Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices 52075 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 81311 

(August 3, 2017), 82 FR 37248 (‘‘Notice’’). 

4 In Amendment No. 1, the Exchange updated the 

proposal to reflect the approval of the proposal by 

the Exchange’s Board of Directors on July 21, 2017. 

Amendment No. 1 is available at https://

www.sec.gov/comments/sr-nasdaq-2017-074/ 

nasdaq2017074.htm. Because Amendment No. 1 is 

a technical amendment that does not alter the 

substance of the proposed rule change, it is not 

subject to notice and comment. 

5 15 U.S.C. 78s(b)(2). 

6See Securities Exchange Act Release No. 81668, 

82 FR 45095 (September 27, 2017). The 

Commission designated November 7, 2017 as the 

date by which the Commission shall approve or 

disapprove, or institute proceedings to determine 

whether to approve or disapprove, the proposed 

rule change. 

7See Letters to Brent J. Fields, Secretary, 

Commission, from Stephen John Berger, Managing 

Director, Government & Regulatory Policy, Citadel 

Securities, dated August 30, 2017 (‘‘Citadel Letter’’); 

Ray Ross, Chief Technology Officer, The Clearpool 

Group, dated September 12, 2017 (‘‘Clearpool 

Letter’’); and Joanna Mallers, Secretary, FIA 

Principal Traders Group, dated September 19, 2017 

(‘‘FIA PTG Letter’’). 

8 In Amendment No. 2, the Exchange: (1) 

Modified the proposal to prevent MELOs from 

trading when better-priced non-displayed orders 

rest on the Nasdaq book; (2) provided additional 

description, clarification, and rationale for certain 

aspects of the proposal; and (3) responded to 

several concerns raised by commenters on the 

proposal. Amendment No. 2 is available at https:// 

www.sec.gov/comments/sr-nasdaq-2017-074/ 

nasdaq2017074.htm. 

9 15 U.S.C. 78s(b)(2)(B). 

10See proposed Nasdaq Rule 4702(b)(14)(A). 

11See id. 

12See id. 

13See id. The Exchange noted that any change to 

a MELO that would result in a change in the order’s 

timestamp would result in the MELO being 

considered altered, and thus the order would be 

subject to a new Holding Period before being 

eligible to trade and its priority would be based on 

the new timestamp. See Amendment No. 2 at n.16. 

14See proposed Nasdaq Rule 4702(b)(14)(A). 

15See Amendment No. 2 at n.11. 

16See proposed Nasdaq Rule 4702(b)(14)(A); 

Amendment No. 2 at n.15. 

17See Amendment No. 2 at n.10. 

39 U.S.C. 3642, 39 CFR part 3015, and 

39 CFR part 3020, subpart B. Comment 

deadline(s) for each request appear in 

section II. 

II. Docketed Proceeding(s) 

1. Docket No(s).: CP2016–59; Filing 

Title: USPS Notice of Change in Prices 

Pursuant to Amendment to Priority Mail 

& First-Class Package Service Contract 9: 

November 3, 2017; Filing Authority: 39 

CFR 3015.5; Public Representative: 

Kenneth R. Moeller; Comments Due: 

November 14, 2017. 

2. Docket No(s).: MC2018–20 and 

CP2018–42; Filing Title: USPS Request 

to Add Priority Mail Express, Priority 

Mail & First-Class Package Service 

Contract 25 to Competitive Product List 

and Notice of Filing Materials Under 

Seal; Filing Acceptance Date: November 

3, 2017; Filing Authority: 39 U.S.C. 3642 

and 39 CFR 3020.30 et seq.; Public 

Representative: Christopher C. Mohr; 

Comments Due: November 14, 2017. 

3. Docket No(s).: MC2018–21 and 

CP2018–43; Filing Title: USPS Request 

to Add Priority Mail Contract 372 to 

Competitive Product List and Notice of 

Filing Materials Under Seal; Filing 

Acceptance Date: November 3, 2017; 

Filing Authority: 39 U.S.C. 3642 and 39 

CFR 3020.30 et seq.; Public 

Representative: Christopher C. Mohr; 

Comments Due: November 14, 2017. 

This notice will be published in the 

Federal Register. 

Stacy L. Ruble, 

Secretary. 

[FR Doc. 2017–24412 Filed 11–8–17; 8:45 am] 

BILLING CODE 7710–FW–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82013; File No. SR– 

NASDAQ–2017–074] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing of Amendment No. 2 and Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change, as Modified by 

Amendment Nos. 1 and 2, To Adopt the 

Midpoint Extended Life Order 

November 3, 2017. 

