[Federal Register Volume 87, Number 61 (Wednesday, March 30, 2022)]
[Notices]
[Pages 18405-18409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06511]


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SECURITIES AND EXCHANGE COMMISSION


[Release No. 34-94492; File No. SR-NASDAQ-2022-020]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4756(a)(3), in Light of Planned Changes to the System as 
Well as To Address Existing Issues

March 23, 2022.
    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 March 11, 2022, 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

[[Page 18406]]

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 amend Rule 4756(a)(3), in light of planned 
changes to the System as well as to address existing issues, as 
described further 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
    Presently, the Exchange is making functional enhancements and 
improvements to specific Order Types \3\ and Order Attributes \4\ that 
are currently only available via the RASH Order entry protocol.\5\ 
Specifically, the Exchange will be upgrading the logic and 
implementation of these Order Types and Order Attributes so that the 
features are more streamlined across the Nasdaq Systems and order entry 
protocols, and will enable the Exchange to process these Orders more 
quickly and efficiently. Additionally, this System upgrade will pave 
the way for the Exchange to enhance the OUCH Order entry protocol \6\ 
so that Participants may enter such Order Types and Order Attributes 
via OUCH, in addition to the RASH Order entry protocol.\7\ The Exchange 
plans to implement its enhancement of the OUCH protocol sequentially, 
by Order Type and Order Attribute.\8\
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    \3\ An ``Order Type'' is a standardized set of instructions 
associated with an Order that define how it will behave with respect 
to pricing, execution, and/or posting to the Nasdaq Book when 
submitted to Nasdaq. See Equity 1, Section 1(a)(7).
    \4\ An ``Order Attribute'' is a further set of variable 
instructions that may be associated with an Order to further define 
how it will behave with respect to pricing, execution, and/or 
posting to the Nasdaq Book when submitted to Nasdaq. See id.
    \5\ The RASH (Routing and Special Handling) 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. See http://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf.
    \6\ The OUCH Order entry protocol is a Nasdaq 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. See https://www.nasdaqtrader.com/Trader.aspx?id=OUCH.
    \7\ The Exchange designed the OUCH protocol to enable members to 
enter Orders quickly into the System. As such, the Exchange 
developed OUCH with simplicity in mind, and it therefore lacks more 
complex order handling capabilities. By contrast, the Exchange 
specifically designed RASH to support advanced functionality, 
including discretion, random reserve, pegging and routing. Once the 
System upgrades occur, then the Exchange intends to propose further 
changes to its Rules to permit participants to utilize OUCH, in 
addition to RASH, to enter order types that require advanced 
functionality.
    \8\ The Exchange notes that its sister exchanges, Nasdaq BX and 
Nasdaq PSX, plan to file similar proposed rule changes with the 
Commission shortly. However, certain Order Types affected by the 
proposed rule change are associated with the Nasdaq Opening and 
Closing Crosses (LOC, MOC, LOO, MOO, IO, and OIO Orders, discussed 
below), and thus are not applicable to either Nasdaq BX or Nasdaq 
PSX.
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    To support and prepare for these upgrades and enhancements, the 
Exchange previously submitted four rule filings to the Commission that 
amended its rules pertaining to, among other things, Market Maker Peg 
Orders, Orders with Reserve Size, Orders with Pegging and Trade Now 
Attributes, and Discretionary Orders.\9\ The Exchange now proposes to 
amend Rule 4756(a)(3), which governs the entry of Orders, so that it 
aligns with how the System, once upgraded, will handle the partial 
cancellation of Orders to reduce their share size. The proposed filing 
also addresses issues with the existing Rule text and the current 
implementation of that Rule text by the System.
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    \9\ See Securities Exchange Act Release No. 34-93245 (October 4, 
2021), 86 FR 56302 (October 8, 2021) (SR-NASDAQ-2021-075); 
Securities Exchange Act Release No. 34-92180 (June 15, 2021), 86 FR 
33420 (June 24, 2021) (SR-NASDAQ-2021-044); Securities Exchange Act 
Release No. 34-91109 (February 11, 2021), 86 FR 10141 (February 18, 
2021) (SR-NASDAQ-2020-090); Securities Exchange Act Release No. 34-
90389 (November 10, 2020), 85 FR 73304 (November 17, 2020) (SR-
NASDAQ-2020-071).
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    In pertinent part, existing Rule 4756(a)(3) states as follows, with 
respect how the Exchange handles partial Order cancellations to reduce 
share size:

