Book and will be re-entered at the new midpoint once 
there is a valid Inside Bid and Inside Offer that is not crossed.
    As stated in the filing proposing the new Midpoint Pegging 
functionality, BX believes that the midpoint of a crossed market, or 
where there is no Inside Bid and Inside Offer, is not a clear and 
accurate indication of a valid price, and may produce sub-optimal 
execution

[[Page 21859]]

prices for members and investors.\6\ Prior to this change, Orders 
entered through RASH or FIX would have been nevertheless repriced to 
the midpoint of the Inside Bid and Inside Offer if the Inside Bid and 
Inside Offer subsequently became crossed, or would have been cancelled 
if there was subsequently no Inside Bid and/or Inside Offer. BX is 
proposing to re-enter such Orders at the new midpoint once there is an 
Inside Bid and Inside Offer that is not crossed because the new Inside 
Bid and Inside Offer is indicative of a valid price. BX is proposing to 
re-enter Orders submitted through RASH or FIX because BX typically 
assumes a more active role in managing the order flow submitted by 
users of these protocols, and this functionality reflects the order 
flow management practices of these participants.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 79290 (November 10, 
2016), 81 FR 81184 (November 17, 2016) (SR-BX-2016-046).
---------------------------------------------------------------------------

    While BX is only proposing to adopt this re-entry functionality for 
Orders that are entered through RASH or FIX, the Exchange believes that 
it is appropriate to also modify the treatment of Orders with Midpoint 
Pegging entered through OUCH or FLITE where the Inside Bid and Inside 
Offer subsequently becomes crossed, or there is subsequently no Inside 
Bid and/or Inside Offer. Accordingly, BX is proposing to amend Rule 
4703(d) to state that if, after an Order with Midpoint Pegging is 
entered through OUCH or FLITE, the Inside Bid and Inside Offer changes 
so that the Midpoint is lower than (higher than) the price of an Order 
to buy (sell), the Inside Bid and Inside Offer are crossed or if there 
is no Inside Bid and/or Inside Offer, the Pegged Order will be 
cancelled back to the Participant.\7\
---------------------------------------------------------------------------

    \7\ BX is proposing to change the reference in this sentence 
from NBBO to Inside Bid and Inside Offer to make this sentence more 
consistent with the rest of Rule 4703, which uses the concept of the 
Inside Bid and Insider Offer rather than the NBBO.
---------------------------------------------------------------------------

    Finally, BX is proposing to change a reference in Rule 4703 that 
describes the cancellation or rejection of an Order. Specifically, Rule 
4703(d) currently states that, 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 or if there is no Inside Bid and/or Inside Offer, the Order 
will be cancelled or rejected. BX proposes to change references to 
cancelling or rejecting an order to ``not accepting'' an Order. 
Depending on the context, the reference to rejecting an order may have 
one of two meanings.\8\ BX believes that changing references from 
rejecting or cancelling an Order to not accepting an Order is 
appropriate because the proposed language resolves the ambiguity that 
may arise when referring to an order rejection, and is sufficiently 
broad to encompass the contexts in which the concept of Order rejection 
or cancellation may be used.
---------------------------------------------------------------------------

    \8\ Specifically, an Order may be referred to as ``rejected'' if 
it is not initially accepted by the customer-facing BX interface. 
Alternatively, after an Order has been initially accepted by the 
customer-facing interface, and is being transmitted from one BX 
interface to another, it may be ``rejected'' if the Order is not 
accepted by another part of the BX system for various reasons.
---------------------------------------------------------------------------

    This proposed change supplements the recently-approved changes to 
Orders with Midpoint Pegging, and the resulting modifications to BX 
systems.\9\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 79290 (November 10, 
2016), 81 FR 81184 (November 17, 2016) (SR-BX-2016-046). BX 
initially proposed to implement the new functionality for Orders 
with Midpoint Pegging on November 21, 2016. See Equity Trader Alert 
#2016-291. However, following testing, BX has decided to delay the 
implementation of this new functionality to provide additional time 
for systems testing. The new functionality shall be implemented no 
later than May 31, 2017. See Securities Exchange Act Release No. 
80046 (February 15, 2017), 82 FR 11385 (February 22, 2017) (SR-BX-
2017-008) (extending the implementation date to no later than March 
31, 2017); Securities Exchange Act Release No. 80393 (April 6, 
2017), 82 FR 17711 (April 12, 2017) (SR-BX-2017-018) (extending the 
implementation date to no later than May 31, 2017).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ 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. The proposed change is consistent with the Act because it 
supplements the recently-approved changes to Orders with Midpoint 
Pegging and the resulting modifications to BX systems, and reflects the 
Exchange's belief that the midpoint of a crossed market, or where there 
is no Inside Bid and/or Inside Offer, is not a clear and accurate 
indication of a valid price, and may produce sub-optimal execution 
prices for members and investors. The proposal adopts a functionality 
for Orders with Midpoint Pegging after initial entry and posting to the 
Exchange Book where the Inside Bid and Inside Offer subsequently 
becomes crossed, or where there is subsequently no Inside Bid and/or 
Inside Offer, that reflects the order flow management practices of the 
participants that use those protocols, e.g., re-submitting such Orders 
that are entered through RASH or FIX, and cancelling such Orders that 
are submitted through OUCH or FLITE.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposal to replace the reference in Rule 4703 to rejecting or 
cancelling an order to ``not accepting'' an order is consistent with 
the Act because the proposed language encompasses the contexts in which 
the concept of order rejection or cancellation may be used and resolves 
any ambiguity that may arise when referring to an order rejection.

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 proposed change simply 
supplements the recently-approved changes to Orders with Midpoint 
Pegging and the resulting modifications to BX systems by adopting a 
functionality for Orders with Midpoint Pegging after initial entry and 
posting to the Exchange Book where the Inside Bid and Inside Offer 
subsequently becomes crossed, or where there is subsequently no Inside 
Bid and/or Inside Offer, that reflects the order flow management 
practices of the participants that use those protocols. Moreover, the 
use of Exchange Order types and attributes is voluntary, and no member 
is required to use any specific Order type or attribute or even to use 
any Exchange Order type or attribute or any Exchange functionality at 
all. If an Exchange member believes for any reason that the proposed 
rule change will be detrimental, that perceived detriment can be 
avoided by choosing not to enter or interact with the Order type 
modified by this proposed rule change. Finally, the proposal will apply 
equally to all Orders that meet its criteria.

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

[[Page 21860]]

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\
---------------------------------------------------------------------------

    \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. The 
Exchange states that the proposal supplements the recently-approved 
changes to Orders with Midpoint Pegging, and that it intends to 
implement these previously-approved changes shortly (and no later than 
May 31, 2017).\15\ Waiver of the 30-day operative delay would allow the 
Exchange to implement the previously-approved changes concurrently with 
the supplemental changes in this proposal. The Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. Therefore, the Commission hereby 
waives the 30-day operative delay and designates the proposed rule 
change to be 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 9.
    \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 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-BX-2017-021 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-BX-2017-021. 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-BX-2017-021 and should be 
submitted on or before May 31, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09423 Filed 5-9-17; 8:45 am]
 BILLING CODE 8011-01-P