Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Notices 86595 

23 17 CFR 240.17Ad–22(e)(3)(i). 

24 17 CFR 240.17Ad–22(e)(20). 

25 Id. 

26 In approving this Proposed Rule Change, the 

Commission has considered the proposed rules’ 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

27 15 U.S.C. 78s(b)(2). 

28 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b–4(f)(6). 

5Capitalized terms used but not defined herein 

have the meanings specified in the Rules. 

6Regulation (EU) 2016/679 of the European 

Parliament and of the Council of 27 April 2016 on 

the protection of natural persons with regard to the 

processing of personal data and on the free 

movement of such data. 

7Exchange Act Release No. 34–85247 (SR– 

ICEEU–2019–004) (Mar. 5, 2019), 84 FR 8769 (Mar. 

11, 2019). This earlier filing also generally 

addresses the situation where the UK would be 

treated as a ‘third country’ for GDPR purposes. 

17Ad–22(e)(3)(i) under the Exchange 

Act.23

C. Consistency With Rule 17Ad– 

22(e)(20) Under the Exchange Act 

Rule 17Ad–22(e)(20) requires each 

covered clearing agency to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify, 

monitor, and manage risks related to 

any link the covered clearing agency 

establishes with one or more other 

clearing agencies, financial market 

utilities (‘‘FMUs’’), or trading markets.24

As described above, the proposed 

TPRMF outlines OCC’s approach to 

identify, measure, monitor, and manage 

risks arising from relationships with 

FMUs and Exchanges. Just as with the 

management of risks from third parties 

more broadly, the proposed TPRMF 

defines which teams within OCC are 

responsible for managing risks posed by 

FMUs and Exchanges. Further, the 

proposed TPRMF describes the basis for 

OCC’s evaluation of FMUs and 

Exchanges with which it has 

relationships. The proposed TPRMF 

also states that OCC’s Chief Executive 

Officer and Chief Operating Officer each 

has authority to approve the onboarding 

of FMUs. The Commission believes, 

therefore, that the proposed adoption of 

the proposed TPRMF is consistent with 

the requirements of Rule 17Ad– 

22(e)(20) under the Exchange Act.25

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the Proposed 

Rule Change is consistent with the 

requirements of the Exchange Act, and 

in particular, the requirements of 

Section 17A of the Exchange Act 26 and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,27

that the Proposed Rule Change (SR– 

OCC–2020–014) be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2020–28895 Filed 12–29–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90782; File No. SR–ICEEU– 

2020–017] 

Self-Regulatory Organizations; ICE 

Clear Europe Limited; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule Change, as Modified by 

Amendment No. 1, Relating to 

Amendments to the ICE Clear Europe 

Clearing Rules 

December 22, 2020. 

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 December 

14, 2020, ICE Clear Europe Limited 

(‘‘ICE Clear Europe’’ or the ‘‘Clearing 

House’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule changes described in 

Items I and II below, which Items have 

been prepared primarily by ICE Clear 

Europe. ICE Clear Europe filed the 

proposed rule change pursuant to 

Section 19(b)(3)(A) of the Act 3 and Rule 

19b–4(f)(6) thereunder,4 so that the 

proposal was immediately effective 

upon filing with the Commission. On 

December 21, 2020, ICE Clear Europe 

filed Amendment No. 1 to the proposed 

rule change. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as modified by Amendment No. 1 

(hereafter the ‘‘proposed rule change’’), 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

ICE Clear Europe Limited (‘‘ICE Clear 

Europe’’) submitted the proposed rule 

change to amend its Clearing Rules (the 

‘‘Rules’’) 5 to address certain 

requirements under the European Union 

General Data Protection Regulation 

(‘‘GDPR’’) 6 in the event that at the end 

of current transition period (ending 

December 31, 2020) (the ‘‘Transition 

Period’’) the United Kingdom (‘‘UK’’) 

exits the European Union (‘‘EU’’) in 

circumstances where: (i) No trade 

agreement has been agreed between the 

UK and the EU27 which stipulates that 

EU data protection law, among other 

laws, shall continue to apply in the UK 

UK [sic] (a ‘‘trade agreement’’); and (ii) 

the UK’s data protection laws have not 

been found to provide for an adequate 

level of protection for the personal data 

of individuals in the EU pursuant to a 

decision made by the European 

Commission under Article 45 of the 

GDPR (an ‘‘adequacy decision’’). The 

proposed rule change is intended to 

supplement existing Rule provisions to 

reflect the judgment in a recent EU 

judicial decision. Amendment No. 1 

was intended to (i) restate the 

description of the proposed rule change 

to clarify that ICE Clear Europe is now 

implementing certain amendments 

previously filed in 2019 7 (the ‘‘2019 

Filing’’) and (ii) amend Exhibit 5 of the 

Initial Filing to provide a comparison of 

the proposed Rule changes (including 

those previously filed amendments in 

the 2019 Filing) to the current Rules in 

effect. The proposed rule changes in the 

initial filing were otherwise unchanged. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, ICE 

