83 FR 45476 - Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide New Optional Functionality to Minimum Quantity Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 174 (September 7, 2018)

Page Range		45476-45479
FR Document		2018-19376
Federal Register, Volume 83 Issue 174 (Friday, September 7, 2018)
[Federal Register Volume 83, Number 174 (Friday, September 7, 2018)]
[Notices]
[Pages 45476-45479]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-19376]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84012; File No. SR-BX-2018-040]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Provide New 
Optional Functionality to Minimum Quantity Orders

August 31, 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 August 20, 2018, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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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 provide new optional functionality to 
Minimum Quantity Orders.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqbx.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to provide a new optional functionality 
to the Minimum Quantity Order Attribute,\3\ which is identical to the 
optional functionality provided by The Nasdaq Stock Market LLC 
(``Nasdaq'').\4\
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    \3\ Rule 4703(e).
    \4\ See Nasdaq Rule 4703(e); see also Securities Exchange Act 
Release No. 73959 (Dec. 30, 2014), 80 FR 582 (Jan. 6, 2015) (SR-
NASDAQ-2014-95).
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Current Functionality
    An Order designated with the Minimum Quantity Order Attribute 
(``MQ'') allows a market participant to specify a minimum share amount 
at which it will execute. For example, a market participant seeking to 
buy or sell a large position may desire to execute only if a large 
quantity of shares can be traded to reduce the price impact of the 
security being bought or sold. An Order with MQ will not execute unless 
the volume of contra-side liquidity available to execute against the 
order meets or exceeds the designated minimum. When an Order with MQ is 
received by the Exchange, it will execute immediately \5\ if there is 
sufficient liquidity available on the Exchange within the limit price 
of the Order with MQ. Specifically, the Order with MQ will execute if 
the sum of the shares of one or more resting Orders is equal to or 
greater than its minimum quantity. In the case of multiple resting 
Orders being aggregated to meet the minimum quantity, each contra-side 
order creates a separate execution and thus there can be multiple 
executions that, in aggregate, equal or exceed the minimum quantity. If 
an Order with MQ does not execute immediately due to lack of contra-
side liquidity that is equal to or greater than the designated minimum, 
the Order will post \6\ to the Exchange book as a Non-Displayed Order 
with the characteristics of its underlying Order Type.\7\ Once posted, 
an Order with MQ will execute only if an incoming Order is marketable 
against the resting Order with MQ and is equal to or greater than the 
minimum quantity set on the resting Order with MQ. Multiple potential 
executions cannot be aggregated to meet the minimum quantity 
requirement of the posted Order with MQ. If an Order with MQ executes 
partially and the number

[[Page 45477]]

