[Federal Register Volume 82, Number 159 (Friday, August 18, 2017)]
[Notices]
[Pages 39471-39473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17435]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81390; File No. SR-NASDAQ-2017-082]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Clarify When Nasdaq Will Utilize the Secondary Source of Data

August 14, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 2, 2017, 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.
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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 further clarify when Nasdaq will utilize 
the Secondary Source of data pursuant to Rule 4759.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to clarify when Nasdaq 
will utilize the Secondary Source of data pursuant to Rule 4759. Rule 
4759 lists the proprietary and network processor feeds that are 
utilized for the handling, routing, and execution of orders, as well as 
for the regulatory compliance processes related to those functions. 
Rule 4759 also lists Secondary Sources of data that are utilized in 
emergency market conditions, and only until those emergency conditions 
are resolved. The Exchange proposes to amend this rule to describe how 
the Nasdaq trading system decides when to use the Primary or Secondary 
Source of data. Specifically, the Exchange proposes to amend Rule 4759 
to clarify that the Primary Source of data is used unless it is delayed 
by a configurable amount compared to the Secondary Source of data.\3\ 
The Exchange will revert to the Primary Source of data once the delay 
has been resolved. The configurable amount described in this rule will 
be made available to members via Equity Trader Alert.
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    \3\ As a conforming change, the Exchange proposes to remove the 
current rule text that indicates that the Secondary Source of data 
is, where applicable, utilized only in emergency market conditions 
and only until those emergency conditions are resolved. The Exchange 
does not believe that this language is needed as the amended rule 
would now indicate with more specificity when the Exchange fails 
over to the Secondary Source of data.
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    The Exchange believes that this clarification is necessary in light 
of the re-launch of NYSE MKT as NYSE American, which is scheduled for 
July 24, 2017.\4\ NYSE American rules provide for an intentional 350 
microsecond access delay to certain inbound and outbound order messages 
on that exchange, including all outbound communications to proprietary 
market data feeds. NYSE American will not apply a similar delay to 
outbound communications to the securities information processor 
(``SIP''). Due to the intentional delay of proprietary market data to 
be disseminated by NYSE American, the Exchange believes that fail over 
to the Secondary Source of Data may sometimes be necessary even during 
otherwise normal operation to ensure that the fastest and most reliable 
data is used for the handling, routing, and execution of orders, and 
for regulatory compliance purposes.
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    \4\ See Securities Exchange Act Release No 80700 (May 16, 2017), 
82 FR 23381 (May 22, 2017) (SR-NYSEMKT-2017-05) (Approval Order).
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    Currently, the Nasdaq trading system utilizes proprietary market 
data as the Primary Source for the following markets that provide a 
reliable proprietary data feed: NYSE MKT, NASDAQ OMX BX, DirectEdge A, 
DirectEdge X, CHX, NYSE, NYSE Arca,

[[Page 39472]]