Clear Europe 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. ICE 

Clear Europe has prepared summaries, 

set forth in sections (A), (B), and (C) 

below, of the most significant aspects of 

such statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

(a) Purpose 

The purpose of the proposed changes 

is to implement the amendments to Rule 

106 and the adoption of Exhibit 5, 

Annex A and Annex B to the Rules that 

were submitted in the 2019 Filing (but 

not implemented at that time) and 

further to add certain supplemental data 

protection clauses to the Standard 

Contractual Clauses in Exhibit 5 of the 

Rules that address certain requirements 

under the GDPR relating to personal 

data. 

The amendments would be relevant 

upon the end of the Transition Period, 

in circumstances where: (i) No trade 

agreement has been agreed between the 

UK and the EU27; and (ii) the UK has 

86596 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Notices 

8See ICE Clear Europe Circular C19/053 (March 

15, 2019), available at https://www.theice.com/ 

publicdocs/clear_europe/circulars/C19053.pdf. 

9Case C–311/18 Data Protection Commissioner v 

Facebook Ireland Ltd and Maximilian Schrems. 

10The instant filing would correct a typographical 

error in the definition of Standard Contractual 

Clauses in Rule 106(m) and Exhibit 5 of the Rules 

as set out in the Initial Filing. 

11 15 U.S.C. 78q–1. 

12 17 CFR 240.17Ad–22. 

13 15 U.S.C. 78q–1(b)(3)(F). 

14 17 CFR 240.17Ad–22(e)(1). 

15 17 CFR 240.17Ad–22. 

not been the subject of an adequacy 

decision, such that the UK thereby 

becomes a third country under the 

GDPR. 

Amendments previously submitted by 

the Clearing House in the 2019 Filing, 

and which are now proposed to be 

implemented, generally address the 

situation where the UK would be treated 

as a ‘third country’ for GDPR purposes. 

In that case, in certain circumstances, it 

may be necessary or advisable to take 

certain additional steps to avoid a 

greater risk that transfers of personal 

data from EU27-based Clearing 

Members to ICE Clear Europe violate the 

GDPR, including the use of certain 

Standard Contractual Clauses, which 

were endorsed and published in a 

decision of the European Commission, 

that will govern transfer of personal data 

to ICE Clear Europe in order to comply 

with the GDPR. Because such changes 

were not needed during the Transition 

Period, ICE Clear Europe did not 

implement the changes submitted in the 

2019 Filing.8 At this time, in light of the 

end of the Transition Period, ICE Clear 

Europe is proposing to implement the 

changes in the 2019 Filing to amend 

Rule 106 and add Exhibit 5, Annex A, 

and Annex B to the Rules as described 

in the 2019 Filing in the circumstances 

described above. 

In addition, ICE Clear Europe is 

proposing additional amendments, 

beyond those in the 2019 Filing, in the 

instant filing that are intended to take 

into account the recent Court of Justice 

of the European Union decision in the 

Schrems II 9 case. That decision, among 

other matters, recognized that transfer of 

personal data outside of the EU may be 

permissible if governed by the Standard 

Contractual Clauses, subject to certain 

additional protections and conditions, 

including in some cases the use of 

supplementary measures, to achieve the 

required level of data protection. In light 

of this decision, and given the 

possibility that the Transition Period 

will end without a trade agreement 

between the UK and the EU27 and/or an 

EU adequacy decision with respect to 

UK data protection requirements, ICE 

Clear Europe believes that it would be 

prudent to put in place additional 

safeguards with respect to transfers of 

personal data from EU27-based Clearing 

Members to ICE Clear Europe such that 

it can be certain that such transfers are 

subject to appropriate safeguards within 

the meaning of the GDPR. 

