83 FR 23978 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Rule 4702(b)(14) To Establish a Price Improvement Only Variation on the Midpoint Extended Life Order

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 100 (May 23, 2018)

Page Range		23978-23981
FR Document		2018-10973
Federal Register, Volume 83 Issue 100 (Wednesday, May 23, 2018)
[Federal Register Volume 83, Number 100 (Wednesday, May 23, 2018)]
[Notices]
[Pages 23978-23981]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-10973]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83272; File No. SR-NASDAQ-2018-038]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4702(b)(14) To 
Establish a Price Improvement Only Variation on the Midpoint Extended 
Life Order

May 17, 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 May 4, 2018, 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 Rule 4702(b)(14) to establish a 
price improvement only variation on the Midpoint Extended Life Order.
    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

[[Page 23979]]

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 proposes to amend Rule 4702(b)(14) to establish a 
``Price Improvement Only'' or ``PIO'' option for the Midpoint Extended 
Life Order (``M-ELO'').
    On March 7, 2018, the Commission issued an order approving the 
Exchange's proposal to adopt the M-ELO as a new order type.\3\ A M-ELO 
is a non-displayed order that is available to all members but interacts 
only with other M-ELOs. It is priced at the midpoint between the 
National Best Bid and Offer (``NBBO'') and it does not become eligible 
for execution until it completes a half second holding period (the 
``Holding Period'').\4\ Once the Holding Period elapses, a M-ELO 
becomes eligible for execution against other M-ELOs on a time-priority 
basis.\5\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 34-82825 (Mar. 7, 
2018), 83 FR 10937 (Mar. 13, 2018).
    \4\ If a member modifies a M-ELO during the Holding Period, 
other than to decrease the size of the order or to modify the 
marking of a sell order as long, short, or short exempt, then such 
modification will cause the Holding Period to reset.
    \5\ If a member modifies a M-ELO after the Holding Period 
elapses, other than to decrease the size of the order or to modify 
the marking of a sell order as long, short, or short exempt, then 
such modification will trigger a new Holding Period for the order.
---------------------------------------------------------------------------

    Under existing Rule 4702(b)(14), a member may designate a limit 
price for a M-ELO, in which case the order would be: (1) Eligible for 
execution in time priority after satisfying the Holding Period if upon 
acceptance of the order by the system, the midpoint price is within the 
limit set by the member; or (2) held until the midpoint falls within 
the limit set by the member, at which time the Holding Period would 
commence and thereafter the system would make the order eligible for 
execution in time priority.
    The Exchange now proposes to amend Rule 4702(b)(14) to adopt an 
optional ``Price Improvement Only'' or ``PIO'' option for the M-ELO.
    Under the Exchange's proposal, if a member opts to designate a M-
ELO with PIO, then the M-ELO will execute only in circumstances where 
the NBBO midpoint price provides the Order with price improvement (of 
at least a half penny for a MELO priced at or above $1.00) as measured 
against the original limit price of the M-ELO with PIO (i.e., lower 
than a buy limit price or higher than a sell limit price).\6\ The 
Holding Period of a M-ELO with PIO will commence: (1) Upon acceptance 
of the Order by the System, if the midpoint price provides price 
improvement on the limit set by the participant; or (2) when the 
midpoint price updates such that it provides price improvement on the 
limit set by the participant. If, at the time when the System accepts 
the Order, the midpoint of the NBBO equals or is higher than the 
participant's buy limit price or lower than the participant's sell 
limit price, as applicable, then the Holding Period for the Order will 
not commence unless or until the midpoint of the NBBO shifts in a 
manner that would allow the M-ELO with PIO to execute at a price that 
provides price improvement, in which case the Holding Period for the 
Order will commence. If, upon satisfaction of the Holding Period, the 
midpoint of the NBBO continues to provide price improvement relative to 
the designated limit price, then the M-ELO with PIO will be eligible 
for execution in time priority and may execute at that improved price. 
If upon satisfaction of the Holding Period, however, the midpoint of 
the NBBO no longer provides price improvement relative to the 
designated limit price, then the M-ELO with PIO will not be eligible 
for execution, and it will remain posted on the Nasdaq Book 
(maintaining its relative priority) unless and until the midpoint of 
the NBBO shifts in a manner that does provide price improvement, at 
which point the M-ELO with PIO will be eligible for execution at the 
improved price.
---------------------------------------------------------------------------

    \6\ To utilize the PIO variant of M-ELO, a participant must 
specify a limit price for the order upon entry. If a participant 
fails to set a limit price, then the Exchange will not accept the 
order.
---------------------------------------------------------------------------