of shares remaining is less than the minimum quantity of the Order, the 
minimum quantity of the Order is reduced to the remaining share size. 
If an Order with MQ is received that is marketable against a resting 
contra-side Order with size that does not meet the minimum quantity 
requirement, the Order with MQ will be posted on the Exchange book as a 
Non-Displayed Order with the characteristics of its underlying Order 
Type.\8\ For example, if an Order with MQ is received to buy 1,000 
shares at $10 with a minimum quantity restriction of 500 shares and 
there is a resting sell order for 300 shares at $10, the Order with MQ 
will be posted as a Non-Displayed Order at $10. Furthermore, the 
Exchange notes that a subsequent Order without a minimum quantity 
restriction that is marketable against the resting contra-side interest 
will result in an execution because the market participant entering the 
Order with MQ has expressed its intention not to execute against 
liquidity below a certain minimum size, and therefore cedes execution 
priority to any new Orders that would otherwise have a lower priority.
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    \5\ An Order with MQ would satisfy the requirements of 
Regulation NMS Rule 611 and not trade through a protected quotation. 
See 17 CFR 242.611.
    \6\ Orders post to the Exchange book only if they are designated 
with a time in force that allows for posting. For example, an IOC 
order never posts to the book.
    \7\ A Non-Displayed Order is an Order Type that is not displayed 
to other Participants, but nevertheless remains available for 
potential execution against incoming Orders until executed in full 
or cancelled. See Rule 4702(b)(3). Orders with MQ are always Non-
Displayed when posted on the Exchange book.
    \8\ SEC Rule 610(d) under Regulation NMS restricts displayed 
quotations that lock or cross protected quotations in NMS stock, but 
does not apply to non-displayed trading interest, like a resting 
Order with MQ. See 17 CFR 242.610(d).
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Proposed Functionality
    The Exchange is proposing to add a new optional functionality to 
further enhance the utility of the Minimum Quantity Order Attribute to 
market participants.\9\ As was noted by Nasdaq in proposing the 
optional functionality proposed herein,\10\ some market participants 
have noted that they avoid sending large Orders with MQ to the Exchange 
out of concern that such Orders may interact against small Orders 
entered by professional traders. These market participants are 
concerned that such interaction may negatively impact the execution of 
their larger Orders. Often institutional Orders are much larger in size 
than the average Order in the marketplace. Furthermore, in order to 
facilitate the liquidation or acquisition of a large position, multiple 
Orders are submitted into the market, which although larger than the 
average Order in the market, only represent a small proportion of the 
overall institutional position to be executed. The various strategies 
used to execute large size are based on a desire to limit price 
movement of the stock the institution is pursuing. Executing in small 
sizes, even if in aggregate it meets a minimum quantity designation, 
may impact the market such that the additional Orders that the 
institution has yet to submit to the market may be more costly to 
execute. If an institution is able to execute in larger sizes, the 
contra-party to the execution is less likely to be a participant that 
reacts to short term changes in the stock price and as such the price 
impact to the stock could be less acute when larger individual 
executions are obtained by the institution.\11\ As a consequence of 
this concern, these Orders are often executed away from the Exchange in 
dark pools, at least some of which have the functionality proposed 
herein,\12\ or via broker-dealer internalization.
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    \9\ The option is available at the port level. Accordingly, all 
Orders entered through a particular port will receive the selected 
functionality. All trading ports default to the current 
functionality.
    \10\ See note 4, supra.
    \11\ The Commission has long recognized this concern: ``Another 
type of implicit transaction cost reflected in the price of a 
security is short-term price volatility caused by temporary 