In the event that the Transition Period 

ends without a trade agreement between 

the UK and the EU27 and/or an EU 

adequacy decision with respect to UK 

data protection requirements, the 

amendments set out in the Initial Filing 

would be incorporated into the Rules.10

In addition, the new Appendix to 

Exhibit 5 of the Rules would set out 

additional safeguards to the Standard 

Contractual Clauses that address the 

conditions that must be met in order to 

rely upon such clauses as set out in 

Schrems II. Specifically, the Appendix 

would state that the data importer (in 

this case, ICE Clear Europe) would have 

to assess whether the laws applicable to 

it provide adequate protection under EU 

data protection law. To the extent that 

the laws do not, (1) the data importer 

would adopt supplementary measures 

to protect the personal data received 

under Standard Contractual Clauses 

from the data exporter in accordance 

with EU data protection laws and (2) in 

the event that the data importer receives 

a legally binding request for access to 

the data by a public authority, the data 

importer would (i) promptly notify the 

data exporter of the request, (ii) comply 

with its internal policies governing 

disclosure, (iii) not make 

disproportionate disclosures and (iv) 

upon request from the data exporter, 

provide general information on such 

requests received in the preceding 12 

month period. 

(b) Statutory Basis 

ICE Clear Europe believes that the 

proposed amendments are consistent 

with the requirements of Section 17A of 

the Act 11 and the regulations 

thereunder applicable to it, including 

the standards under Rule 17Ad–22.12 In 

particular, Section 17A(b)(3)(F) of the 

Act 13 requires, among other things, that 

the rules of a clearing agency be 

designed to promote the prompt and 

accurate clearance and settlement of 

securities transactions and, to the extent 

applicable, derivative agreements, 

contracts, and transactions, the 

safeguarding of securities and funds in 

the custody or control of the clearing 

agency or for which it is responsible, 

and the protection of investors and the 

public interest. The amendments clarify 

certain rights and obligations of the 

Clearing House and Clearing Members 

with respect to personal data obtained 

in connection with clearing activity in 

light of legal considerations under the 

GDPR that may apply to Clearing 

Members and ICE Clear Europe at the 

end of the Transition Period if there is 

no trade agreement and the EU has not 

issued an adequacy decision. In such 

circumstances, to the extent EU–27 

based Clearing Members must in 

practice export personal data to ICE 

Clear Europe in order to clear 

transactions at ICE Clear Europe, the 

proposed Rule changes will facilitate 

the continued transfer of personal data 

for that purpose in the scenario 

described above and avoid increased 

risk of violations of GDPR requirements 

in connection with such transfers. The 

changes will thus facilitate continued 

clearing by EU27 Clearing Members in 

compliance with applicable law and 

promote the prompt and accurate 

clearance and settlement of transactions 

by such persons. As such, the 

amendments are consistent with the 

protection of investors and the public 

interest. (ICE Clear Europe does not 

believe the amendments will have any 

effect on the safeguarding of securities 

and funds in the custody or control of 

the Clearing House or for which it is 

responsible.) 

Moreover, the amendments are 

consistent with Rule 17Ad–22(e)(1),14

which requires that each covered 

clearing agency establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide for a well-founded, clear, 

transparent, and enforceable legal basis 

for each aspect of its activities in all 

relevant jurisdictions. As discussed 

herein, the amendments are designed to 

facilitate continued compliance by ICE 

Clear Europe and its Clearing Members 

with requirements of GDPR that will 

apply at the end of the Transition Period 

if there is no trade agreement and the 

EU has not issued an adequacy decision, 

in light of the additional requirements 

of the Schrems II decision. Specifically, 

the Rule change will facilitate EU-based 

Clearing Members’ continued ability to 

export personal data as necessary in 

connection with clearing without 

violating GDPR should the Transition 

Period end without a trade agreement 

and without an adequacy decision. The 

amendments thereby facilitate 

continued clearing for EU-based persons 

in accordance with EU regulations 

relating to data protection. ICE Clear 

Europe does not expect that the 

amendments will adversely impact its 

ability to comply with the Act or any 

standards under Rule 17Ad–22.15

Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Notices 86597 

16 15 U.S.C. 78s(b)(3)(A). 

17 17 CFR 240.19b–4(f)(6). 

18 17 CFR 240.19b–4(f)(6)(iii). 

19For purposes only of waiving the five-day prefiling requirement and the 30-day operative delay, 

the Commission has considered the proposed rule 

change’s impact on efficiency, competition, and 

capital formation. See 15 U.S.C. 78c(f). 