    In all other respects, a M-ELO with PIO will behave the same as an 
ordinary M-ELO, and as set forth in Rule 4702(b)(14). For example, a M-
ELO with PIO will interact only with other M-ELOs (including both 
ordinary M-ELOs and M-ELOs with PIO) and it will be ranked among 
ordinary M-ELOs and M-ELOs with PIO on the Nasdaq Book on a time 
priority basis.
Example 1
    Member A enters a M-ELO with PIO to buy 1,000 shares with a limit 
price of $11.04. At the same time, Member B enters a M-ELO with PIO to 
sell 1,000 shares with a limit price of $11.02. Assume the Best Bid at 
the time of entry of these Orders is $11.00 and the Best Offer is 
$11.06, such that the midpoint price is $11.03. Because the $11.03 
midpoint price provides price improvement as measured against Member 
A's specified limit price and as measured against Member B's specified 
limit price, the Holding Periods for the two Orders will commence. 
After the Holding Periods for both Orders conclude, the NBBO remains 
unchanged and so the Orders are eligible for execution. Accordingly, 
the two Orders will then execute against each other at $11.03.
Example 2
    Member A enters a M-ELO with PIO to buy 500 shares with a limit 
price of $11.04. At the same time, Member B enters a M-ELO with PIO to 
sell 1,000 shares with a limit price of $11.03. Just after Member B 
enters its order, Member C enters a M-ELO to sell 1,000 shares at a 
limit price of $11.03. Assume the Best Bid at the time of entry of 
these Orders is $11.00 and the Best Offer is $11.06, such that the 
midpoint price is $11.03. The Holding Period for Member B's Order will 
not commence because its limit price equals the midpoint of the NBBO. 
However, the Holding Periods for Member A's Order and Member C's Order 
will commence because the $11.03 midpoint of the NBBO is lower/higher 
than the respective limit prices associated with these two Orders 
[sic]. At the conclusion of Member A and Member C's Holding Periods, 
the NBBO remains unchanged. Member A's Order will execute against 
Member C's Order for 500 shares.
Example 3
    Member A enters a M-ELO with PIO to buy 500 shares with a limit 
price of $11.04. At the same time, Member B enters a M-ELO with PIO to 
sell 500 shares with a limit price of $11.03. Assume the Best Bid at 
the time of entry of these Orders is $11.00 and the Best Offer is 
$11.06, such that the midpoint price is $11.03. At the time of Order 
entry, the Holding Period for Member B's Order will not commence, 
because the midpoint of the NBBO equals, but is not higher than, the 
limit price that Member B designated on its M-ELO with PIO. However, 
the Holding Period for Member A's M-ELO with PIO Order will commence, 
because the $11.03 midpoint provides price improvement as measured 
against Member A's specified limit price. At the conclusion of Member 
A's Holding Period, the Best Bid becomes $11.02 and the Best Offer 
remains $11.06, such that the midpoint price becomes $11.04. The 
Holding Period for Member B's Order will commence, because the $11.04 
midpoint price provides price improvement as measured against Member 
B's specified limit price. At the

[[Page 23980]]