imbalances in trading interest. For example, a significant implicit 
cost for large investors (who often represent the consolidated 
investments of many individuals) is the price impact that their 
large trades can have on the market. Indeed, disclosure of these 
large orders can reduce the likelihood of their being filled.'' See 
Securities Exchange Act Release No. 42450 (Feb. 23, 2000), 65 FR 
10577, 10581 (Feb. 28, 2000) (SR-NYSE-99-48) (emphasis added) 
(internal citation omitted).
    \12\ For example, the BIDS Alternative Trading System also has 
functionality that allows its subscribers to select a minimum size 
requirement, which prevents a subscriber's interest from interacting 
with contra-side interest if its size is less than the specified 
minimum. See http://www.bidstrading.com/solutions/faqs/.
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    Accordingly, to attract larger Orders with MQ to the Exchange, it 
is proposing new optional functionality that will allow a market 
participant to designate a minimum individual execution size, and thus 
allow users to avoid interaction with such smaller Orders resting on 
the book. As discussed above, under the current rule, an incoming Order 
with MQ will execute against any number of smaller contra-side Orders 
that, in aggregate, meet the minimum quantity set by the market 
participant. For example, if a market participant entered an Order with 
MQ to buy with a price of $10, a size of 1,000 and a minimum quantity 
of 500, and the order was marketable against two resting sell orders 
for 300 and 400 shares, the System would aggregate both orders for 
purposes of meeting the minimum quantity, thus resulting in executions 
of 300 shares and 400 shares respectively with the remaining 300 shares 
of the Order with MQ posting to the Exchange book with a minimum 
quantity restriction of 300 shares. The proposed new optional 
functionality will not allow aggregation of smaller executions to 
satisfy the minimum quantity of an incoming Order with MQ. Using the 
same scenario as above, but with the proposed new functionality and a 
minimum execution size requirement of 400 shares selected by the market 
participant, the Order with MQ would not execute against the two sell 
orders because the order at the top of the Exchange book is less than 
400 shares. The new functionality will reprice the Order with MQ to one 
minimum price increment lower than (higher than) the lowest price 
(highest price) of the resting contra-side Order, and post the Order to 
the Exchange book as a Non-Displayed Order when the top of the Exchange 
book is of insufficient size to satisfy the minimum execution size 
requirement. Applied to the example above, the Order would post to the 
Exchange book as a Non-Displayed Order to buy 1,000 shares at $9.99. 
The Exchange notes that the market participant entering the Order with 
MQ has expressed its intention not to execute against liquidity below a 
certain minimum size, and therefore cedes execution priority when it 
would lock or cross resting Orders against which it would otherwise 
execute if it were not for the minimum execution size restriction.
    The Exchange believes that it is appropriate to adjust the price 
one minimum price increment lower than (higher than) the lowest price 
(highest price) of the resting contra-side Order prior to posting on 
the Exchange book because, by using the minimum execution size option, 
the submitter of the Order is choosing to reduce the number of 
situations in which the Order could potentially execute. Thus, an Order 
without this further restriction provides greater contribution to the 
price discovery process of the market. All bona fide market 
participation that results in an execution on a data feed contributes 
to the price discovery process that is essential to a proper 
functioning market. However, there are different degrees to which 
activity within the market contributes to price discovery. A displayed 
Order at the NBBO of an Exchange, and the subsequent execution thereof, 
contributes significantly to price discovery because both the Displayed 
Order prior to execution, and the execution itself, provide a reference 
price to the market. Further, a non-displayed order on an exchange 
contributes to price discovery as it is part of the continuous auction 
on a market with publicly displayed orders and quotes--albeit the 
contribution of a non-displayed order on an exchange is