(B) Clearing Agency’s Statement on 

Burden on Competition 

ICE Clear Europe does not believe the 

proposed rule changes would have any 

impact, or impose any burden, on 

competition not necessary or 

appropriate in furtherance of the 

purpose of the Act. The amendments are 

considered prudent in order for ICE 

Clear Europe to ensure that there will be 

no interruption in the receipt of 

personal data from its EU27-based 

Clearing Members (or increased risk to 

such Clearing Members in the provision 

of such data). ICE Clear Europe does not 

believe the amendments will in 

themselves materially affect the cost of, 

or access to, clearing as they are 

generally consistent with GDPR 

requirements with which entities based 

in the EU must already comply. To the 

extent the amendments impose certain 

additional costs on Clearing Members 

and Sponsored Principals that may 

differ from current practices, these 

result from the requirements imposed 

by the GDPR, and are generally 

applicable to Clearing Members and 

Sponsored Principals throughout the 

European Union. (In addition, Clearing 

Members and Sponsored Principals are 

already required under the Rules to 

ensure that their transmission of data is 

lawful. As a result, the amendments are 

therefore not expected to impose 

significant additional burdens.) As a 

result, ICE Clear Europe does not 

believe the proposed rule changes 

impose any burden on competition that 

is inappropriate in furtherance of the 

purposes of the Act. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments relating to the 

proposed rule changes have not been 

solicited or received. ICE Clear Europe 

will notify the Commission of any 

written comments received by ICE Clear 

Europe. 

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 16 and Rule 19b–4(f)(6) 17

thereunder. 

ICE Clear Europe has requested that 

the Commission waive both the five-day 

pre-filing requirement and the 30-day 

delayed operative date under Rule 19b– 

4(f)(6)(iii) 18 so that the proposed rule 

changes may become effective and 

operative upon filing with the 

Commission. ICE Clear Europe believes 

that waiver of both would facilitate 

continued compliance with the GDPR 

requirements which will apply at the 

end of the Transition Period, in 

circumstances where no trade 

agreement has been agreed and there is 

no adequacy decision. The Transition 

Period is currently scheduled to end on 

December 31, 2020, and it is uncertain 

whether any trade agreement may be 

entered into between the EU and UK 

and/or whether any adequacy 

determination would be made by the EU 

by that time. Regardless of the 30-day 

operative delay, the amendments will 

not have any effect any sooner than the 

end of the Transition Period. ICE Clear 

Europe does not believe that any delay 

in implementing the amendments will 

benefit Clearing Members, their 

customers or any other market 

participants. Any delay is also likely to 

be inconsistent with market 

expectations in light of the date upon 

which the Transition Period is 

scheduled to end. As a result, in ICE 

Clear Europe’s view, immediate 

effectiveness is consistent with the 

protection of investors and the public 

interest. 

The Commission believes that the 

delay of the operation of the proposed 

rule change, through the five-day prefiling requirement and the 30-day 

delayed operative date, could impede 

continued compliance with the GDPR 

requirements given that the Transition 

Period could end sooner than the 30-day 

delayed operative date of the proposed 

rule change. The Commission therefore 

believes that waiving the five-day prefiling requirement and 30-day operative 

delay would provide certainty to ICE 

Clear Europe and EU27-based Clearing 

Members regarding the application of 

the GDPR and allow EU27-based 

Clearing Members to continue clearing 

at ICE Clear Europe after the end of the 

Transition Period in the circumstances 

discussed above. Moreover, the 

Commission believes that the proposed 

rule change would not impose any 

significant burden on competition 

because it results from the requirements 

imposed by the GDPR that are generally 

applicable to Clearing Members and 

Sponsored Principals throughout the 

European Union. Thus, the Commission 

believes that the proposed rule change, 

and waiving the five-day pre-filing 

requirement and 30-day operative delay, 

would not (i) significantly affect the 

protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; or (iii) affect the 

safeguarding of funds or securities in 

the custody or control of ICE Clear 

Europe or for which it is responsible. 

Therefore, the Commission waives the 

five-day pre-filing requirement and 

designates the proposed rule change as 

operative upon filing.19

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

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– 

ICEEU–2020–017 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–ICEEU–2020–017. 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 

86598 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Notices 

20 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 34–79290 

(November 10, 2016), 81 FR 81184 (November 17, 

2016) (SR–NASDAQ–2016–111). 

4An Order with Reserve Size may be referred to 

as a ‘‘Reserve Order.’’ 