conclusion of Member B's Holding Period, Member B's Order will not 
execute against Member A's Order because the $11.04 midpoint price does 
not provide price improvement as measured against Member A's specified 
limit price. However, Member A's Order will remain posted on the Nasdaq 
book and retain its priority.
    The Exchange believes that the M-ELO with PIO will afford members 
more flexibility with respect to their use of M-ELO and greater 
opportunities for price improvement when they do so. In particular, the 
proposal will afford M-ELO participants with a measure of protection 
against unfavorable movements in the NBBO that may occur during half-
second Holding Periods that are unique to M-ELOs. In absence of the PIO 
feature, members facing such movements will have to constantly manage 
their M-ELO orders (e.g., canceling and resubmitting their orders). The 
PIO feature will free members from the need to constantly manage their 
M-ELO orders during their Holding Periods
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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The reasons why the M-ELO with PIO is consistent with the Act are 
generally the same as those that the Commission identified in its order 
approving the M-ELO order type.\9\ That is, just as the Commission 
determined that M-ELO ``could create additional and more efficient 
trading opportunities on the Exchange for investors with longer 
investment time horizons, including institutional investors,'' \10\ so 
too will the M-ELO with PIO do so in that the M-ELO with PIO will offer 
M-ELO investors increased flexibility and efficiency in achieving their 
investment outcomes as well as new opportunities for price improvement. 
Moreover, just as the Commission determined that the M-ELO is 
``reasonably designed to enhance midpoint execution quality on the 
Exchange'' notwithstanding the fact that M-ELO allows market 
participants to elect not to execute against certain contra-side 
interest,\11\ the Exchange believes that M-ELO with PIO is reasonably 
designed in that the additional condition that a M-ELO with PIO imposes 
on a M-ELO execution--the midpoint of the NBBO must provide price 
improvement as measured against the limit price that the participant 
designates--is not unfair.\12\ Like the M-ELO, the M-ELO with PIO is 
equitable insofar as it will be available to all Nasdaq members. In 
sum, the Exchange believes that the M-ELO with PIO, like the M-ELO 
``represents a reasonable effort to enhance the ability of longer-term 
trading interest to participate effectively on an exchange, without 
discriminating unfairly against other market participants or 
inappropriately or unnecessarily burdening competition.'' \13\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 34-82825, supra, 83 
FR at 10938-41.
    \10\ See id. at 10938-39.
    \11\ See id. at 10939.
    \12\ As the Commission noted in its order approving M-ELO, the 
minimum quantity and post-only order functionalities that the 
Exchange offers provide for similar conditionality. See id. See also 
SR-NASDAQ-2017-074 Amendment No. 2, at 19 (Oct. 30, 2017) (citing 
similarity between M-ELO and the Nasdaq BX Retail Price Improvement 
order type, which, as described in BX Rule 4702(b), is an order type 
that executes only against a retail order and only if its price is 
at least $0.001 better than the NBBO).
    \13\ Securities Exchange Act Release No. 34-82825, supra, 83 FR 
at 10940.
---------------------------------------------------------------------------

    The Exchange also believes that its proposal is consistent with 
Regulation National Market System Rule 612, which provides that ``[n]o 
national securities exchange, national securities association, 
alternative trading system, vendor, or broker or dealer shall display, 
rank, or accept from any person a bid or offer, an order, or an 
indication of interest in any NMS stock priced in an increment smaller 
than $0.01 if that bid or offer, order, or indication of interest is 
priced equal to or greater than $1.00 per share.'' \14\ The Exchange 
believes that its proposal is consistent with Rule 612 because a M-ELO 
with PIO is a non-displayed order that the Exchange does not accept or 
rank at a sub-penny increment. Although a M-ELO with PIO guarantees at 
least a half-penny of price improvement relative to a member's 
designated limit price, the Exchange does not believe that this feature 
should be construed as the Exchange accepting a M-ELO with a price that 
is implicitly a half-penny below the limit price. The ability to 
execute a M-ELO with PIO and the extent of the price improvement it 
ultimately provides depends upon variables that include the movement of 
the midpoint of the NBBO relative to the limit price and the spread of 
the NBBO. At the time that a member enters a M-ELO with PIO, neither 
the member nor the Exchange knows whether or at what price the order 
will execute at the conclusion of the Holding Period. Even if a member 
is amenable to or specifically intends for a M-ELO with PIO to execute 
at a half-penny below the limit price, this outcome is not assured and 
it is out of the member's control. The order may not execute at all or, 
if it does so, it may provide the member with price improvement of a 
full penny or more. Because the ultimate terms of a M-ELO with PIO are 
unknowable at the time of acceptance and because a sub-penny execution 
price is only one of a range of possible outcomes for a M-ELO with PIO, 
a M-ELO with PIO should be deemed to be consistent with Rule 612.
---------------------------------------------------------------------------

    \14\ 17 CFR 242.612.
---------------------------------------------------------------------------

    Moreover, the Exchange notes that the Commission itself stated 
expressly, when it first adopted Rule 612, that the Rule does not 
prohibit midpoint orders or price improvement orders that merely result 
in sub-penny executions:
    Rule 612 will not prohibit a sub-penny execution resulting from a 
midpoint or volume-weighted algorithm or from price improvement, so 
long as the execution did not result from an impermissible sub-penny 
order or quotation. The Commission believes at this time that trading 
in sub-penny increments does not raise the same concerns as sub-penny 
quoting. Sub-penny executions do not cause quote flickering and do not 
decrease depth at the inside quotation. Nor do they require the same 
systems capacity as would sub-penny quoting. In addition, sub-penny 
executions due to price improvement are generally beneficial to retail 
investors.\15\
---------------------------------------------------------------------------

    \15\ Securities Exchange Act Release No. 34-51808 (Jun. 9, 
2005), 70 FR 37496, 37556 (Jun. 29, 2005).
---------------------------------------------------------------------------

    The Exchange does not believe that a M-ELO with PIO that executes 
at a sub-penny price would implicate any of the concerns that underlie 
Rule 612. For example, it would not cause quote flickering because a M-
ELO with PIO is hidden and, by definition, it does not affect displayed 
quotes. Also, the Exchange does not expect that the addition of PIO 
would cause widespread system capacity issues that the Commission 
feared would result from sub-penny quoting. The Exchange notes that the 
universe of M-ELOs and M-ELO PIOs is limited because these orders will 
interact only with each other and not with the broader population of 
orders.

