[Federal Register Volume 88, Number 204 (Tuesday, October 24, 2023)]
[Notices]
[Pages 73056-73060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23404]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98768; File No. SR-NASDAQ-2023-041]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Establish Purge Ports for Equities Trading

October 18, 2023.
    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 October 17, 2023, 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, II, 
and III, 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 establish Purge Ports for equities 
trading, 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

[[Page 73057]]

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 establish a new port type, ``Purge 
Port,'' which is a function enabling Exchange Participants (the 
``Participants'') to cancel all open orders or a subset of open orders 
(per MPID, buy or sell side of the order, or ticker symbol) across 
multiple protocols through a single cancel message.\3\ The Exchange 
also proposes to amend the Pricing Schedule in Equity 7, Section 3 to 
set fees for Purge Ports and to waive the fees for the Purge Ports in 
the Exchange's Test Facility for the first two months a Participant 
uses them in the Test Facility. Finally, the Exchange proposes to make 
functional enhancements to its Order entry protocols to include a 
function enabling Participants to cancel, through a single cancel 
message, all open orders or a subset of open orders (per MPID, buy or 
sell side of the order, or ticker symbol) entered through that port 
(the ``purging functionality''). The Exchange notes that its sister 
exchange, Nasdaq PHLX, LLC, recently filed with the SEC a proposal to 
adopt similar functionality and pricing.\4\
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    \3\ Purge Ports will be available for RASH, FIX and OUCH 
protocols.
    \4\ See Securities Exchange Act Release No. 34-97825 (June 30, 
2023); 88 FR 43405 (July 7, 2023) (SR-Phlx-2023-28).
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    A logical port represents a port established by the Exchange within 
the Exchange's system for trading and billing purposes. Each logical 
port grants a Participant the ability to accomplish a specific 
function, such as order entry, order cancellation, access to execution 
reports, and other administrative information.
    The proposed Purge Ports are designed to assist Participants, 
including Market Makers,\5\ in the management of, and risk control 
over, their orders, particularly if the firm is dealing with a large 
number of securities. For example, if a Participant detects market 
indications that may influence the execution potential of their orders, 
the Participant may use the proposed Purge Ports to reduce uncertainty 
and to manage risk by purging all orders in a number of securities. 
This would allow the Participant to seamlessly avoid unintended 
executions, while continuing to evaluate the market, their positions, 
and their risk levels. While Purge Ports will be available to all 
Participants, the Exchange anticipates they will be used primarily by 
firms that conduct business activity that exposes them to a large 
amount of risk across a number of securities. The proposed purging 
functionality will operate similar to a Purge Port, by allowing a 
Participant to purge all orders or a subset of open orders (per MPID, 
buy or sell side of the order, or ticker symbol) open on that port. The 
only material difference for a Participant, between relying on the 
purging functionality as opposed to using a Purge Port, is that Purge 
Port requires a Participant to send one message to accomplish desired 
cancellation of orders or a subset thereof as described above, while 
the purging functionality requires a Participant to send multiple 
messages (which could be sent simultaneously) to accomplish the same 
task.\6\
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    \5\ Members seeking to become registered as an Exchange Market 
Maker must comply with the applicable requirements of General 3, 
Section 1. See Equity 2, Section 4.
    \6\ The Exchange expects the purging functionality to remain 
substantially similar to Purge Ports, as described above, and would 
offer the purging functionality as long as it offers Purge Ports.
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    Participants may currently cancel individual orders through the 
