82 FR 50198 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Closing Cross Rules

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 208 (October 30, 2017)

[Federal Register Volume 82, Number 208 (Monday, October 30, 2017)]
[Notices]
[Pages 50198-50201]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-23478]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81930; File No. SR-NASDAQ-2017-107]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Closing Cross Rules

October 24, 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 October 10, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 4702 (Order Types) and Rule 
4754 [sic] (Nasdaq Closing Cross) to enhance the Nasdaq Closing Cross 
by permitting members to submit LOC Orders until immediately prior to 
3:55 p.m. ET subject to certain conditions, and to make other changes 
related to Closing Cross/Extended Hours Orders [sic].
    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

[[Page 50199]]

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
    On July 13, 2017, the Exchange filed a proposed rule change to 
amend Rule 4702 (Order Types) and Rule 4754 (Nasdaq Closing Cross) to 
enhance the Nasdaq Closing Cross by permitting members to submit Limit 
On Close (``LOC'') Orders \3\ until immediately prior to 3:55 p.m. ET 
subject to certain conditions.\4\ This proposed rule change was 
approved by the Commission on September 8, 2017,\5\ and the Exchange 
began to introduce this functionality pursuant to a symbol-by-symbol 
rollout beginning on October 2, 2017.\6\ The purpose of the proposed 
rule change is to amend the Nasdaq Closing Cross rules to: (1) Reject 
all Market Maker Peg Orders flagged to participate in the Nasdaq 
Closing Cross; and (2) account for the minimum increment for Tick Size 
Pilot securities when re-pricing LOC Orders entered between 3:50 p.m. 
ET and immediately prior to 3:55 p.m. ET.
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    \3\ A ``Limit On Close Order'' or ``LOC Order'' is an Order Type 
entered with a price that may be executed only in the Nasdaq Closing 
Cross, and only if the price determined by the Nasdaq Closing Cross 
is equal to or better than the price at which the LOC Order was 
entered. See Rule 4702(b)(12).
    \4\ See Securities Exchange Act Release No. 81188 (July 21, 
2017), 82 FR 35014 (July 27, 2017) (SR-NASDAQ-2017-061).
    \5\ See Securities Exchange Act Release No. 81556 (September 8, 
2017), 82 FR 43264 (September 14, 2017) (SR-NASDAQ-2017-061) 
(Approval Order).
    \6\ See Equity Trader Alert #2017-184.
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    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).\7\ Pursuant to SR-NASDAQ-
2017-061, a Market Maker Peg Order will not be permitted to operate as 
a Closing Cross/Extend Hours Order.\8\ Instead, such orders will be 
rejected. Market Maker Peg Orders would, however, remain permitted to 
be flagged to participate solely in the Nasdaq Closing Cross if entered 
with a time-in-force (``TIF'') that does not continue after the time of 
the Nasdaq Closing Cross. After additional consideration, the Exchange 
believes that all Market Maker Peg Orders flagged with an on-close 
instruction should be rejected. The Exchange therefore proposes to 
amend its rules to state that a Market Maker Peg Order may not be 
flagged to solely participate in the Nasdaq Closing Cross. This will 
supplement current language stating that such Market maker Peg Orders 
may not operate as Closing Cross/Extended Hours Orders. With this 
change, all Market Maker Peg Orders entered with an on-close 
instruction will be rejected, regardless of whether the order is 
entered with a TIF that continues after the Nasdaq Closing Cross. The 
Exchange believes that this change will more closely align with member 
expectations and the design of this order type, which is to assist 
members with their quoting obligations. Market Maker Peg Orders that 
are not entered with an on-close instruction will remain eligible to 
participate in the Nasdaq Closing Cross if the order remains unexecuted 
at the time of the Nasdaq Closing Cross.
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    \7\ See Rule 4702(b)(7).
    \8\ A Closing Cross/Extended Hours Order is an order that is 
flagged to participate in the Nasdaq Closing Cross and has a Time-
in-Force that continues after the time of the Nasdaq Closing Cross.
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    Furthermore, when the Nasdaq Closing Cross changes are introduced, 
the Exchange will re-price LOC Orders entered between 3:50 p.m. ET and 
immediately prior to 3:55 p.m. ET to the less aggressive of the order's 
limit price or the First Reference Price \9\ in order to prevent these 
orders from having a significant impact on the price established by the 
Nasdaq Closing Cross.\10\ In addition, Rule 4702 provides that if the 
First Reference Price is not at a permissible minimum increment of 
$0.01 or $0.0001, as applicable, the First Reference Price will be 
rounded (i) to the nearest permitted minimum increment (with midpoint 
prices being rounded up) if there is no imbalance, (ii) up if there is 
a buy imbalance, or (iii) down if there is a sell imbalance. Although 
the rule explicitly mentions the regular trading increments of $0.01 or 
$0.0001, however, it does not account for the minimum increments 
approved for securities selected for inclusion in the Tick Size Pilot 
Program, which are subject to $0.05 minimum increments.\11\ The 
Exchange therefore proposes to remove the explicit reference to these 
specific minimum increments. With the proposed change, the rule will 
state that if the First Reference Price is not at a permissible minimum 
increment, the First Reference Price will be rounded (i) to the nearest 
permitted minimum increment (with midpoint prices being rounded up) if 
there is no imbalance, (ii) up if there is a buy imbalance, or (iii) 
down if there is a sell imbalance. The Exchange believes that this 
change will avoid potential member confusion with respect to the 
application of this rule to securities selected for inclusion in the 
Tick Size Pilot Program, and help ensure compliance with the Tick Size 
Pilot Program.
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    \9\ ``First Reference Price'' is the Current Reference Price in 
the first Order Imbalance Indicator disseminated at or after 3:50 
p.m. ET. See Rule 4754(a)(9).
    \10\ See Rule 4702(b)(12)(A).
    \11\ See Securities Exchange Act Release No. 74892 (May 6, 
2015), 80 FR 27513 (May 13, 2015) (Order Approving the Tick Size 
Pilot Program). See also Rule 4770 (Compliance with Regulation NMS 
Plan to Implement a Tick Size Pilot).
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Implementation
    The Exchange proposes to introduce the changes described in this 
proposed rule change on October 10, 2017. The Exchange began the 
rollout of functionality described in SR-NASDAQ-2017-061, as announced 
to members via Equity Trader Alert, with three symbols, VSAT, TEAM, and 
UNIT. The rollout of those changes will continue in the fourth quarter 
of 2017 after the completion of additional industry testing of the 
functionality.\12\ The Exchange believes that implementing the proposed 
change to Market Maker Peg Order handling is important for the 
operation of the three symbols to which the functionality proposed in 
SR-NASDAQ-2017-061 currently applies. The changes to Market Maker Peg 
Order handling proposed herein cannot be applied on a symbol-by-symbol 
basis, but rather must be applied to all symbols simultaneously. 
Accordingly, the Exchange is proposing to implement the