[[Page 23981]]

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 Exchange believes that the addition of the Price Improvement 
Only variation will only boost the attractiveness of the M-ELO among 
market participants who desire or require additional trading 
flexibility for the M-ELO as well as those that seek additional 
opportunities for price improvement. Accordingly, the Exchange expects 
that its proposal will draw new market participants to Nasdaq and 
increase the extent to which existing participants utilize M-ELO. To 
the extent the proposed change is successful in attracting additional 
market participants, Nasdaq believes that the proposed change will 
promote competition among trading venues by making Nasdaq a more 
attractive trading venue for long-term investors and therefore capital 
formation.
    In any event, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily choose 
between competing venues if they deem participation in Nasdaq's market 
is no longer desirable. In such an environment, the Exchange must 
carefully consider the impact that any change it proposes may have on 
its participants, understanding that it will likely lose participants 
to the extent a change is viewed as unfavorable by them. Because 
competitors are free to modify the incentives and structure of their 
markets, the Exchange believes that the degree to which modifying the 
market structure of an individual market may impose any burden on 
competition is limited.
    The Exchange also does not believe that its proposal will impose an 
undue burden on intramarket competition. Just as with an ordinary M-
ELOs [sic], the M-ELO with PIO will be available to all Nasdaq members 
and it will be available on an optional basis. Thus, any member that 
seeks to avail itself of the benefits of a M-ELO with PIO or avoid its 
costs can choose accordingly. Although the proposal provides 
flexibility and price improvement opportunities specifically for 
investors that select the M-ELO order type, the Exchange believes that 
all market participants will benefit to the extent that this proposal 
contributes to a healthy and attractive market that is attentive to the 
needs of all types of investors.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2018-038 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-2018-038. 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-2018-038 and should be submitted 
on or before June 13, 2018.
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-10973 Filed 5-22-18; 8:45 am]
 BILLING CODE 8011-01-P
23978 Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Notices