[[Page 45478]]

less than the contribution of a displayed order on an exchange. 
Furthermore, a non-displayed order on a dark pool contributes less to 
price discovery because it is resting in a less transparent trading 
venue that is not part of the continuous auction of a lit exchange. If 
one were to rank the contribution to price discovery that different 
market activity provides, it would include the following (listed from 
least price discovery contribution to most):

[ssquf] Order resting in dark pool (no contribution)
[ssquf] Non-displayed order on exchange (no or very little 
contribution)
[ssquf] Order execution in dark pool (some contribution, execution 
reported publicly via TRF)
[ssquf] Non-displayed order execution on exchange (contribution as part 
of continuous auction, execution reported publicly, and priority is 
behind displayed--i.e., priority is ceded to orders that contribute 
more to price discovery)
[ssquf] Displayed order on exchange (significant contribution)
[ssquf] Displayed order execution on exchange (significant 
contribution, publicly displayed order + execution reported publicly)

In this sense, the proposed change continues to contribute more 
meaningfully to price discovery than an order in a dark pool because it 
is part of the continuous auction market on the exchange but, similar 
to a regular Non-Displayed Order ceding priority to Displayed Orders on 
the Exchange, the Order with MQ that uses the proposed functionality 
will cede price priority to Orders that do not contain the minimum 
execution size restriction. Also unlike the current process, the 
proposed new functionality will cancel the remainder of a marketable 
Order with MQ that is partially filled upon entry if the partially-
executed Order with MQ would lock or cross resting contra-side 
liquidity that does not meet the minimum execution size requirement. 
Under the current process, an Order with MQ that receives a partial 
execution has the remainder of the Order posted to the Exchange book as 
a Non-Displayed Order. The proposed new functionality will, instead, 
cancel any shares not executed after a partial execution of an Order 
with MQ if there are more shares that remain resting on the Exchange 
book at a price that would satisfy the limit price of the Order with MQ 
but that are not executable against the incoming Order with MQ due to 
the minimum execution size set on the Order. For example, an Order with 
MQ to buy priced at $10 with a size of 1,000 and a minimum quantity of 
500, that is marketable against two sell orders on the Exchange book, 
one for 500 shares and one for 400 shares, would result in the 
execution of 500 shares and the cancellation of the remaining 500 
shares. Under the current process, the Order would receive two partial 
executions of 500 and 400 shares, and the remaining 100 shares would be 
posted to the Exchange book as a Non-Displayed Order to buy priced at 
$10.
    The Exchange notes that when a non-IOC Order with MQ is partially 
executed and cancelled in this situation, the contra-side liquidity 
that is not executed may be Non-Displayed. If an Order with MQ is 
cancelled due to Non-Displayed contra-side liquidity, the submitter of 
the Order will know that there may be a resting Order or Orders at the 
price of the Order with MQ and also that the resting Order or Orders 
are for fewer shares than the minimum execution size required by the 
Order. The Exchange believes this is acceptable because the Order with 
MQ has already partially executed for a size of at least one round lot 
and thus the Order submitter has taken on risk due to the execution and 
therefore contributed to price discovery in the market place.
    Under the proposed change, a resting Order with MQ will operate the 
same way as it does currently. When an Order with MQ is posted on the 
book, it will only execute against incoming Orders if the individual 
incoming Order is equal to or greater than the minimum designated on 
the Order. The primary difference between the current functionality and 
the proposed new functionality is that upon receipt, an incoming Order 
with MQ will only execute against individual resting Orders if the 
order at the top of the Exchange book meets or exceeds the minimum on 
the Order. The Exchange notes that this is no different than Nasdaq's 
Minimum Quantity Order Attribute, on which the proposed change is 
based, and is also similar to Cboe BZX Exchange, Inc.'s (``BZX'') 
Minimum Quantity Order,\13\ which allows BZX Users to specify that such 
an order will not execute against multiple aggregated orders 
simultaneously and that the minimum quantity condition be satisfied by 
each individual order resting on the BZX book.
