82 FR 56315 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4702

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 227 (November 28, 2017)

[Federal Register Volume 82, Number 227 (Tuesday, November 28, 2017)]
[Notices]
[Pages 56315-56317]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-25693]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82152; File No. SR-NASDAQ-2017-122]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4702

November 22, 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 November 9, 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.
---------------------------------------------------------------------------

    \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 4702(b)(5) to provide that 
Midpoint Peg Post-Only Orders may not participate in the Nasdaq Closing 
Cross, and to make other technical changes with respect to Order Types 
flagged for the Nasdaq Closing Cross pursuant to Rule 4702(b)(12).
    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 purpose of the proposed rule change is to amend Rule 4702(b)(5) 
to provide that Midpoint Peg Post-Only Orders (``MPPOs'') may not 
participate in the Nasdaq Closing Cross, and to make other technical 
changes with respect to Order Types flagged for the Nasdaq Closing 
Cross pursuant to Rule 4702(b)(12).
    An ``MPPO'' is defined in Rule 4702(b)(5) as an Order Type with a 
Non-Display Order Attribute that is priced at the midpoint between the 
national best bid and offer, and that will execute upon entry only in 
circumstances where economically beneficial to the party entering the 
Order. Today, MPPOs are available during Market Hours only, and MPPOs 
remaining on the Nasdaq Book at 4:00 p.m. ET are cancelled by the 
System. Due to how the Exchange currently processes these cancel 
messages, however, Rule 4702(b)(5)(C) also provides that an MPPO may 
participate in the Nasdaq Closing Cross if the Nasdaq Closing Cross 
occurs prior to the cancellation message being fully processed. The 
Exchange believes that it would be beneficial to members and investors 
to completely prevent MPPOs from executing in the Nasdaq Closing Cross 
rather than having their participation determined by whether the cancel 
message is processed prior to the Nasdaq Closing Cross. The Exchange 
therefore proposes to eliminate language indicating that MPPOs may 
participate in the Nasdaq Closing Cross if the Nasdaq Closing Cross for 
the security occurs prior to the cancellation message being fully 
processed, and instead provide that MPPOs may not participate in the 
Nasdaq Closing Cross. In connection with this change, the Exchange also 
proposes to remove language indicating that the trading system 
``attempts to'' cancel MPPOs prior to the commencement of the Nasdaq 
Closing Cross as the ``attempts to'' language is no longer necessary 
with the elimination of the race condition described above. With this 
change members will have more certainty with respect to MPPO handling 
for the Nasdaq Closing Cross since no MPPOs will be allowed to 
participate, which is consistent with how the Exchange believes members 
want these order treated. In addition, since the Exchange is explicitly 
addressing MPPO availability for the Nasdaq Closing Cross in this rule, 
the Exchange also proposes to add language indicating that MPPOs may 
not participate in the Nasdaq Opening Cross. MPPOs are excluded from 
the Nasdaq Opening Cross today as they can only be entered during 
Market Hours and are cancelled at the end of the trading day. 
Furthermore, Rule 4703(l) provides that Order Types except Supplemental 
Orders participate in the Nasdaq Opening Cross and/or the Nasdaq 
Closing Cross if the Order has a Time-in-Force that would cause the 
Order to be in effect at the time of the Nasdaq Opening Cross and/or 
Nasdaq Closing Cross. Since MPPOs will not be permitted to participate 
in the Nasdaq Opening Cross or Nasdaq Closing Cross under any 
circumstances, the Exchange proposes to amend Rule 4703(l) to state