Exchange can re-commence operating comment in the Federal Register on For the Commission, by the Division of
without unnecessary delay. November 22, 2017.4 On December 21, Trading and Markets, pursuant to delegated
2017, the Commission extended the authority.10
VI. Conclusion Eduardo A. Aleman,
time period within which to approve
It is therefore ordered, pursuant to the proposed rule change, disapprove Assistant Secretary.
Section 19(b)(2) of the Act,166 that the the proposed rule change, or institute [FR Doc. 2018–10972 Filed 5–22–18; 8:45 am]
proposed rule change (SR–NYSENAT– proceedings to determine whether to BILLING CODE 8011–01–P
2018–02), as modified by Amendment approve or disapprove the proposed
No. 1, be and hereby is approved on an rule change.5 On February 20, 2018, the
accelerated basis. Commission initiated proceedings to SECURITIES AND EXCHANGE
For the Commission, by the Division of determine whether to disapprove the COMMISSION
Trading and Markets, pursuant to delegated proposed rule change.6 On April 4, [Release No. 34–83272; File No. SR–
authority.167 2018, the Exchange filed Amendment NASDAQ–2018–038]
Eduardo A. Aleman, No. 1 to the proposed rule change,
Assistant Secretary. which amended and superseded the Self-Regulatory Organizations; The
[FR Doc. 2018–10986 Filed 5–22–18; 8:45 am] proposed rule change as originally Nasdaq Stock Market LLC; Notice of
BILLING CODE 8011–01–P filed.7 The Commission has received no Filing of Proposed Rule Change To
comments on the proposed rule change. Amend Rule 4702(b)(14) To Establish a
Price Improvement Only Variation on
Section 19(b)(2) of the Act 8 provides the Midpoint Extended Life Order
SECURITIES AND EXCHANGE
that, after initiating disapproval
COMMISSION
proceedings, the Commission shall issue May 17, 2018.
[Release No. 34–83271; File No. SR– an order approving or disapproving the Pursuant to Section 19(b)(1) of the
BatsBZX–2017–72] proposed rule change not later than 180 Securities Exchange Act of 1934
days after the date of publication of (‘‘Act’’),1 and Rule 19b–4 thereunder,2
Self-Regulatory Organizations; Cboe notice of the filing of the proposed rule notice is hereby given that on May 4,
BZX Exchange, Inc.; Notice of change. The Commission may extend 2018, The Nasdaq Stock Market LLC
Designation of a Longer Period for (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
the period for issuing an order
Commission Action on Proceedings To Securities and Exchange Commission
approving or disapproving the proposed
Determine Whether To Approve or (‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change, however, by not more than
Disapprove a Proposed Rule Change, rule change as described in Items I and
60 days if the Commission determines
as Modified by Amendment No. 1 II below, which Items have been
that a longer period is appropriate and
Thereto, To List and Trade Shares of prepared by the Exchange. The
the Innovator S&P 500 Buffer ETF publishes the reasons for such
determination. The proposed rule Commission is publishing this notice to
Series, Innovator S&P 500 Power solicit comments on the proposed rule
Buffer ETF Series, Innovator S&P 500 change was published for notice and
comment in the Federal Register on change from interested persons.
Enhance and Buffer ETF Series, and
Innovator S&P 500 Ultra ETF Series November 22, 2017. May 21, 2018 is 180 I. Self-Regulatory Organization’s
Under Rule 14.11(i) days from that date, and July 20, 2018 Statement of the Terms of Substance of
is 240 days from that date. the Proposed Rule Change
May 17, 2018. The Commission finds it appropriate
On November 7, 2017, Cboe BZX The Exchange proposes to amend
to designate a longer period within Rule 4702(b)(14) to establish a price
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) which to issue an order approving or
filed with the Securities and Exchange improvement only variation on the
disapproving the proposed rule change Midpoint Extended Life Order.
Commission (‘‘Commission’’), pursuant so that it has sufficient time to consider The text of the proposed rule change
to Section 19(b)(1) of the Securities the proposed rule change, as modified is available on the Exchange’s website at
Exchange Act of 1934 (‘‘Act’’) 1 and Rule by Amendment No. 1. Accordingly, http://nasdaq.cchwallstreet.com, at the
19b–4 thereunder,2 a proposed rule pursuant to Section 19(b)(2) of the Act,9 principal office of the Exchange, and at
change to list and trade shares of the
the Commission designates July 20, the Commission’s Public Reference
Innovator S&P 500 15% Shield Strategy
2018 as the date by which the Room.
ETF Series, Innovator S&P 500 ¥5% to
Commission shall either approve or
¥35% Shield Stratey ETF Series, II. Self-Regulatory Organization’s
disapprove the proposed rule change
Innovator S&P 500 Enhance and 10% Statement of the Purpose of, and
(File No. SR–BatsBZX–2017–72), as
Shield Strategy ETF Series, and Statutory Basis for, the Proposed Rule
modified by Amendment No. 1.
Innovator S&P 500 Ultra Strategy ETF Change
Series under BZX Rule 14.11(i) In its filing with the Commission, the
4 See Securities Exchange Act Release No. 82097
(collectively, the ‘‘Funds’’).3 The (November 16, 2017), 82 FR 55689. Exchange included statements
proposed rule change was published for 5 See Securities Exchange Act Release No. 82387,
concerning the purpose of and basis for
82 FR 61613 (December 28, 2017). The Commission the proposed rule change and discussed
166 Id. designated February 20, 2018 as the date by which
167 17CFR 200.30–3(a)(31). the Commission shall approve, disapprove, or any comments it received on the
1 15 U.S.C. 78s(b)(1). institute proceedings to determine whether to proposed rule change. The text of these
approve or disapprove, the proposed rule change. statements may be examined at the
daltland on DSKBBV9HB2PROD with NOTICES

2 17 CFR 240.19b–4.
6 See Securities Exchange Act Release No. 82739,
3 On April 4, 2018, the Exchange filed places specified in Item IV below. The
83 FR 8309 (February 26, 2018).
Amendment No. 1 to the proposed rule change
7 Amendment No. 1 to the proposed rule change
Exchange has prepared summaries, set
which, among other things, changed the names of forth in sections A, B, and C below, of
the Funds to Innovator S&P 500 Buffer ETF Series, is available at: https://www.sec.gov/comments/sr-
Innovator S&P 500 Power Buffer ETF Series, batsbzx-2017-72/batsbzx201772-3385594-
Innovator S&P 500 Enhance and Buffer ETF Series, 162153.pdf. 10 17 CFR 200.30–3(a)(57).
8 15 U.S.C. 78s(b)(2). 1 15 U.S.C. 78s(b)(1).
and Innovator S&P 500 Ultra ETF Series. See infra
note 7. 9 15 U.S.C. 78s(b)(2). 2 17 CFR 240.19b–4.