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    \13\ See BZX Rule 11.9(c)(5).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. The proposal will provide market participants, including 
institutional firms that ultimately represent individual retail 
investors in many cases, with better control over their Orders, thereby 
providing them with greater potential to improve the quality of their 
Order executions. Currently, the rule allows the market participant to 
designate a minimum quantity on an Order that, upon entry, may 
aggregate multiple executions to meet the minimum quantity requirement. 
Once posted to the Exchange book, however, the minimum quantity 
requirement is equivalent to a minimum execution size requirement. The 
Exchange is now proposing to provide a market participant with control 
over the execution of their Order with MQ by allowing them an option to 
designate the minimum individual execution size upon entry. The control 
offered by the proposed change is consistent with the various types of 
control currently provided by exchange order types. For example, the 
Exchange, Nasdaq and other exchanges offer limit orders, which allow a 
market participant control over the price it will pay or receive for a 
stock.\16\ Similarly, exchanges offer order types that allow market 
participants to structure their trading activity in a manner that is 
more likely avoid certain transaction cost related economic 
outcomes.\17\ Moreover, and as discussed above, other trading venues 
provide the very functionality that the Exchange is proposing, with the 
proposed rule text and operation of the functionality identical to that 
of Nasdaq.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See, e.g., Rule 4703(c).
    \17\ See, for example, the Exchange's Post-Only Order. See Rule 
4702(b)(4).
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    As discussed above, some market participants have requested the 
functionality proposed herein so they may avoid transacting with 
smaller Orders that they believe ultimately increase the cost of the 
transaction. Market participants, such as large institutions that 
transact a large number of orders on behalf of retail investors, have 
noted that because the Exchange does not have this functionality, they 
avoid sending large orders to the Exchange to avoid potentially more

[[Page 45479]]

expensive transactions.\18\ In this regard, the Exchange notes that 
proposed new optional functionality may improve the Exchange market by 
attracting more Order flow, which is currently trading on less 
transparent venues that contribute less to price discovery and price 
competition than executions and quotes that occur on lit exchanges. 
Such new Order flow will further enhance the depth and liquidity on the 
Exchange, which supports just and equitable principles of trade. 
Furthermore, the proposed modification to the Minimum Quantity Order 
Attribute is consistent with providing market participants with greater 
control over the nature of their executions so that they may achieve 
their trading goals and improve the quality of their executions.
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    \18\ As noted, the proposal is designed to attract liquidity to 
the Exchange by allowing market participants to designate a minimum 
size of contra-side Order with which to interact, thus providing 
market participants with functionality that is otherwise available 
to them on another exchange (i.e., Nasdaq). The designation of a 
minimum size may reduce the interaction that such new Order flow 
would have with smaller contra-side Orders on the Exchange, some of 
which may be retail Order flow. The Exchange notes that since the 
Order flow attracted by this functionality may also represent retail 
investors and is in addition to the existing Order flow currently on 
the Exchange, market quality for retail investors ultimately should 
not be negatively impacted. Accordingly, the Exchange does not 
believe that retail Orders will be disadvantaged by the proposed 
change.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Specifically, the proposed change allows market participants to 
condition the processing of their Orders based on a minimum execution 
size. The changes to the Minimum Quantity Order Attribute will enhance 
the functionality offered by the Exchange to its members, thereby 
promoting its competitiveness with other exchanges and non-exchange 
trading venues that already offer the same or similar functionality. As 
a consequence, the proposed change will promote competition among 
exchanges and their peers, which, in turn, will decrease the burden on 
competition rather than place an unnecessary burden thereon.