5Pursuant to Equity 4, Section 4702(b)(1)(A), a 

‘‘Price to Comply Order’’ is an Order Type designed 

to comply with Rule 610(d) under Regulation NMS 

by avoiding the display of quotations that lock or 

cross any Protected Quotation in a System Security 

during Market Hours. The Price to Comply Order 

is also designed to provide potential price 

improvement. When a Price to Comply Order is 

entered, the Price to Comply Order will be executed 

against previously posted Orders on the Exchange 

Book that are priced equal to or better than the price 

of the Price to Comply Order, up to the full amount 

of such previously posted Orders, unless such 

executions would trade through a Protected 

Quotation. 

6The Exchange notes that a Reserve Order that 

does not execute fully upon initial order entry will 

behavior in the same manner as described in this 

Proposal if the Displayed portion of the Reserve 

Order would lock or cross a resting Displayed Order 

upon entry. 

7 If a Displayed Order posts to the Nasdaq Book 

and locks a resting Non-Displayed Order with the 

Trade Now attribute enabled, then consistent with 

the definition of Trade Now, as set forth in Equity 

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 such 

filings will also be available for 

inspection and copying at the principal 

office of ICE Clear Europe and on ICE 

Clear Europe’s website at https://

www.theice.com/clear-europe/ 

regulation. 

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–ICEEU–2020–017 

and should be submitted on or before 

January 21, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2020–28809 Filed 12–29–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90793; File No. SR– 

NASDAQ–2020–090] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Proposed Rule Change To 

Amend Equity 4, Section 4703 

December 23, 2020. 

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 December 

15, 2020, The Nasdaq Stock Market LLC 

(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Equity 4, Section 4703, as described 

below. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, 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 proposes to amend 

Equity 4, Section 4703(h), which 

describes Orders with ‘‘Reserve Size,’’ 3

to clarify its existing practice relating to 

replenishments of such Orders. As set 

forth in Section 4703(h), ‘‘Reserve Size’’ 

is an Order Attribute that permits a 

Participant to stipulate that an Order 

Type that is Displayed may have its 

displayed size replenished from 

additional non-displayed size.4

The Exchange established the Reserve 

Orders with the intention that it would 

always act as a provider of liquidity 

upon replenishment. Indeed, this is 

what participants have come to expect 

from the operation of Reserve Orders. 

In late 2016, however, a rule filing 

introduced a rare circumstance where a 

Reserve Order, upon replenishment of 

its Displayed Order component, 

theoretically could become a liquidity 

remover under the existing Exchange 

Rules. 

An example of the rare theoretical 

circumstance is as follows. Order 1 is a 

Price to Comply Order to buy at $10.00 

resting on the Nasdaq book with 100 

shares displayed and 3,000 shares in 

reserve (for a total order size of 3,100 

shares). Order 2 is an Order to sell 100 

shares at $10.00, which executes against 

the 100 displayed shares from Order 1 

upon entry. Order 3 is a Post Only order 

to sell 1,000 shares at $10.00 that is 

entered and posts to the Book before 

Order 1 has been replenished. 

Following the rules of the Post Only 

Order Type, Order 3 does not execute 

against the non-displayed interest 

resting at $10.00, but instead posts at 

the locking price. Therefore, upon 

replenishment, the new 100 shares of 

Order 1 would lock Order 3 at $10.00. 

As directed by the rule governing Price 

to Comply Orders,5 Order 1 would 

execute against Order 3 at $10.00 as a 

liquidity taker. 

The Exchange did not account for this 

scenario when drafting its rules. In fact, 

the Exchange does not presently handle 

this scenario as described above. 

Instead, upon replenishment, the 

Exchange reprices the new displayed 

Price to Comply Order such that it does 

not execute against Order 3 as a 

liquidity taker. 

However, the Exchange now proposes 

to eliminate any unintended 

inconsistency as to how it handles this 

scenario and make clear in its Rules that 

a Reserve Order is an adder of liquidity 

after posting on the Nasdaq Book in all 

circumstances. Specifically, the 

Exchange proposes to amend the Rule to 

state that if the new Displayed Order 

would lock an Order that posted to the 

Nasdaq Book before replenishment can 

occur, the Displayed Order will post at 

the locking price if the resting Order is 

Non-Display or will be repriced, ranked, 

and displayed at one minimum price 

increment lower (higher) than the 

locking price if the resting order to sell 

(buy) is Displayed.6 7