[[Page 50200]]

proposed changes applied to all symbols on October 10, 2017.
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    \12\ The Exchange recently informed market participants that it 
will pause the rollout of the remaining symbols for the enhancements 
to the Nasdaq Closing Cross approved by the Commission on September 
8, 2017, in an effort to provide further customer testing 
opportunities. See Nasdaq Equity Trader Alert #2017-189. The 
Exchange anticipates continuing the implementation in the near 
future, with its completion in the fourth quarter consistent with 
its proposal. The Exchange will release an Equity Trader Alert 
announcing resumption of the rollout schedule.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\14\ 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    When the Exchange filed to restrict Market Maker Peg Orders from 
operating as Closing Cross/Extended Hours Orders, the Exchange 
explained that Market Maker Peg Orders were designed to assist members 
in meeting their quoting obligations and not as a means of submitting 
interest flagged with an on-close instruction. Furthermore, the 
Exchange explained that it did not believe that members want 
functionality that allows Market Maker Peg Orders to be entered with a 
flag designating an on-close instruction. The Exchange believes that 
this is true both for Market Maker Peg Orders entered with a TIF that 
continues after the time of the Nasdaq Closing Cross, and that 
therefore operate as Closing Cross/Extended Hours Orders, and Market 
Maker Peg Orders entered with a TIF that causes it to execute solely in 
the Nasdaq Closing Cross. The Exchange is therefore proposing to reject 
all Market Maker Peg Orders flagged to participate in the Nasdaq 
Closing Cross, regardless of TIF. The Exchange believes that this 
change will perfect the mechanism of a free and open market by 
eliminating the possibility that members can inadvertently enter this 
order type combination, while preserving the design of Market Maker Peg 
Orders to aid members in meeting their quoting obligations.
    In addition, the Exchange believes that the current language in 
Rule 4702 could be confusing to members and investors when applied to 
securities that are selected for inclusion in the Tick Size Pilot 
Program, as these securities are subject to a $0.05 minimum increment 
instead of the $0.01 or $0.0001 minimum increments cited in the rule 
today. The Exchange believes that removing the reference to these 
specific increments will reduce confusion because permissible minimum 
increments may be $0.01 or $0.0001 for most securities, and $0.05 for a 
handful of securities selected for inclusion in the Tick Size Pilot 
Program. The Exchange must round to a permissible minimum increment 
whenever the First Reference Price is not in such a minimum increment. 
The proposed rule change makes this clear and will therefore increase 
transparency to the benefit of members and investors, and help ensure 
compliance with the Tick Size Pilot Program.

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. With respect to Market Maker 
Peg Orders flagged for the Nasdaq Closing Cross, the proposed change 
eliminates an order type combination that is not consistent with the 
purpose of aiding members in meeting their quoting obligations. 
Furthermore, the proposed change related to minimum increments properly 
reflects the increments applicable to securities traded on the 
Exchange, including securities selected for inclusion in the Tick Size 
Pilot Program. Neither of these proposed changes is designed to have 
any significant competitive impact.

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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
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. The Commission has waived this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \17\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ 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 
Commission notes that waiver of the operative delay would allow the 
Exchange to implement the proposed change to Market Maker Peg Orders 
for all symbols without delay, including the three symbols to which the 
functionalities described in SR-NASDAQ-2017-061 currently apply. 
Moreover, the proposed change relating to minimum increments is 
designed to avoid confusion and help ensure compliance with the Tick 
Size Pilot Program. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is 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-2017-107 on the subject line.

Paper Comments

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


[[Page 50201]]


All submissions should refer to File Number SR-NASDAQ-2017-107. 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. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-107 and should 
be submitted on or before November 20, 2017.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23478 Filed 10-27-17; 8:45 am]
BILLING CODE 8011-01-P