    In addition, a partial cancellation of an Order to reduce its 
share size will not affect the priority of the Order on the book; 
provided, however, that such a partial cancellation may not be made 
with respect to an MOO Order, an LOO Order, an OIO Order, an MOC 
Order, an LOC Order, an IO Order, or a Pegged Order (including a 
Discretionary Order that is Pegged).

The first clause of this text states the general rule that participants 
may instruct the Exchange to partially cancel their Orders to reduce 
share size, and when handling such partial cancellation instructions, 
the Exchange will adjust the size of the Orders without affecting their 
existing priority. The second clause states an exception to this 
general rule, which the Exchange intends to mean that when the Exchange 
processes partial cancellations of Market On Open (``MOO''), Limit on 
Open (``LOO''), Opening Imbalance Only (``OIO''), Market on Close 
(``MOC''), Limit on Close (``LOC''), and Imbalance Only Orders 
(``IO''), as well as Orders with the Pegging Attribute (including 
Discretionary Orders with Pegging) that participants enter via RASH or 
FIX or QIX (as opposed to OUCH or FLITE), the partially cancelled 
Orders will lose their priority.
    Going forward, planned upgrades will provide for the Exchange to 
process partial cancellations of all Order Types and Attributes entered 
through all of its available and applicable Order Entry Protocols, 
including RASH, OUCH, FIX, QIX and FLITE,\10\ and it will do so without 
loss of priority, such that the existing exception to the general rule 
in 4756(a)(3) will no longer be necessary. Thus, the Exchange proposes 
to eliminate this exception by deleting the following text from the 
Rule: ``provided, however, that such a partial cancellation may not be 
made with respect to an MOO Order, an LOO Order, an OIO Order, an MOC 
Order, an LOC Order, an IO Order, or a Pegged Order (including a 
Discretionary Order that is Pegged).'' This proposal will provide 
better outcomes to participants by enabling them to reduce the share 
size of their Orders without the need to sacrifice the priority of 
their Orders.
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    \10\ The Exchange notes that while the QIX Order Entry Protocol 
still exists, the Exchange plans to retire it in the near future and 
has begun transitioning participants away from its use.
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    The Exchange believes that it is reasonable to allow the partial

[[Page 18407]]