VerDate Sep<11>2014 17:33 May 22, 2018 Jkt 244001 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 E:\FR\FM\23MYN1.SGM 23MYN1
Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Notices 23979

the most significant aspects of such than a sell limit price).6 The Holding improvement as measured against
statements. Period of a M–ELO with PIO will Member A’s specified limit price and as
commence: (1) Upon acceptance of the measured against Member B’s specified
A. Self-Regulatory Organization’s
Order by the System, if the midpoint limit price, the Holding Periods for the
Statement of the Purpose of, and
price provides price improvement on two Orders will commence. After the
Statutory Basis for, the Proposed Rule Holding Periods for both Orders
the limit set by the participant; or (2)
Change conclude, the NBBO remains unchanged
when the midpoint price updates such
1. Purpose that it provides price improvement on and so the Orders are eligible for
the limit set by the participant. If, at the execution. Accordingly, the two Orders
The Exchange proposes to amend will then execute against each other at
time when the System accepts the
Rule 4702(b)(14) to establish a ‘‘Price $11.03.
Order, the midpoint of the NBBO equals
Improvement Only’’ or ‘‘PIO’’ option for
or is higher than the participant’s buy Example 2
the Midpoint Extended Life Order (‘‘M–
limit price or lower than the
ELO’’). Member A enters a M–ELO with PIO
participant’s sell limit price, as
On March 7, 2018, the Commission applicable, then the Holding Period for to buy 500 shares with a limit price of
issued an order approving the the Order will not commence unless or $11.04. At the same time, Member B
Exchange’s proposal to adopt the M– until the midpoint of the NBBO shifts in enters a M–ELO with PIO to sell 1,000
ELO as a new order type.3 A M–ELO is a manner that would allow the M–ELO shares with a limit price of $11.03. Just
a non-displayed order that is available with PIO to execute at a price that after Member B enters its order, Member
to all members but interacts only with provides price improvement, in which C enters a M–ELO to sell 1,000 shares
other M–ELOs. It is priced at the case the Holding Period for the Order at a limit price of $11.03. Assume the
midpoint between the National Best Bid will commence. If, upon satisfaction of Best Bid at the time of entry of these
and Offer (‘‘NBBO’’) and it does not the Holding Period, the midpoint of the Orders is $11.00 and the Best Offer is
become eligible for execution until it NBBO continues to provide price $11.06, such that the midpoint price is
completes a half second holding period improvement relative to the designated $11.03. The Holding Period for Member
(the ‘‘Holding Period’’).4 Once the limit price, then the M–ELO with PIO B’s Order will not commence because
Holding Period elapses, a M–ELO will be eligible for execution in time its limit price equals the midpoint of the
becomes eligible for execution against priority and may execute at that NBBO. However, the Holding Periods
other M–ELOs on a time-priority basis.5 for Member A’s Order and Member C’s
improved price. If upon satisfaction of
Under existing Rule 4702(b)(14), a Order will commence because the
the Holding Period, however, the
member may designate a limit price for $11.03 midpoint of the NBBO is lower/
midpoint of the NBBO no longer
a M–ELO, in which case the order higher than the respective limit prices
provides price improvement relative to
would be: (1) Eligible for execution in associated with these two Orders [sic].
the designated limit price, then the M–
time priority after satisfying the Holding At the conclusion of Member A and
ELO with PIO will not be eligible for
Period if upon acceptance of the order Member C’s Holding Periods, the NBBO
execution, and it will remain posted on
by the system, the midpoint price is remains unchanged. Member A’s Order
the Nasdaq Book (maintaining its
within the limit set by the member; or will execute against Member C’s Order
relative priority) unless and until the
(2) held until the midpoint falls within for 500 shares.
midpoint of the NBBO shifts in a
the limit set by the member, at which manner that does provide price Example 3
time the Holding Period would improvement, at which point the M– Member A enters a M–ELO with PIO
commence and thereafter the system ELO with PIO will be eligible for to buy 500 shares with a limit price of
would make the order eligible for execution at the improved price. $11.04. At the same time, Member B
execution in time priority. In all other respects, a M–ELO with enters a M–ELO with PIO to sell 500
The Exchange now proposes to amend PIO will behave the same as an ordinary shares with a limit price of $11.03.
Rule 4702(b)(14) to adopt an optional M–ELO, and as set forth in Rule Assume the Best Bid at the time of entry
‘‘Price Improvement Only’’ or ‘‘PIO’’ 4702(b)(14). For example, a M–ELO of these Orders is $11.00 and the Best
option for the M–ELO. with PIO will interact only with other Offer is $11.06, such that the midpoint
Under the Exchange’s proposal, if a M–ELOs (including both ordinary M– price is $11.03. At the time of Order
member opts to designate a M–ELO with ELOs and M–ELOs with PIO) and it will entry, the Holding Period for Member
PIO, then the M–ELO will execute only be ranked among ordinary M–ELOs and B’s Order will not commence, because
in circumstances where the NBBO M–ELOs with PIO on the Nasdaq Book the midpoint of the NBBO equals, but is
midpoint price provides the Order with on a time priority basis. not higher than, the limit price that
price improvement (of at least a half Example 1 Member B designated on its M–ELO
penny for a MELO priced at or above with PIO. However, the Holding Period
$1.00) as measured against the original Member A enters a M–ELO with PIO for Member A’s M–ELO with PIO Order
limit price of the M–ELO with PIO (i.e., to buy 1,000 shares with a limit price of will commence, because the $11.03
lower than a buy limit price or higher $11.04. At the same time, Member B midpoint provides price improvement
enters a M–ELO with PIO to sell 1,000 as measured against Member A’s
3 See Securities Exchange Act Release No. 34– shares with a limit price of $11.02. specified limit price. At the conclusion
82825 (Mar. 7, 2018), 83 FR 10937 (Mar. 13, 2018). Assume the Best Bid at the time of entry of Member A’s Holding Period, the Best
4 If a member modifies a M–ELO during the of these Orders is $11.00 and the Best Bid becomes $11.02 and the Best Offer
daltland on DSKBBV9HB2PROD with NOTICES

