83 FR 23318 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Market Order Spread Protection

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 97 (May 18, 2018)

[Federal Register Volume 83, Number 97 (Friday, May 18, 2018)]
[Notices]
[Pages 23318-23320]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-10604]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83228; File No. SR-NASDAQ-2018-037]


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

May 14, 2018.
    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 30, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or the 
``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 a proposal to amend the Market Order Spread 
Protection and reorganize Rule Chapter VI, Section 18 entitled, ``Order 
Price Protections.''
    The text of the proposed rule change is available on the Exchange's 
website 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 Chapter VI, 
Section 18, entitled, ``Order Price Protection'' to ``Risk 
Protections'' and relocate all the order protections into a single rule 
and categorize them as either order protections, order and quote 
protections or market maker protections. The Exchange believes that 
placing all the order protections into a single rule will provide 
market participants with information as to the availability of these 
protections, which are all mandatory. The Exchange also proposes to 
amend the Market Order Spread Protection and Acceptable Trade Range 
Rules to add more specificity.
Universal Amendments
    The Exchange proposes to restructure Chapter VI, Section 18 into 
three parts: (1) Order protections; (2) order and quote protections; 
and (3) market maker protections. The Exchange proposes to reletter and 
renumber the rule as well to provide a more organized structure. The 
Exchange believes that categorizing the various protections provides 
more information to market participants as to each of the risk 
protections.
Order Price Protection
    The Exchange proposes only to reorganize the rule by adding new 
lettering and numbering to conform to the remainder of the proposed 
rule, no other amendments are being made to Order Price Protection.
Market Order Spread Protection
    The Exchange proposes to relocate the Market Order Spread 
Protection rule from Chapter VI, Section 6(c) into Chapter VI, Section 
18. The Exchange also proposes to amend the Market Order Spread 
Protection at proposed Chapter VI, Section 18(a)(2) by adding an 
additional sentence stating, ``Market Order Spread Protection shall not 
apply to the Opening Process and during a halt.'' Today, the Market 
Order Spread Protection does not apply during the Opening Process and 
during a trading halt. The Exchange is adding this additional 
specificity to the rule to make clear when the protection is operative.
    Both the Opening Process and trading halts have the same or more 
restrictive boundaries as those proposed for the Market Order Spread 
Protection. With respect to the Opening Process, a Valid Width National 
Best Bid or Offer is required. A Valid Width National Best Bid or 
Offer'' or ``Valid Width NBBO'' shall mean the combination of all away 
market quotes and any combination of NOM-registered Market Maker orders 
and quotes received over the OTTO or SQF Protocols within a specified 
bid/ask differential as established and published by the Exchange.\3\ 
The Valid Width NBBO is configurable by underlying, and tables with 
valid width differentials are posted by Nasdaq on its website.\4\ The 
Exchange's threshold for the Market Order Spread Protection is 
currently set at $5.\5\ Today, the maximum bid/ask differentials are 
more restrictive for both Penny and Non-Penny issues that are not LEAPS 
\6\ (up to $2.00 and $2.25, respectively, for the bid/ask 
differentials). The maximum bid/ask differentials are equal to or more 
restrictive for both Penny and Non-Penny issues that are LEAPS (up to a 
$5.00 bid/ask differential.) The Exchange believes that the Market 
Order Spread Protection is unnecessary during the Opening Process 
because other protections are in place to ensure that the best bid and 
offer displayed on the Exchange are within a reasonable range.
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    \3\ Away markets that are crossed will void all Valid Width NBBO 
calculations. If any Market Maker orders or quotes on NOM are 
crossed internally, then all such orders and quotes will be excluded 
from the Valid Width NBBO calculation. See NOM Chapter VI, Section 
8(a)(6).
    \4\ The table with the differentials is published on the 
Exchange's website at: http://www.nasdaqtrader.com/content/technicalsupport/NOM_SystemSettings.pdf.
    \5\ The current Market Order Spread Differential is set at $5. 
The table in note 4 above notes the current setting.
    \6\ LEAPS are option series with a time to expiration greater 
than nine (9) months. See Chapter VI, Section 8.
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    As provided in Chapter V, Section 4 trading halts are subject to 
the reopening process as provided for in Chapter VI, Section 8. The 
same protections noted for the Opening Process above will apply for 
trading halts. The Exchange believes that the Market Order Spread 
Protection is

