[Federal Register Volume 86, Number 31 (Thursday, February 18, 2021)]
[Notices]
[Page 10141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03214]



[[Page 10141]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91109; File No. SR-NASDAQ-2020-090]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving a Proposed Rule Change To Amend the Exchange's Rules at 
Equity 4, Section 4703(h) Relating to Reserve Orders

February 11, 2021.

I. Introduction

    On December 15, 2020, The Nasdaq Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the Exchange's rules at Equity 4, Section 
4703(h) relating to orders with the reserve size order attribute. The 
proposed rule change was published for comment in the Federal Register 
on December 30, 2020.\3\ The Commission has received no comments on the 
proposed rule change. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 90793 (December 23, 
2020), 85 FR 86598 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    Pursuant to Equity 4, Section 4703(h) of the Exchange's rules, 
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. When a participant 
enters an order with reserve size (``Reserve Order''), the full size of 
the order will be presented for potential execution in compliance with 
Regulation NMS and thereafter, unexecuted portions of the order will be 
processed as a displayed order and a non-displayed order.\4\ When a 
Reserve Order is posted, if there is an execution against the displayed 
order that causes its size to decrease below a normal unit of trading, 
a new displayed order will be entered and receive a new timestamp, 
while the size of the non-displayed order will be reduced by the same 
amount and will not receive a new timestamp.\5\
---------------------------------------------------------------------------

    \4\ See Exchange Equity 4, Section 4703(h). See also Securities 
Exchange Act Release No. 90389 (November 10, 2020), 85 FR 73304 
(November 17, 2020) (amending Exchange Equity 4, Section 4703(h) 
relating to Reserve Orders).
    \5\ See Exchange Equity 4, Section 4703(h).
---------------------------------------------------------------------------

    The Exchange proposes to amend Equity 4, Section 4703(h) to provide 
that, if the new displayed order would lock an order that posted to the 
Nasdaq book before replenishment can occur, the displayed order would 
post at the locking price if the resting order is non-displayed,\6\ or 
would 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. The proposed functionality would also apply to a 
Reserve Order that does not execute fully upon initial order entry, if 
the displayed order portion of the Reserve Order would lock a resting 
order upon entry.\7\
---------------------------------------------------------------------------

    \6\ The Exchange states that, if the new displayed order posts 
to the Nasdaq book and locks a resting non-displayed order with the 
Trade Now order attribute enabled, then consistent with the 
definition of Trade Now, the Trade Now functionality would apply and 
the non-displayed order would be able to execute against the locking 
displayed order as a liquidity taker. See Notice, supra note 3, at 
86598-99 n.7. If a locked non-displayed order does not have the 
Trade Now order attribute enabled, then new incoming orders would be 
eligible to execute against the displayed order. See id. See also 
Exchange Equity 4, Section 4703(m) (describing the Trade Now order 
attribute).
    \7\ See Notice, supra note 3, at 86598 n.6. The Exchange also 
proposes to correct a non-substantive typographical error in 
Exchange Equity 4, Section 4703(h).
---------------------------------------------------------------------------

    According to the Exchange, it established the Reserve Order with 
the intention that the order would always act as a provider of 
liquidity upon replenishment, and this is what Exchange participants 
have come to expect from the operation of Reserve Orders.\8\ The 
Exchange states that the proposal would eliminate any ambiguity under 
its existing rules as to whether a Reserve Order would take liquidity 
when a locking order posts to the Nasdaq book prior to the Reserve 
Order completing its replenishment (or prior to the displayed order 
portion of the Reserve Order posting to the Nasdaq book for the first 
time).\9\
---------------------------------------------------------------------------

    \8\ See id. at 86598.
    \9\ See id. at 86599. The Exchange also states that a rule 
filing from 2016 introduced a rare circumstance where a Reserve 
Order, upon replenishment of its displayed order portion, 
theoretically could become a liquidity remover under existing 
Exchange rules. See id. at 86598-89.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\11\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, 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.
---------------------------------------------------------------------------

    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As discussed above, the proposed rule change is designed to provide 
that a Reserve Order, after posting on the Nasdaq book, would always 
act as a liquidity provider upon replenishment of its displayed order 
portion. The Commission believes that the proposed rule change is 
reasonably designed to ensure that a Reserve Order would operate 
similarly during race conditions (i.e., when a locking order posts to 
the Nasdaq book prior to the Reserve Order completing its 
replenishment, or prior to the displayed order portion of the Reserve 
Order posting to the Nasdaq book for the first time) as it would during 
non-race conditions. The Commission also believes that the proposed 
rule change would provide the users of Reserve Orders greater certainty 
and transparency about how the Exchange processes these orders.\12\
---------------------------------------------------------------------------

    \12\ The Commission also believes that the correction of the 
non-substantive typographical error in Exchange Equity 4, Section 
4703(h) would improve the readability and clarity of that rule.
---------------------------------------------------------------------------

    Based on the foregoing, the Commission finds that the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NASDAQ-2020-090) be, and 
hereby is, approved.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-03214 Filed 2-17-21; 8:45 am]
BILLING CODE 8011-01-P