[[Page 56316]]

that MPPOs do not participate in these crosses.
    Furthermore, Rule 4702(b)(12) contains language explaining which 
Order Types are not available to be flagged for the Nasdaq Closing 
Cross, including orders entered with a time-in-force of IOC, or orders 
entered with a time-in-force that continues after the time of the 
Nasdaq Closing Cross, i.e., Closing Cross/Extended Hours Orders. MPPOs 
cannot be flagged for the Nasdaq Closing Cross today as closing cross 
participation is not permitted for this Order Type, with the one 
exception being remedied above. The same is also true of Supplemental 
Orders. A ``Supplemental Order'' is an Order Type with a Non-Display 
Order Attribute that is held on the Nasdaq Book in order to provide 
liquidity at the NBBO through a special execution process described in 
Rule 4757(a)(1)(D). Pursuant to Rule 4702(b)(6)(B), Supplemental Orders 
are not permitted to participate in the Nasdaq Closing Cross. In 
connection with the other changes described above, the Exchange 
therefore proposes to amend Rule 4702(b)(12) to state that MPPOs and 
Supplemental Orders may not be flagged to solely participate in the 
Nasdaq Closing Cross. Rule 4702(b)(12) already contains language 
indicating that these order types are not permitted to be entered as 
Closing Cross/Extended Hours Orders. The Exchange believes that adding 
this additional detail to the rule will make the operation of the 
Exchange more transparent to members and other market participants.
Implementation
    The Exchange proposes to introduce the MPPO changes described in 
this proposed rule change in Q4 2017 or Q1 2018. The Exchange will 
announce the implementation date of this functionality in an Equity 
Trader Alert issued to members prior to the launch date.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\3\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\4\ 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. 
As indicated in the Exchange's current rules, MPPOs are designed for 
Market Hours trading and are therefore cancelled at 4:00 p.m. ET each 
day when the Exchange begins processing the Nasdaq Closing Cross 
pursuant to Rule 4754. Nevertheless, MPPOs may trade in the Nasdaq 
Closing Cross in the race condition described above where the 
cancellation of the MPPO is not processed by the trading system prior 
to the Nasdaq Closing Cross. The Exchange believes that it is 
consistent with the protection of investors and the public interest to 
eliminate this race condition and ensure that no MPPOs participate in 
the Nasdaq Closing Cross. This change will perfect the mechanism of a 
free and open market by eliminating the possibility that MPPOs can 
inadvertently make it into the Nasdaq Closing Cross due to the sequence 
of messages received by the trading system. The Exchange believes that 
members prefer not to have their MPPOs executed in the Nasdaq Closing 
Cross, and therefore cancels these orders immediately prior to the 
closing auction today. The proposed changes would further enhance MPPO 
handling by ensuring that no MPPOs are permitted to trade in the Nasdaq 
Closing Cross. Furthermore, the proposed rule change would increase 
transparency surrounding the operation of the Exchange, and, in 
particular, the availability of MPPOs and Supplemental orders to be 
flagged for the Nasdaq Closing Cross. The Exchange believes that the 
proposed changes will benefit members and other market participants by 
specifying with additional clarity that these Order Types cannot be 
flagged for participation in the Nasdaq Closing Cross, as closing cross 
participation is not available for either MPPOs or Supplemental Orders.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Currently, MPPOs can 
participate in the Nasdaq Closing Cross if the cancel message is not 
fully processed prior to the closing auction. The Exchange is now 
enhancing MPPO handling to prevent all MPPOs from participating in the 
Nasdaq Closing Cross. The Exchange does not believe this change will 
have any significant impact on competition as no members will have 
their MPPOs participate in the Nasdaq Closing Cross, which is how the 
Exchange believes members want these orders treated. Furthermore, the 
other proposed change with respect to handling of MPPOs and 
Supplemental Orders that are flagged for the Nasdaq Closing Cross is a 
non-substantive clarifying change and will therefore have no impact on 
competition.

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 \5\ and Rule 19b-
4(f)(6) thereunder.\6\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 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 Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 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-2017-122 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 56317]]

Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2017-122. 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-2017-122 and should 
be submitted on or before December 19, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25693 Filed 11-27-17; 8:45 am]
 BILLING CODE 8011-01-P