existing functionality of the RASH Order entry protocol,\7\ FIX Order 
entry protocol \8\ and the OUCH Order entry protocol.\9\ In addition to 
the current functionality, which is being retained, the Exchange now 
proposes to expand the ability of Participants to cancel orders through 
the new purge functionality, which would enable them to cancel all open 
orders or a subset of open orders (per MPID, buy or sell side of the 
order, or ticker symbol) entered through a single port; and through the 
proposed Purge Ports, which would enable them to cancel all open 
orders, or a subset of open orders (per MPID, buy or sell side of the 
order, or ticker symbol) across multiple protocols through a single 
cancel message.
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    \7\ The RASH Order entry protocol is a proprietary protocol that 
allows members to enter Orders, cancel existing Orders and receive 
executions. RASH allows participants to use advanced functionality, 
including discretion, random reserve, pegging and routing.
    \8\ Financial Information eXchange (FIX) is a vendor-neutral 
standard message protocol that defines an electronic message 
exchange for communicating securities transactions between two 
parties.
    \9\ The OUCH Order entry protocol is a proprietary protocol that 
allows subscribers to quickly enter orders into the System and 
receive executions. OUCH accepts limit Orders from members, and if 
there are matching Orders, they will execute. Non-matching Orders 
are added to the Limit Order Book, a database of available limit 
Orders, where they are matched in price-time priority. OUCH only 
provides a method for members to send Orders and receive status 
updates on those Orders.
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    The Exchange notes that dedicated Purge Ports are not a new 
functionality for equities exchanges; Nasdaq PHLX, LLC and other equity 
exchanges already offer similar functionality.\10\ The Exchange also 
notes that the proposed Purge Ports increase efficiency of already 
existing functionality enabling the cancellation of orders. Nasdaq 
operates highly performant systems with significant throughput and 
determinism which allows participants to enter, update and cancel 
orders at high rates. In that regard, Participants can cancel orders in 
rapid succession across their order entry ports.\11\ In addition, the 
Exchange provides a similar ability to mass cancel orders through the 
Nasdaq Kill Switch, which is an optional tool offered at no charge that 
enables Participants to establish pre-determined levels of risk 
exposure, which can be used to cancel all open orders. Similarly, 
Participants may use cancel-on-disconnect control when they experience 
a disruption in connection to the Exchange to immediately cancel all 
pending Exchange orders except for good-till-canceled orders. 
Accordingly, the Exchange believes that the purge functionality and 
Purge Ports provide an efficient option as an alternative to already 
available services and enhance the Participant's ability to manage 
their risk.
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    \10\ See Securities Exchange Act Release No. 84405 (October 11, 
2018), 83 FR 52598 (October 17, 2018) (SR-CboeEDGA-2018-016). 
Explaining its decision to waive the 30-day operative delay of this 
proposed rule change, the Commission stated that it believed that 
purge ports may be a helpful tool for managing the risk associated 
with trading equities, and that this can be important both for 
individual market participants and the market in general.
    \11\ Current Exchange port functionality supports cancelation 
rates that exceed one thousand messages per second and the 
Exchange's research indicates that certain Participants rely on such 
functionality and at times utilize such cancelation rates.
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    The Exchange proposes to provide the purging functionality without 
charging any additional fees. All existing ports will be enhanced with 
the purging functionality and will continue to be subject to the 
existing fee schedule without any changes.
    The Exchange proposes to adopt a fee for Purge Ports of $500 per 
port/per month. As stated above, the Exchange believes that 
Participants would benefit from a dedicated purge mechanism. Only firms 
that request Purge Ports would be subject to the proposed fees, and 
other firms can continue to operate