cancellation of an Order without the Order losing priority because the 
participant that entered the Order continues to express its willingness 
to trade at the price entered when the Order first came onto the Book. 
Moreover, if the Order is displayed, other participants quoting at the 
same price are aware of the priority of their Orders relative to the 
partially cancelled Order. While a partial cancellation may provide 
these other participants with greater opportunities to provide a fill, 
the Exchange does not believe that it would be reasonable for these 
participants to jump ahead of an Order with time priority merely 
because the size of the Order has been reduced. Similarly, if the 
partially cancelled Order is non-displayed, other participants would 
have no awareness of its price, its original size, or its reduced size. 
Again, while other participants at that price may have an increased 
opportunity to provide a fill when the Order's size is reduced, they 
would not have an expectation that the priority of their Orders would 
change vis-[agrave]-vis that of an Order that arrived on the Book at an 
earlier time.
    Moreover, the Exchange notes that the proposal will simplify and 
harmonize the Exchange's processing of partial cancellations across its 
Order Entry Protocols.
    Additionally, the proposed Rule change will address ambiguities in 
the existing Rule text. The existing Rule text does not state expressly 
the Exchange's current practice of restricting the loss of priority 
following a partial cancellation to LOO, MOO, MOC, LOC, and Pegged 
Orders when such Orders are entered through RASH or FIX or QIX. The 
existing language suggests that partial cancellations of these Orders 
cause a loss of priority in all cases, regardless of the Exchange's 
Order Entry Protocol utilized to enter the Orders. In fact, the 
Exchange does process partial cancellations of these Orders without 
loss of priority when the Orders are entered through OUCH and FLITE. 
The proposed Rule change will address this issue by providing for 
consistent handling of partial cancellations across all Orders and all 
applicable and available Order Entry Protocols and by eliminating 
exceptions in the existing Rule text.
    Similarly, the existing Rule is ambiguous as to the intended scope 
of its exception to the general rule for ``Pegged Orders.'' Although 
the Rule states that the exception applies to ``Pegged Orders 
(including a Discretionary Order that is Pegged),'' the Exchange does 
not intend for Orders with Midpoint Pegging to be part of this 
exception, and it applies the Rule accordingly. In other words, the 
Exchange processes partial cancellations for Orders with Midpoint 
Pegging (i.e., Midpoint Peg Post-Only Orders, Midpoint Extended Life 
Orders, and Midpoint Extended Life Plus Continuous Book Orders, as well 
as Non-Display Orders assigned the Midpoint Peg Attribute) without loss 
of priority. The Exchange recognizes that the Rule text does not 
specifically address Orders with Midpoint Pegging. Again, the proposed 
Rule change will eliminate this issue going forward because the 
Exchange will adopt consistent handling of partial cancellations across 
all Orders and available and applicable Order Entry Protocols.
    Finally, the proposed Rule change will address a problem that the 
Exchange has uncovered with the manner in which the System presently 
processes OIO and IO Orders entered though RASH and FIX and QIX. As 
noted above, the Exchange intends for the existing Rule to mean that 
partially cancelled OIO and IO Orders entered through RASH or FIX or 
QIX lose priority. Nevertheless, the Exchange discovered, during the 
course of preparing its upgrades that the System presently processes 
partial cancellations of OIO and IO Orders entered through RASH or FIX 
or QIX without loss of priority. The Exchange believes that the 
proposed Rule will render the existing Rule text problem moot, and will 
better serve participants by improving the efficiency of their activity 
on the Exchange as well as their potential outcomes.
    The Exchange intends to implement the foregoing changes during the 
Second Quarter of 2022. The Exchange will issue an Equity Trader Alert 
at least 7 days in advance of implementing the changes.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposed amendment to Rule 
4756(a)(3) is consistent with the Act. Eliminating the exception to the 
general Rule providing for the Exchange to process partial 
cancellations without loss of priority will benefit participants by 
enabling them to reduce the share size of their Orders without the need 
to sacrifice the priority of their Orders.
    The Exchange believes that it is reasonable to allow the partial 
cancellation of an Order without the Order losing priority because the 
participant that entered the Order continues to express its willingness 
to trade at the price entered when the Order first came onto the Book. 
Moreover, if the Order is displayed, other participants quoting at the 
same price are aware of the priority of their Orders relative to the 
partially cancelled Order. While a partial cancellation may provide 
these other participants with greater opportunities to provide a fill, 
the Exchange does not believe that it would be reasonable for these 
participants to jump ahead of an Order with time priority merely 
because the size of the Order has been reduced. Similarly, if the 
partially cancelled order is non-displayed, other participants would 
have no awareness of its price, its original size, or its reduced size. 
Again, while other participants at that price may have an increased 
opportunity to provide a fill when the Order's size is reduced, they 
would not have an expectation that the priority of their Orders would 
change vis-[agrave]-vis that of an Order that arrived on the Book at an 
earlier time.
    Moreover, the proposal will simplify and harmonize the Exchange's 
processing of partial cancellations across its Order Entry Protocols. 
This proposed amendment reflects planned upgrades that will allow the 
Exchange to process partial cancellation of Orders entered through all 
pertinent and available Order Entry Protocols without loss of priority.
    Additionally, the proposed Rule change is consistent with the Act 
because it will eliminate ambiguities in the existing Rule text that do 
not fully reflect the Exchange's intended meaning or application of the 
Rule. As noted above, the existing Rule text does not state that the 
Exchange limits the loss of priority for partially cancelled Orders to 
LOO, MOO, MOC, LOC, and Pegged Orders when such Orders are entered 
through RASH or FIX or QIX. The existing language suggests that partial 
cancellations of these Orders lose priority in all cases, regardless of 
the Exchange's Order Entry Protocol utilized to enter the Orders. In 
fact, the Exchange does process partial cancellations of these Orders 
without loss of priority when the Orders are entered through OUCH or 
FLITE. The