Holding Period, other than to decrease the size of Offer is $11.06, such that the midpoint
the order or to modify the marking of a sell order remains $11.06, such that the midpoint
as long, short, or short exempt, then such
price is $11.03. Because the $11.03 price becomes $11.04. The Holding
modification will cause the Holding Period to reset. midpoint price provides price Period for Member B’s Order will
5 If a member modifies a M–ELO after the Holding
commence, because the $11.04
Period elapses, other than to decrease the size of the 6 To utilize the PIO variant of M–ELO, a

order or to modify the marking of a sell order as participant must specify a limit price for the order
midpoint price provides price
long, short, or short exempt, then such modification upon entry. If a participant fails to set a limit price, improvement as measured against
will trigger a new Holding Period for the order. then the Exchange will not accept the order. Member B’s specified limit price. At the

VerDate Sep<11>2014 17:33 May 22, 2018 Jkt 244001 PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 E:\FR\FM\23MYN1.SGM 23MYN1
Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Notices 23981

B. Self-Regulatory Organization’s C. Self-Regulatory Organization’s available for website viewing and
Statement on Burden on Competition Statement on Comments on the printing in the Commission’s Public
Proposed Rule Change Received From Reference Room, 100 F Street NE,
The Exchange does not believe that Members, Participants, or Others Washington, DC 20549 on official
the proposed rule change will impose business days between the hours of
any burden on competition not No written comments were either
solicited or received. 10:00 a.m. and 3:00 p.m. Copies of the
necessary or appropriate in furtherance filing also will be available for
of the purposes of the Act. III. Date of Effectiveness of the inspection and copying at the principal
The Exchange believes that the Proposed Rule Change and Timing for office of the Exchange. All comments
addition of the Price Improvement Only Commission Action received will be posted without change.
variation will only boost the Within 45 days of the date of Persons submitting comments are
attractiveness of the M–ELO among publication of this notice in the Federal cautioned that we do not redact or edit
market participants who desire or Register or within such longer period personal identifying information from
require additional trading flexibility for up to 90 days (i) as the Commission may comment submissions. You should
the M–ELO as well as those that seek designate if it finds such longer period submit only information that you wish
additional opportunities for price to be appropriate and publishes its to make available publicly. All
improvement. Accordingly, the reasons for so finding or (ii) as to which submissions should refer to File
Exchange expects that its proposal will the self-regulatory organization Number SR–NASDAQ–2018–038 and
draw new market participants to Nasdaq consents, the Commission will: should be submitted on or before June
and increase the extent to which (A) By order approve or disapprove 13, 2018.
existing participants utilize M–ELO. To such proposed rule change, or For the Commission, by the Division of
the extent the proposed change is (B) institute proceedings to determine Trading and Markets, pursuant to delegated
successful in attracting additional whether the proposed rule change authority.16
market participants, Nasdaq believes should be disapproved. Eduardo A. Aleman,
that the proposed change will promote Assistant Secretary.
IV. Solicitation of Comments
competition among trading venues by [FR Doc. 2018–10973 Filed 5–22–18; 8:45 am]
making Nasdaq a more attractive trading Interested persons are invited to BILLING CODE 8011–01–P
venue for long-term investors and submit written data, views, and
therefore capital formation. arguments concerning the foregoing,
In any event, the Exchange notes that including whether the proposed rule SECURITIES AND EXCHANGE