[[Page 73058]]

in exactly the same manner as they do today without dedicated Purge 
Ports, but with the additional purging functionality.
    The Exchange proposes to waive the applicable $300 per Purge Port, 
per month fees for Participants that use their Exchange access 
protocols connection through the Exchange's Testing Facility to test 
the new Purge Ports. The fees will be waived for the first two calendar 
months from the date the participant first receives access to Purge 
Ports in the Test Facility. A Participant may choose to conduct testing 
for OUCH, FIX and RASH protocols simultaneously or at different times. 
If a Participant chooses to conduct tests for their protocols 
separately, the fees will be waived each time.
    After the two months of service, a Participant will be expected to 
have fully tested the new Purge Ports and will be charged for any fees 
incurred for using the Exchange's Testing Facility ports thereafter.
Implementation
    The Exchange will issue an Equity Trader Alert to members 
announcing the exact date the Exchange will implement the Purge Ports 
and the purging functionality, as described above.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The proposal is also 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed rule change would promote 
just and equitable principles of trade and remove impediments to and 
perfect the mechanism of a free and open market because offering 
Participants a new optional service promotes choice, flexibility, 
efficiency, and competition. The Exchange believes the new features may 
enhance participants' ability to manage orders, which would, in turn, 
improve their risk controls to the benefit of all market participants. 
The Exchange believes that the purging functionality and the Purge 
Ports would foster cooperation and coordination with persons engaged in 
facilitating transactions in securities because designating Purge Ports 
for purge messages may encourage better use of such ports. This may, 
concurrent with the ports that carry quote and other information 
necessary for market making activities, enable more efficient, as well 
as fair and reasonable, use of Market Makers' resources. Although 
dedicated Purge Ports are a new functionality for the Exchange,\14\ 
similar connectivity and functionality is offered by options exchanges, 
including the Exchange's own affiliated equities and options exchanges, 
and other equities exchanges.\15\ The Exchange believes that proper 
risk management, including the ability to efficiently cancel multiple 
orders quickly when necessary, is similarly valuable to firms that 
trade in the equities market, including Market Makers that have 
heightened quoting obligations that are not applicable to other market 
participants.
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    \14\ See footnote 6, above.
    \15\ See Securities Exchange Act Release No. 77613 (April 13, 
2016), 81 FR 23023 (April 19, 2016). See also Securities Exchange 
Act Release Nos. 79956 (February 3, 2017), 82 FR 10102 (February 9, 
2017) (SR-BatsBZX-2017-05); 79957 (February 3, 2017), 82 FR 10070 
(February 9, 2017) (SR-BatsEDGX-2017-07); 83201 (May 9, 2018), 83 FR 
22546 (May 15, 2018) (SR-C2-2018-006).
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    The proposed rule change will not relieve Market Makers of their 
quoting obligations or firm quote obligations under Regulation NMS Rule 
602.\16\ Specifically, any interest that is executable against a 
Participant's or Market Maker's quotes and orders that is received by 
the Exchange prior to the time of the removal of orders request will 
automatically execute. Market Makers that purge their orders will not 
be relieved of the obligation to provide continuous two-sided quotes on 
a daily basis, nor will it prohibit the Exchange from taking 
disciplinary action against a Market Maker for failing to meet their 
continuous quoting obligation each trading day.\17\
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    \16\ 17 CFR 242.602.
    \17\ See Equity 2, Section 5.
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    Dedicated Purge Ports, which were originally introduced for options 
trading, subsequently became a feature in the equities market. The 
Exchange, therefore, is not the first equities exchange to offer this 
functionality to Participants and to charge associated fees.\18\
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    \18\ Cboe charges $650 per port/per month for Purge Ports that 
have substantially similar functionality. This fee is also $100 more 
than the fee for a logical port on its exchange. See, Cboe EDGA U.S. 
Equities Exchange Fee Schedule.
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    The Exchange believes the proposed fee for Purge Ports is 
reasonable. The Exchange currently charges $400 per port/per month for 
logical ports. The Exchange believes it is reasonable to charge $500 
per month for the proposed Purge Ports, which is $100 more than the fee 
for a logical port, as such ports represent targeted enhancement of 
technology and were specially developed to allow for the sending of a 
single message to cancel multiple orders, thereby assisting firms in 
effectively managing risk. Nasdaq also believes that a Participant that 
chooses to utilize a Purge Port may, in the future, reduce their need 
for additional logical ports by consolidating cancel messages to the 
Purge Port and thus freeing up some capacity of the existing logical 
ports and, therefore, allowing for increased message traffic without 
paying for additional logical ports. In addition, the proposed purging 
functionality will allow Participants to achieve essentially the same 
outcome without paying for a dedicated Purge Port. Purge Ports provide 
the ability to cancel multiple orders across multiple ports with less 
messaging from the firms using the ports and therefore may create 
efficiencies for firms and provide a more economical solution to their 
risk management needs. In addition, Purge Port requests may cancel 
orders submitted over numerous ports and contain added functionality to 
purge only a subset of these orders (per MPID, buy or sell side of the 
order, or ticker symbol). Effective risk management is important both 
for individual market participants that choose to utilize risk features 
provided by the Exchange, as well as for the market in general. As a 
result, the Exchange believes that it is appropriate to charge fees for 
such functionality as doing so aids in the maintenance of a fair and 
orderly market.
    The Exchange also believes that its ability to set fees for Purge 
Ports is subject to significant substitution-based forces because 
Participants are able to rely on currently available services both free 
and those they receive when using existing trading protocols, which 
will include the proposed purging functionality. If the value of the 
efficiency introduced through the Purge Port functionality is not worth 
the proposed fees, Participants will simply continue to rely on the 
existing functionality and the proposed purging functionality and not 
pay for Purge Ports. In that regard, Participants

[[Page 73059]]