NASDAQ, NASDAQ OMX PSX, BATS Y-Exchange, and BATS Exchange. For each of 
these markets, the Exchange uses SIP data as the Secondary Source.\5\ 
The trading system then uses certain real-time logic to determine 
whether emergency market conditions exist that should result in the 
failover to the Secondary Source of data from the Primary Source. 
Specifically, the trading system fails over to the Secondary Source of 
data for these markets if the Primary Source of data is delayed by a 
configurable amount compared to the Secondary Source.\6\ A significant 
delay of the Primary Source of data compared to the Secondary Source of 
data indicates that there is an emergency market condition pursuant to 
Rule 4759. In such an instance, the Exchange believes that it is 
appropriate to fail over to the Secondary Source of data as the 
Secondary Source of data is more current. If the Exchange fails over to 
the Secondary Source of data it will re-elect the Primary Source of 
data if the Primary Source of data is no longer delayed compared to the 
Secondary Source. This process ensures that the Exchange's trading and 
other systems have the most accurate view of the trading interest 
available across other markets.
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    \5\ SIP data is used as the Primary Source for NSX, FINRA ADF, 
and IEX. There is no Secondary Source for these markets.
    \6\ A delay is indicated by data being received by the Exchange 
from the Secondary Source that has a more recent timestamp than the 
Primary Source. Fail over then occurs once such a delay has reached 
a configurable value. The configurable amount described in this rule 
will be made available to members via Equity Trader Alert. 
Currently, this configurable value is set to 1.5 seconds. The 
Exchange will issue an Equity Trader Alert to members to notify them 
of the current value and in the event that it changes this value.
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    With the upcoming launch of NYSE American, the Exchange believes 
that its current rule should be amended to better reflect intentional 
delays to the Primary Source of data. Specifically, the Exchange 
desires to make clear that even otherwise normal operation of the 
Primary Source of data may result in the Exchange electing the 
Secondary Source of data if that operation includes an intentional 
delay. This would be the case even if such operation would not normally 
be deemed an emergency market condition. Although the Exchange's 
process for determining which data to use will not change at this 
time,\7\ the Exchange believes that it is important to clarify that 
process so that members and other market participants are adequately 
apprised of when the Exchange will use the Primary or Secondary Source 
of data.
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    \7\ The Exchange may decrease the amount of delay required to 
switch to the Secondary Source of data at a later date. The Exchange 
will alert members of any such change with an Equity Trader Alert. 
See id.
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    As explained earlier in this proposed rule change, the Exchange 
employs an automated, real-time, process to determine if there is an 
emergency market condition pursuant to Rule 4759. In particular, the 
Exchange determines whether there is an emergency market condition by 
comparing the timestamp of the Primary Source of data with the 
timestamp of the Secondary Source of data. The Exchange believes that a 
significant delay in the Primary Source of data compared to the 
Secondary Source is an emergency market condition because such a delay 
is not consistent with normal operation of such data feeds. The 
Exchange does not believe that the current emergency market conditions 
language is clear, however, when dealing with markets such as NYSE 
American that have employed an intentional delay in the data 
disseminated over the direct data feeds utilized by the Exchange as the 
Primary Source of data. Currently, the Primary Source of data is used 
unless it is delayed by a configurable amount compared to the Secondary 
Source of data. The Exchange then reverts to the Primary Source of data 
once the delay has been resolved. The Primary Source of data may be 
delayed due to technical issues that would normally be considered an 
emergency market condition, or during otherwise normal operation of the 
Primary Source of data if an intentional delay has been implemented. In 
this respect, the Exchange notes that even NYSE Arca--an affiliate of 
NYSE American--has decided to use SIP data as the primary source of 
data for NYSE American due to the intentional delay of messages on 
their proprietary market data.\8\ Although Nasdaq is not proposing to 
change its Primary Source of data for NYSE American, the Exchange 
believes that modifying its rules to clarify the conditions where the 
Secondary Source of data may be elected will increase transparency of 
the operation of the Exchange to the benefit of members and other 
market participants.
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    \8\ See Securities Exchange Act Release No. 34-81061 (June 30, 
2017), 82 FR 31642 (July 7, 2017) (SR-Arca-2017-70).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change removes 
impediments to and perfects the mechanism of a free and open market and 
protects investors and the public interest because it provides 
additional transparency around when Nasdaq will elect to use the 
Secondary Source of data for the handling, routing, and execution of 
orders, and for regulatory compliance purposes. The proposed rule 
change does not change the operation of the Exchange or its use of data 
feeds; rather it clarifies when the Exchange will elect the Secondary 
Source of data pursuant to Rule 4759. Currently, Rule 4759 indicates 
that the Exchange will fail over to the Secondary Source of data if 
there is an emergency market condition but does not specify what counts 
as an emergency market condition pursuant to the rule. In fact, the 
Exchange has an automated, real-time, process for determining whether 
an emergency market condition exists by measuring the amount of delay 
between the Primary and Secondary Sources of data. The proposed rule 
change therefore clarifies that the Exchange will elect the Secondary 
Source of data if the Primary Source of data is delayed by a 
configurable amount (made available to members via Equity Trader 
Alert), and will then revert to the Primary Source of data once the 
delay has been resolved. The Secondary Source of data may be elected 
even during otherwise normal operation because of intentional delays in 
the dissemination of market data over an exchange's proprietary market 
data feeds. The Exchange believes that this change is appropriate in 
light of the launch of the NYSE American exchange, which will come with 
an intentional delay of market data provided through proprietary data 
products used by Nasdaq as the Primary Source of data. The Exchange 
believes the additional transparency of the operation of the Exchange 
as described in the proposed rule change will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest.

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 that is not necessary or appropriate 
in furtherance

[[Page 39473]]

of the purposes of the Act. The proposed rule change is not designed to 
address any competitive issue but rather would provide members and 
other market participants with information about when Nasdaq will 
utilize its Secondary Source of data. The Exchange believes that this 
change will increase transparency around the operation of the Exchange 
without any significant impact 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 \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 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, along 
with a brief description and the 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \13\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \14\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest as 
it will allow the Exchange to clarify the conditions under which the 
Secondary Source of data may be elected and increase transparency of 
the operation of the Exchange. Accordingly, the Commission hereby 
waives the operative delay and designates the proposal operative upon 
filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

    <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#047671686129676b6969616a7077447761672a636b72"><span class="__cf_email__" data-cfemail="5d2f283138703e3230303833292e1d2e383e733a322b">[email protected]</span></a>. Please include 
File Number SR-NASDAQ-2017-082 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-2017-082. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-082 and should 
be submitted on or before September 8, 2017.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17435 Filed 8-17-17; 8:45 am]
BILLING CODE 8011-01-P


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