it operates in a highly competitive change is consistent with the Act. COMMISSION
market in which market participants can Comments may be submitted by any of
[Release No. 34–83280; File No. SR–MRX–
readily choose between competing the following methods: 2018–08]
venues if they deem participation in Electronic Comments
Nasdaq’s market is no longer desirable. Self-Regulatory Organizations; Nasdaq
• Use the Commission’s internet MRX, LLC; Notice of Filing of
In such an environment, the Exchange comment form (http://www.sec.gov/
must carefully consider the impact that Amendment No. 1 and Order Granting
rules/sro.shtml); or Accelerated Approval of a Proposed
any change it proposes may have on its • Send an email to rule-comments@
participants, understanding that it will Rule Change, as Modified by
sec.gov. Please include File Number SR– Amendment No. 1, To Introduce the
likely lose participants to the extent a NASDAQ–2018–038 on the subject line.
change is viewed as unfavorable by ATR Protection for Orders That Are
them. Because competitors are free to Paper Comments Routed to Away Markets
modify the incentives and structure of • Send paper comments in triplicate May 17, 2018.
their markets, the Exchange believes to Brent J. Fields, Secretary, Securities
that the degree to which modifying the I. Introduction
and Exchange Commission, 100 F Street
market structure of an individual market NE, Washington, DC 20549–1090. On February 23, 2018, Nasdaq MRX,
may impose any burden on competition All submissions should refer to File LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with
is limited. Number SR–NASDAQ–2018–038. This the Securities and Exchange
The Exchange also does not believe file number should be included on the Commission (‘‘Commission’’), pursuant
that its proposal will impose an undue subject line if email is used. To help the to Section 19(b)(1) of the Securities
burden on intramarket competition. Just Commission process and review your Exchange Act of 1934 (‘‘Act’’) 1 and Rule
as with an ordinary M–ELOs [sic], the comments more efficiently, please use 19b–4 thereunder,2 a proposed rule
M–ELO with PIO will be available to all only one method. The Commission will change to amend Exchange Rule 714
Nasdaq members and it will be available post all comments on the Commission’s regarding the Acceptable Trade Range
on an optional basis. Thus, any member internet website (http://www.sec.gov/ (‘‘ATR’’) functionality for orders that are
that seeks to avail itself of the benefits rules/sro.shtml). Copies of the routed to away markets. The proposed
of a M–ELO with PIO or avoid its costs submission, all subsequent rule change was published for comment
can choose accordingly. Although the amendments, all written statements in the Federal Register on March 14,
proposal provides flexibility and price with respect to the proposed rule 2018.3 On April 23, 2018, the Exchange
improvement opportunities specifically change that are filed with the submitted Amendment No. 1 to the
daltland on DSKBBV9HB2PROD with NOTICES

for investors that select the M–ELO Commission, and all written proposed rule change, which replaced
order type, the Exchange believes that communications relating to the and superseded the original filing in its
all market participants will benefit to proposed rule change between the 16 17 CFR 200.30–3(a)(12).
the extent that this proposal contributes Commission and any person, other than 1 15 U.S.C. 78s(b)(1).
to a healthy and attractive market that those that may be withheld from the 2 17 CFR 240.19b–4.
is attentive to the needs of all types of public in accordance with the 3 See Securities Exchange Act Release No. 82848

investors. provisions of 5 U.S.C. 552, will be (March 9, 2018), 83 FR 11276 (‘‘Notice’’).

VerDate Sep<11>2014 17:33 May 22, 2018 Jkt 244001 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 E:\FR\FM\23MYN1.SGM 23MYN1
Document Created: 2018-05-22 23:49:29
Document Modified: 2018-05-22 23:49:29
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		83 FR 23978