I. Introduction 

On July 21, 2017, 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 adopt the Midpoint Extended 

Life Order (‘‘MELO’’). The proposed 

rule change was published for comment 

in the Federal Register on August 9, 

2017.3 On August 9, 2017, the Exchange 

filed Amendment No. 1 to the proposed 

rule change.4 On September 21, 2017, 

pursuant to Section 19(b)(2) of the Act,5

the Commission designated a longer 

period within which to approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change.6 The Commission has 

received three comment letters on the 

proposal.7 On October 30, 2017, the 

Exchange filed Amendment No. 2 to the 

proposed rule change.8 The Commission 

is publishing this notice and order to 

solicit comments on the proposed rule 

change, as modified by Amendment 

Nos. 1 and 2, from interested persons 

and to institute proceedings pursuant to 

Section 19(b)(2)(B) of the Act 9 to 

determine whether to approve or 

disapprove the proposed rule change, as 

modified by Amendment Nos. 1 and 2. 

II. Description of the Proposal 

The Exchange proposed to offer the 

MELO order type. A MELO would be a 

non-displayed order priced at the 

midpoint between the National Best Bid 

and Offer (‘‘NBBO’’) and would not be 

eligible to execute until a minimum 

period of one half of a second (‘‘Holding 

Period’’) has passed after acceptance of 

the order by the system.10 Once eligible 

to trade, MELOs would be ranked in 

time priority at the NBBO midpoint 

among other MELOs.11 If a limit price is 

assigned to a MELO, the order would be: 

(1) Eligible for execution in time priority 

if upon acceptance of the order by the 

system, the midpoint price is within the 

limit set by the participant; or (2) held 

until the midpoint falls within the limit 

set by the participant, at which time the 

Holding Period would commence and 

thereafter the system would make the 

order eligible for execution in time 

priority.12

If a MELO is modified by a member 

(other than to decrease the size of the 

order or to modify the marking of a sell 

order as long, short, or short exempt) 

during the Holding Period, the system 

would restart the Holding Period.13

Similarly, if a MELO is modified by a 

member (other than to decrease the size 

of the order or to modify the marking of 

a sell order as long, short, or short 

exempt) after it has become eligible to 

execute, the order would have to satisfy 

a new Holding Period.14

Movements in the NBBO while a 

MELO is in the Holding Period would 

not reset the Holding Period, even if, as 

a result of the NBBO move, the MELO’s 

limit price is less aggressive than the 

NBBO midpoint.15 Also, if a MELO has 

met the Holding Period, but the NBBO 

midpoint is no longer within its limit, 

it would nonetheless be ranked in time 

priority among other MELOs if the 

NBBO later moves such that the 

midpoint is within the order’s limit 

price (i.e., no new Holding Period).16

MELOs may be entered via any of the 

Exchange’s communications protocols 

and the type of communications 

protocol used would not affect how the 

system handles MELOs.17 If there is no 

NBB or NBO, the Exchange would 

accept MELOs but would not allow 

MELO executions until there is an 


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18See id. at 12. If there is no NBB or NBO upon 

entry of a MELO, the system would hold the order 

in time priority, together with any other MELOs 

received while there is no NBB or NBO. See id. 

Once there is an NBBO, the Holding Period would 

begin for the held MELOs based on time priority. 

See id. 

19See id. at 12–13. 

20See id. at 13. 

21See proposed Nasdaq Rule 4702(b)(14)(A). 

22See proposed Nasdaq Rule 4702(b)(14)(B). 

Market Hours begin after the completion of the 

Nasdaq Opening Cross (or at 9:30 a.m. ET in the 

case of a security for which no Nasdaq Opening 

Cross occurs). See Nasdaq Rule 4703(a). 

23See proposed Nasdaq Rule 4702(b)(14)(B). 

‘‘Pre-Market Hours’’ means the period of time 

beginning at 4:00 a.m. ET and ending immediately 

prior to the commencement of Market Hours. See 

Nasdaq Rule 4701(g). A MELO entered during PreMarket Hours would be held by the system until the 

completion of the Opening Cross (or 9:30 a.m. ET 

if no Opening Cross occurs), ranked in the time that 

it was received by the Nasdaq book upon 

satisfaction of the Holding Period. See Amendment 

No. 2 at 11–12. 

24See proposed Nasdaq Rule 4702(b)(14)(B). 

‘‘Post-Market Hours’’ means the period of time 

beginning immediately after the end of Market 

Hours and ending at 8:00 p.m. ET. See Nasdaq Rule 

4701(g). 