[[Page 18408]]

proposed Rule change will address this issue by providing for 
consistent handling of partial cancellations across all applicable and 
available Orders and Order Entry Protocols and by eliminating 
exceptions in the existing Rule text.
    Similarly, the existing Rule does not reflect the Exchange's intent 
that Orders with Midpoint Pegging are not included in this exception, 
even though it applies the Rule in this manner. In other words, the 
Exchange processes partial cancellations for Midpoint Pegging Orders 
without loss of priority. The Exchange recognizes that the Rule text 
does not specifically address Orders with Midpoint Pegging. Again, the 
proposed Rule change will eliminate this issue going forward because 
the Exchange will adopt consistent handling of partial cancellations 
across all Orders and applicable and available Order Entry Protocols.
    The proposed Rule change is consistent with the Act because it will 
address a problem that the Exchange has uncovered with the manner in 
which the System presently processes OIO and IO Orders entered though 
RASH and FIX and QIX. As noted above, the Exchange intends for the 
existing Rule to mean that partially cancelled OIO and IO Orders 
entered through RASH or FIX or QIX lose priority. Nevertheless, during 
the course of preparing its upgrades, the Exchange discovered that the 
System presently does process partial cancellations of OIO and IO 
Orders entered through RASH and FIX and QIX without loss of priority. 
The Exchange believes that the proposed Rule will render the existing 
Rule text problem moot, and will better serve participants by improving 
the efficiency of their activity on the Exchange as well as their 
potential outcomes. Furthermore, it is consistent with the Act to 
ensure that the Exchange's Rules and practices are, and remain, in 
sync.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that its proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. As a general principle, the 
proposed changes are reflective of the significant competition among 
exchanges and non-exchange venues for order flow. In this regard, 
proposed changes that facilitate enhancements to the Exchange's System 
and Order Entry Protocols as well as those that amend and clarify the 
Exchange's Rules regarding its Order Types and Attributes, are pro-
competitive because they bolster the efficiency, integrity, and overall 
attractiveness of the Exchange in an absolute sense and relative to its 
peers.
    Moreover, the proposed changes will not unduly burden intra-market 
competition among various Exchange participants. The Exchange's 
proposal to allow the partial cancellation of an Order without the 
Order losing priority will not impact intra-market competition because 
the participant that entered the Order continues to express its 
willingness to trade at the price entered when the Order first came 
onto the Book. Moreover, if the Order is displayed, other participants 
quoting at the same price are aware of the priority of their Orders 
relative to the partially cancelled Order. While a partial cancellation 
may provide these other participants with greater opportunities to 
provide a fill, the Exchange does not believe that it would be 
reasonable for these participants to jump ahead of an Order with time 
priority merely because the size of the Order has been reduced. 
Similarly, if the partially cancelled Order is non-displayed, other 
participants would have no awareness of its price, its original size, 
or its reduced size. Again, while other participants at that price may 
have an increased opportunity to provide a fill when the Order's size 
is reduced, they would not have an expectation that the priority of 
their Orders would change vis-[agrave]-vis that of an Order that 
arrived on the Book at an earlier time.

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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 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 (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6614130a034b05090b0b030812152615030548010910"><span class="__cf_email__" data-cfemail="592b2c353c743a3634343c372d2a192a3c3a773e362f">[email protected]</span></a>. Please include 
File Number SR-NASDAQ-2022-020 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-2022-020. 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

[[Page 18409]]

personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2022-020, and should 
be submitted on or before April 20, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06511 Filed 3-29-22; 8:45 am]
BILLING CODE 8011-01-P


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