[[Page 23319]]

unnecessary during a trading halt because other protections are in 
place to ensure that the best bid and offer displayed on the Exchange 
are within a reasonable range.
Acceptable Trade Range
    The Exchange proposes to relocate the Acceptable Trade Protection 
from Chapter VI, Section 10(7) into Chapter VI, Section 18(b)(1). The 
Exchange also proposes to note more specifically within the rule that 
this risk protection applies to both quotes and orders. Today, the rule 
only refers to ``orders'' in a few places. The Exchange proposes to 
note ``order/quotes'' in those instances to make clear that both orders 
and quotes are protected. This addition and the categorization proposed 
within this rule change should make that this protection more 
transparent.
Anti-Internalization
    The Exchange proposes to relocate the Anti-Internalization 
Protection from Chapter VI, Section 10(6) into Chapter VI, Section 
18(c)(1). The Exchange proposes only to reorganize the rule by adding 
new lettering and numbering to conform to the remainder of the proposed 
rule, no other amendments are being made to the Anti-Internalization 
rule.
Automated Removal of Quotes and Orders
    The Exchange proposes to relocate the Automated Removal of Quotes 
and Orders from Chapter VII, Section 6(f) into Chapter VI, Section 
18(c)(2). The Exchange proposes only to reorganize the rule by adding 
new lettering and numbering to conform to the remainder of the proposed 
rule, no other amendments are being made to the Automated Removal of 
Quotes and Orders rule.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\8\ 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 grouping the various order protections applied on NOM into a single 
rule for ease of reference and adding headers to the rule to make clear 
whether the risk protection is an order, quote or order and market 
maker protection. The Exchange believes the reorganization of the 
existing rule and relocation of various rules into Rule Chapter VI, 
Section 18 is a non-substantive rule change.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange is amending the Market Order Spread Protection to 
provide more specificity to that rule. Today, the Market Order Spread 
Protection does not apply during the Opening Process and during halts. 
The Exchange is proposing to memorialize this exception into the rule 
to provide more transparency as to the operation of this protection. 
Both the Opening Process and trading halts have the same or more 
restrictive boundaries as those proposed for the Market Order Spread 
Protection. With respect to the Opening Process, a Valid Width NBBO is 
required. With respect to the Opening Process, a Valid Width National 
Best Bid or Offer is required. A Valid Width NBBO is the combination of 
all away market quotes and any combination of NOM-registered Market 
Maker orders and quotes received over the OTTO or SQF Protocols within 
a specified bid/ask differential as established and published by the 
Exchange.\9\ The Exchange's requirements during the Opening Process are 
as restrictive as the setting for the Market Order Spread Protection. 
As provided in Chapter V, Section 4 trading halts are subject to the 
reopening process as provided for in Chapter VI, Section 8. The same 
protections noted for the Opening Process above will apply for trading 
halts. The Exchange believes that the Market Order Spread Protection is 
unnecessary during the Opening Process and during a trading halt 
because other protections are in place to ensure that the best bid and 
offer displayed on the Exchange are within a reasonable range.
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    \9\ Away markets that are crossed will void all Valid Width NBBO 
calculations. If any Market Maker orders or quotes on NOM are 
crossed internally, then all such orders and quotes will be excluded 
from the Valid Width NBBO calculation. See NOM Chapter VI, Section 
8(a)(6).
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    The Exchange is also proposing to make clear that the Acceptable 
Trade Range protection is an order and quote protection. This 
particular rule does not specifically state orders and quotes in each 
place either is mentioned with the rule. The Exchange believes adding 
order/quote in each instance it appears will bring greater transparency 
to the rule and protect investors and the public interest by providing 
greater clarity to the rule.

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 proposal does not impose an 
intra-market burden on competition with respect to the reorganization 
and relocation of the various rules into Rule Chapter VI, Section 18 
because the various price protections will continue to apply uniformly 
to all market participants.
    The Exchange does not believe that not applying the Market Order 
Spread Protection during the Opening Process and during a trading halt 
creates an undue burden on competition because these mechanisms have 
the same or more restrictive protections as the Market Order Spread 
Protection.
    Finally, the amendments to the Acceptable Trade Range rule creates 
an undue burden on competition because the additional language brings 
more transparency to the existing rule.

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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \12\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \13\ however, permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The

[[Page 23320]]

Exchange has requested that the Commission waive the 30-day operative 
delay so that the proposal may become operative upon filing. The 
Exchange states that it believes it is important for it to be able to 
manage the administration of its rules on an immediately effective 
basis. Further, with respect to the amendment to the Market Order 
Spread Protection and Acceptable Trade Range, the Exchange believes 
that the amendment protects investors and the public interest by 
providing more transparency as to the operation of this protection 
during the Opening Process and during halts for the Market Order Spread 
Protection and also clarifies the Acceptable Trade Range rule. For 
these reasons, the Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest and, therefore, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\14\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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: (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 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-2018-037 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.

All submissions should refer to File Number SR-NASDAQ-2018-037. 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 website (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 website 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-2018-037 and should be submitted 
on or before June 8, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-10604 Filed 5-17-18; 8:45 am]
 BILLING CODE 8011-01-P