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 \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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 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.
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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 should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2018-040 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-BX-2018-040. 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-BX-2018-040 and should be submitted on 
or before September 28, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-19376 Filed 9-6-18; 8:45 am]
 BILLING CODE 8011-01-P
45478 Federal Register / Vol. 83, No. 174 / Friday, September 7, 2018 / Notices

less than the contribution of a displayed and a minimum quantity of 500, that is objectives of Section 6(b)(5) of the Act,15
order on an exchange. Furthermore, a marketable against two sell orders on in particular, in that it is designed to
non-displayed order on a dark pool the Exchange book, one for 500 shares promote just and equitable principles of
contributes less to price discovery and one for 400 shares, would result in trade, to remove impediments to and
because it is resting in a less transparent the execution of 500 shares and the perfect the mechanism of a free and
trading venue that is not part of the cancellation of the remaining 500 open market and a national market
continuous auction of a lit exchange. If shares. Under the current process, the system, and, in general to protect
one were to rank the contribution to Order would receive two partial investors and the public interest. The
price discovery that different market executions of 500 and 400 shares, and proposal will provide market
activity provides, it would include the the remaining 100 shares would be participants, including institutional
following (listed from least price posted to the Exchange book as a Non- firms that ultimately represent
discovery contribution to most): Displayed Order to buy priced at $10. individual retail investors in many
D Order resting in dark pool (no The Exchange notes that when a non- cases, with better control over their
contribution) IOC Order with MQ is partially
Orders, thereby providing them with
D Non-displayed order on exchange (no executed and cancelled in this situation,
greater potential to improve the quality
or very little contribution) the contra-side liquidity that is not
of their Order executions. Currently, the
D Order execution in dark pool (some executed may be Non-Displayed. If an
Order with MQ is cancelled due to Non- rule allows the market participant to
contribution, execution reported designate a minimum quantity on an
publicly via TRF) Displayed contra-side liquidity, the
submitter of the Order will know that Order that, upon entry, may aggregate
D Non-displayed order execution on multiple executions to meet the
exchange (contribution as part of there may be a resting Order or Orders
at the price of the Order with MQ and minimum quantity requirement. Once
continuous auction, execution posted to the Exchange book, however,
reported publicly, and priority is also that the resting Order or Orders are
for fewer shares than the minimum the minimum quantity requirement is
behind displayed—i.e., priority is equivalent to a minimum execution size
ceded to orders that contribute more execution size required by the Order.
The Exchange believes this is acceptable requirement. The Exchange is now
to price discovery) proposing to provide a market
D Displayed order on exchange because the Order with MQ has already
partially executed for a size of at least participant with control over the
(significant contribution)
one round lot and thus the Order execution of their Order with MQ by
D Displayed order execution on
submitter has taken on risk due to the allowing them an option to designate
exchange (significant contribution,
publicly displayed order + execution execution and therefore contributed to the minimum individual execution size
reported publicly) price discovery in the market place. upon entry. The control offered by the
Under the proposed change, a resting proposed change is consistent with the
In this sense, the proposed change Order with MQ will operate the same various types of control currently
continues to contribute more way as it does currently. When an Order provided by exchange order types. For
meaningfully to price discovery than an with MQ is posted on the book, it will example, the Exchange, Nasdaq and
order in a dark pool because it is part only execute against incoming Orders if other exchanges offer limit orders,
of the continuous auction market on the the individual incoming Order is equal which allow a market participant
exchange but, similar to a regular Non- to or greater than the minimum control over the price it will pay or
Displayed Order ceding priority to designated on the Order. The primary
Displayed Orders on the Exchange, the receive for a stock.16 Similarly,
difference between the current exchanges offer order types that allow
Order with MQ that uses the proposed functionality and the proposed new
functionality will cede price priority to market participants to structure their
functionality is that upon receipt, an trading activity in a manner that is more
Orders that do not contain the minimum incoming Order with MQ will only
execution size restriction. Also unlike likely avoid certain transaction cost
execute against individual resting related economic outcomes.17 Moreover,
the current process, the proposed new Orders if the order at the top of the
functionality will cancel the remainder and as discussed above, other trading
Exchange book meets or exceeds the venues provide the very functionality
of a marketable Order with MQ that is minimum on the Order. The Exchange
partially filled upon entry if the that the Exchange is proposing, with the
notes that this is no different than proposed rule text and operation of the
partially-executed Order with MQ Nasdaq’s Minimum Quantity Order
would lock or cross resting contra-side functionality identical to that of Nasdaq.
Attribute, on which the proposed
liquidity that does not meet the change is based, and is also similar to As discussed above, some market
minimum execution size requirement. Cboe BZX Exchange, Inc.’s (‘‘BZX’’) participants have requested the
Under the current process, an Order Minimum Quantity Order,13 which functionality proposed herein so they
with MQ that receives a partial allows BZX Users to specify that such may avoid transacting with smaller
execution has the remainder of the an order will not execute against Orders that they believe ultimately
Order posted to the Exchange book as a multiple aggregated orders increase the cost of the transaction.
Non-Displayed Order. The proposed simultaneously and that the minimum Market participants, such as large
new functionality will, instead, cancel quantity condition be satisfied by each institutions that transact a large number
any shares not executed after a partial individual order resting on the BZX of orders on behalf of retail investors,
execution of an Order with MQ if there book. have noted that because the Exchange
are more shares that remain resting on does not have this functionality, they
daltland on DSKBBV9HB2PROD with NOTICES