25See proposed Nasdaq Rule 4703(l); 

Amendment No. 2 at 12. MELOs in existence at the 

time a halt is initiated would be ineligible to 

execute and held by the system until trading has 

resumed and the NBBO has been received by 

Nasdaq. See proposed Nasdaq Rule 4702(b)(14)(A). 

26See proposed Nasdaq Rule 4702(b)(14)(B). 

27See id. 

28See id.; see also Amendment No. 2 at 11 and 

13. 

29See Amendment No. 2 at 13–14. 

30See proposed Nasdaq Rule 4702(b)(14)(A). 31See id; see also Amendment No. 2 at 9. 32See Amendment No. 2 at 15. 33See id. at 22. 34See id. 

35See id. 

36See id. at 22–23. 

37See id. at 23. 

38See id. at 16. 

39See id. 

40See Clearpool Letter. 

41See Citadel Letter and FIA PTG Letter. 

42See Clearpool Letter at 1–3. 

43See id. at 2. 

44See id. 

45See Citadel Letter at 1–3; FIA PTG Letter at 2. 

One of these commenters also expressed the 

concern that the costs of approving the MELO order 

type would far outweigh the potential benefits. See 

FIA PTG Letter at 2. This commenter asserted that 

artificially introducing latency negatively impacts 

the price discovery and formation functions of the 

exchange. See id. This commenter also expressed 

broad concerns about complexity in today’s equity 

market structure, which are outside the scope of the 

Exchange’s proposal. See id. 

46See Citadel Letter at 1–3; FIA PTG Letter at 2. 

47See Citadel Letter at 1. 

48See id. at 3. 

49See id. 