already can cancel orders individually and by utilizing Nasdaq 
protocols that allow them to develop proprietary systems that can send 
cancel messages at a high rate.\19\ In addition, the Exchange already 
provides similar ability to mass cancel orders through the Nasdaq Kill 
Switch, which is an optional tool offered at no charge that enables 
Participants to establish pre-determined levels of risk exposure, and 
can be used to cancel all open orders. Similarly, Participants may use 
cancel-on-disconnect control when they experience a disruption in 
connection to the Exchange to immediately cancel all pending Exchange 
orders except for good-till-canceled orders. Finally, the proposed 
purging functionality will allow Participants to achieve essentially 
the same outcome in canceling orders as they would by utilizing the 
Purge Ports. Accordingly, the Exchange believes that the proposed Purge 
Ports fee is reasonable because it is related to the efficiency 
introduced by the Purge Port functionality related to other means and 
services already available which are either free or already a part of a 
fee assessed to the Participant's for existing connectivity. 
Accordingly, because the proposed Purge Ports provide additional 
optional functionality, excessive fees would simply serve to reduce or 
eliminate demand for this optional product.
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    \19\ Current Exchange port functionality supports cancelation 
rates that exceed one thousand messages per second and the 
Exchange's research indicates that certain Participants rely on such 
functionality and at times utilize such cancelation rates.
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    The Exchange also believes that offering the purging functionality 
and the Purge Ports at the Exchange level promotes risk management 
across the industry, and thereby facilitates investor protection. Some 
market participants, in particular the larger firms, could and do build 
similar risk functionality (as described above) in their trading 
systems that permit the flexible cancellation of orders entered on the 
Exchange at a high rate. Offering Exchange level protections ensures 
that such functionality is widely available to all firms, including 
smaller firms that may otherwise not be willing to incur the costs and 
development work necessary to support their own customized mass cancel 
functionality.
    As noted above, the Exchange is not the first equities exchange to 
develop and offer dedicated Purge Ports for equities trading, and the 
proposed rate is the same or lower than that charged by other equities 
exchanges for similar functionality. Generally speaking, restricting 
the Exchange's ability to offer new services and charge fees for these 
new services discourages innovation and competition. Specifically in 
this case, the Exchange's inability to introduce similar services to 
those offered by other exchanges, and charge reasonable and equitable 
fees for such services, would put the Exchange at a significant 
competitive disadvantage and therefore serves to restrict competition 
in the market--especially when other exchanges assess fees higher than 
those proposed by the Exchange.
    The Exchange believes that the proposed Purge Port fees are 
equitable because the proposed Purge Ports are completely voluntary as 
they relate solely to optional risk management functionality.
    The Exchange also believes that the proposed amendments to its fee 
schedule are not unfairly discriminatory because they will apply 
uniformly to all Participants that choose to use the optional Purge 
Ports. The proposed Purge Ports are completely voluntary and, as they 
relate solely to optional risk management functionality, no Participant 
is required or under any regulatory obligation to utilize them. All 
Participants that voluntarily select this service option will be 
charged the same amount for the same services. All Participants have 
the option to select any connectivity option, and there is no 
differentiation among Participants with regard to the fees charged for 
the services offered by the Exchange.
    The Exchange believes that the proposal to waive the applicable 
$300 per Purge Port, per month fees for Participants that conduct tests 
of their Exchange access protocols connection through the Exchange's 
Testing Facility to test the new Purge Ports functionality is 
reasonable and not unfairly discriminatory. Importantly, the Exchange 
believes the two month waiver of the fee will encourage testing of the 
new optional Purge Ports, which will allow participants to evaluate 
whether the new optional service is of value to them and if so will 
help them better implement them into their workflow. All Participants 
will be notified about the availability of the new Purge Port 
functionality and have access to test it but will not be required to 
use it. Moreover, the fees for the RASH, FIX and OUCH ports will remain 
the same and apply to all Participants in the same manner. Based on the 
Exchange's experience, we anticipate that Participants will complete 
testing the new Purge Ports within two months from initiating such 
tests and thus will not incur any fees related to testing the 
functionality of Purge Ports.

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. To the contrary, the Exchange 
believes the proposed rule change will enhance competition because it 
will enable the Exchange to innovate and offer similar equities Purge 
Port functionality to that offered by other equity exchanges and on 
options markets today. The proposed Purge Ports are completely 
voluntary and will be made available to all members on an equal basis 
at the same cost. While the Exchange believes that the proposed Purge 
Ports provide a valuable service, Participants can choose to purchase, 
or not purchase, these ports based on their own determination of the 
value and their business needs. No Participant is required or under any 
regulatory obligation to utilize Purge Ports. Accordingly, the Exchange 
believes that the proposed rule change is designed to offer appropriate 
risk management functionality to firms that trade on the Exchange 
without imposing an unnecessary or inappropriate burden on competition.
    The Exchange is also allowing the Participants to test this new 
functionality for free by providing a two month waiver in the 
Exchange's Test Facility. Accordingly, the Exchange believes that the 
proposed rule change is designed to offer optional risk management 
functionality to firms that trade on the Exchange without imposing an 
unnecessary or inappropriate burden on competition.

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)(iii) of the Act \20\ and

[[Page 73060]]

subparagraph (f)(6) of Rule 19b-4 thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    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. 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

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5123243d347c323e3c3c343f2522112234327f363e27"><span class="__cf_email__" data-cfemail="0173746d642c626e6c6c646f7572417264622f666e77">[email protected]</span></a>. Please include 
file number SR-NASDAQ-2023-041 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-NASDAQ-2023-041. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2023-041 and should 
be submitted on or before November 14, 2023.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-23404 Filed 10-23-23; 8:45 am]
BILLING CODE 8011-01-P


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