the Exchange book at a price that would 2. Statutory Basis
avoid sending large orders to the
satisfy the limit price of the Order with The Exchange believes that its Exchange to avoid potentially more
MQ but that are not executable against proposal is consistent with Section 6(b)
the incoming Order with MQ due to the of the Act,14 in general, and furthers the 15 15 U.S.C. 78f(b)(5).
minimum execution size set on the 16 See, e.g., Rule 4703(c).
Order. For example, an Order with MQ 13 See BZX Rule 11.9(c)(5). 17 See, for example, the Exchange’s Post-Only

to buy priced at $10 with a size of 1,000 14 15 U.S.C. 78f(b). Order. See Rule 4702(b)(4).

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Federal Register / Vol. 83, No. 174 / Friday, September 7, 2018 / Notices 45479

expensive transactions.18 In this regard, III. Date of Effectiveness of the rules/sro.shtml). Copies of the
the Exchange notes that proposed new Proposed Rule Change and Timing for submission, all subsequent
optional functionality may improve the Commission Action amendments, all written statements
Exchange market by attracting more Because the foregoing proposed rule with respect to the proposed rule
Order flow, which is currently trading change does not: (i) Significantly affect change that are filed with the
on less transparent venues that the protection of investors or the public Commission, and all written
contribute less to price discovery and interest; (ii) impose any significant communications relating to the
price competition than executions and burden on competition; and (iii) become proposed rule change between the
quotes that occur on lit exchanges. Such operative for 30 days from the date on Commission and any person, other than
new Order flow will further enhance the which it was filed, or such shorter time those that may be withheld from the
depth and liquidity on the Exchange, as the Commission may designate, it has public in accordance with the
which supports just and equitable provisions of 5 U.S.C. 552, will be
become effective pursuant to Section
principles of trade. Furthermore, the available for website viewing and
19(b)(3)(A) of the Act 19 and Rule 19b–
proposed modification to the Minimum printing in the Commission’s Public
4(f)(6) thereunder.20
Quantity Order Attribute is consistent At any time within 60 days of the Reference Room, 100 F Street NE,
with providing market participants with Washington, DC 20549, on official
filing of the proposed rule change, the
greater control over the nature of their business days between the hours of
Commission summarily may
executions so that they may achieve 10:00 a.m. and 3:00 p.m. Copies of the
temporarily suspend such rule change if
their trading goals and improve the filing also will be available for
it appears to the Commission that such
quality of their executions. inspection and copying at the principal
action is: (i) Necessary or appropriate in
office of the Exchange. All comments
B. Self-Regulatory Organization’s the public interest; (ii) for the protection
received will be posted without change.
Statement on Burden on Competition of investors; or (iii) otherwise in
Persons submitting comments are
furtherance of the purposes of the Act.
cautioned that we do not redact or edit
The Exchange does not believe that If the Commission takes such action, the
personal identifying information from
the proposed rule change will result in Commission shall institute proceedings comment submissions. You should
any burden on competition that is not to determine whether the proposed rule submit only information that you wish
necessary or appropriate in furtherance should be approved or disapproved. to make available publicly. All
of the purposes of the Act, as amended.
IV. Solicitation of Comments submissions should refer to File
Specifically, the proposed change
Interested persons are invited to Number SR–BX–2018–040 and should
allows market participants to condition
be submitted on or before September 28,
the processing of their Orders based on submit written data, views, and
2018.
a minimum execution size. The changes arguments concerning the foregoing,
to the Minimum Quantity Order including whether the proposed rule For the Commission, by the Division of
Attribute will enhance the functionality change is consistent with the Act. Trading and Markets, pursuant to delegated
authority.21
offered by the Exchange to its members, Comments may be submitted by any of
the following methods: Eduardo A. Aleman,
thereby promoting its competitiveness
with other exchanges and non-exchange Assistant Secretary.
Electronic Comments [FR Doc. 2018–19376 Filed 9–6–18; 8:45 am]
trading venues that already offer the
same or similar functionality. As a • Use the Commission’s internet BILLING CODE 8011–01–P
consequence, the proposed change will comment form (http://www.sec.gov/
promote competition among exchanges rules/sro.shtml); or
and their peers, which, in turn, will • Send an email to rule-comments@ SECURITIES AND EXCHANGE
decrease the burden on competition sec.gov. Please include File Number SR– COMMISSION
rather than place an unnecessary burden BX–2018–040 on the subject line. [Release No. 34–84013; File No. SR–BX–
thereon. Paper Comments 2018–025]
C. Self-Regulatory Organization’s • Send paper comments in triplicate Self-Regulatory Organizations; Nasdaq
Statement on Comments on the to Secretary, Securities and Exchange BX, Inc.; Notice of Designation of a
Proposed Rule Change Received From Commission, 100 F Street NE, Longer Period for Commission Action
Members, Participants, or Others Washington, DC 20549–1090. on Proposed Rule Change To Make
All submissions should refer to File Permanent the Exchange’s Retail Price
No written comments were either Improvement Program, Which is Set To
Number SR–BX–2018–040. This file
solicited or received. Expire on December 31, 2018
number should be included on the
subject line if email is used. To help the
18 As noted, the proposal is designed to attract August 31, 2018.
Commission process and review your
liquidity to the Exchange by allowing market
comments more efficiently, please use On July 9, 2018, Nasdaq BX, Inc.
participants to designate a minimum size of contra- (‘‘Exchange’’) filed with the Securities
side Order with which to interact, thus providing only one method. The Commission will
market participants with functionality that is and Exchange Commission
post all comments on the Commission’s
otherwise available to them on another exchange (‘‘Commission’’), pursuant to Section
internet website (http://www.sec.gov/
(i.e., Nasdaq). The designation of a minimum size 19(b)(1) of the Securities Exchange Act
may reduce the interaction that such new Order of 1934 (‘‘Exchange Act’’) 1 and Rule
19 15 U.S.C. 78s(b)(3)(A).
flow would have with smaller contra-side Orders on
19b–4 thereunder,2 a proposed rule
daltland on DSKBBV9HB2PROD with NOTICES

the Exchange, some of which may be retail Order 20 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
flow. The Exchange notes that since the Order flow 4(f)(6)(iii) requires a self-regulatory organization to change to make permanent the
attracted by this functionality may also represent give the Commission written notice of its intent to Exchange’s Retail Price Improvement
retail investors and is in addition to the existing file the proposed rule change, along with a brief Program. The proposed rule change was
Order flow currently on the Exchange, market description and text of the proposed rule change,
quality for retail investors ultimately should not be at least five business days prior to the date of filing
21 17 CFR 200.30–3(a)(12).
negatively impacted. Accordingly, the Exchange of the proposed rule change, or such shorter time
1 15 U.S.C. 78s(b)(1).
does not believe that retail Orders will be as designated by the Commission. The Exchange
disadvantaged by the proposed change. has satisfied this requirement. 2 17 CFR 240.19b–4.

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Document Created: 2018-09-07 00:15:25
Document Modified: 2018-09-07 00:15:25
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 45476