NBBO.18 MELOs would be eligible to 

trade if the NBBO is locked.19 If the 

NBBO is crossed, MELOs would be held 

by the system until such time that the 

NBBO is no longer crossed, at which 

time they would be eligible to trade.20

MELOs may be cancelled at any time, 

including during the Holding Period.21

MELOs would be active only during 

Market Hours.22 MELOs entered during 

Pre-Market Hours would be held by the 

system in time priority until Market 

Hours.23 MELOs entered during PostMarket Hours would not be accepted by 

the system, and MELOs remaining 

unexecuted after 4:00 p.m. ET would be 

cancelled by the system.24 MELOs 

would not be eligible for the Nasdaq 

opening, halt, and closing crosses.25

MELOs must be entered with a size of 

at least one round lot, and any shares of 

a MELO remaining after an execution 

that are less than one round lot would 

be cancelled.26 MELOs may have a 

minimum quantity order attribute.27

MELOs may not be designated with a 

time-in-force of immediate or cancel 

(‘‘IOC’’) and are ineligible for routing.28

They also may not have the discretion, 

reserve size, attribution, intermarket 

sweep order, display, or trade now order 

attributes.29

Once a MELO becomes eligible to 

execute by existing unchanged for the 

Holding Period, the MELO may only 

execute against other eligible MELOs.30

MELOs would not execute if there is a 

resting non-displayed order priced more 

aggressively than the NBBO midpoint, 

and they instead would be held until 

the resting non-displayed order is no 

longer on the Nasdaq book or the NBBO 

midpoint matches the price of the 

resting non-displayed order.31 MELO 

executions would be reported to 

Securities Information Processors and 

provided to Nasdaq’s proprietary data 

feeds without any new or special 

indication.32

As proposed, MELOs would be 

subject to real-time surveillance to 

determine if the order type is being 

abused by market participants.33 In 

addition, the Exchange intends to 

implement a process, at the same time 

as the implementation of MELOs, to 

monitor the use of MELOs with the 

intent to apply additional measures, as 

necessary, to ensure their usage is 

appropriately tied to the intent of the 

order type.34 The Exchange stated that 

this process may include metrics tied to 

participant behavior, such as the 

percentage of MELOs that are cancelled 

prior to the completion of the Holding 

Period, the average duration of MELOs, 

and the percentage of MELOs where the 

NBBO midpoint is within the limit price 

when received.35 The Exchange stated 

that it is committed to determining 

whether there is opportunity or 

prevalence of behavior that is 

inconsistent with normal risk 

management behavior.36 According to 

the Exchange, manipulative abuse is 

subject to potential disciplinary action 

under the Exchange’s rules, and other 

behavior that is not necessarily 

manipulative but nonetheless frustrates 

the purposes of the MELO order type 

may be subject to penalties or other 

participant requirements to discourage 

such behavior, should it occur.37

The Exchange stated that it plans to 

implement MELO within thirty days 

after Commission approval of the 

proposal.38 The Exchange would make 

MELOs available to all members and to 

all securities upon implementation, and 

would announce the implementation 

date by Equity Trader Alert.39

III. Summary of Comments and the 

Exchange’s Response 

The Commission received one 

comment letter that expressed support 

for the proposal 40 and two comment 

letters that expressed concerns about the 

proposal.41

One commenter stated its belief that 

MELOs could provide a valuable tool for 

investors, and particularly institutional 

investors, seeking to execute in large 

size.42 This commenter also stated its 

belief that MELOs have the potential to 

attract longer-term market participants 

to Nasdaq, and would provide an 

additional method to allow investors to 

effectively implement their investment 

strategies on an exchange.43 The 

commenter observed that, because 

MELOs would be on an exchange, they 

would be available to all Exchange 

participants, which the commenter 

asserted is a fairer and more transparent 

way for markets to operate as compared 

to off-exchange trading venues.44

Two commenters expressed concern 

with the degree of order segmentation 

presented by the proposal.45 They 

expressed the view that MELOs would 

create a separate order book within the 

Nasdaq matching system where only 

MELOs could interact with each other.46

One of these commenters stated that the 

proposal represents an unprecedented 

level of exchange-based order flow 

segmentation.47 This commenter 

acknowledged the existence of limited 

exchange-based mechanisms that have 

the effect of restricting some order flow 

interaction, but contended that the 

proposal goes significantly beyond any 

such existing restrictions.48 This 

commenter noted that the use of MELOs 

would result in two orders failing to 

interact even if they are of the same size 

and have prices that cross each other, 

and suggested that the Commission 

consider carefully whether this is 

consistent with the definition and 

purpose of an exchange.49


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50See id. at 1–2. 51See id. at 2. 52See id. 53See id. 54See Clearpool Letter at 3. 55See id. 56See id. 57See Amendment No. 2 at 19. The Exchange also 

compared MELOs to the minimum quantity order 

attribute, as well as the retail price improvement 

orders available on Nasdaq BX, Inc. See id. The 

Exchange stated that both of these types of orders 

provide the opportunity to interact with orders 

meeting certain characteristics, and consequently 

may miss the opportunity to receive an execution 

if the contra-side order does not meet the specified 

characteristics. See id. In addition, the Exchange 

compared its proposal to the Nasdaq Crossing 

Network, which created a series of intra-day crosses 

at the NBBO midpoint. See id. at 20. The Exchange 

stated that Nasdaq Crossing Network eligible orders 

were not available for execution against orders 

resting on the Nasdaq book. See id. at 20–21. 

58See id. at 20. 

59See id. 

60See id. at 21. 

61See id. 

62See id. 

63See proposed Nasdaq Rule 4702(b)(14)(A). 

64See Citadel Letter at 3. 

65See id. 

66See id. 67See id. 68See id. 69See id. 

70See Clearpool Letter at 2. 

71See id. 

72See id. 

73See Amendment No. 2 at n.34. The Exchange 

also noted that there is no real-time transparency 

regarding which destination or broker matched a 

buyer and seller when transactions are reported to 

a trade reporting facility. See id. at 25–26. Instead, 

there are delayed reports that identify where the 

executions occurred. See id. at 26. 

In addition, one commenter remarked 

that market participants with 

marketable held orders or resting orders 

seeking to execute against marketable 

held order flow would be unlikely to 

utilize MELOs because marketable held 

orders are typically required to be 

executed fully and promptly.50

According to the commenter, as use of 

the ‘‘MELO order book’’ increases, 

liquidity in the ‘‘legacy Nasdaq order 

book’’ could be negatively impacted to 

the detriment of retail investors.51

Moreover, the commenter stated that 

investors submitting resting MELOs 

would not be able to interact with 

marketable held order flow.52 The 

commenter suggested that the Exchange 

could partially mitigate the negative 

impacts of MELO order segmentation by 

revising its proposal to allow any order 

to immediately interact with a resting 

MELO as long as it is priced beyond the 

midpoint.53

In contrast, one commenter stated that 

allowing MELOs to interact with nonMELOs would defeat the purpose of the 

MELO order type.54 This commenter 

also stated that it does not believe that 

the proposal would negatively impact 

liquidity or price discovery on the 

Nasdaq market because the MELO order 

type should have little to no detrimental 

effect on participants using other order 

types.55 According to this commenter, 

to the extent that the MELO order type 

would provide incentives for order flow 

to be directed to a fair access exchange 

and away from private market centers, 

price discovery for the broader markets 

might improve.56

In Amendment No. 2, the Exchange 

stated that although MELOs may forgo 

the opportunity to interact with other 

liquidity on the Exchange, users of 

MELOs accepted this possibility in 

return for the ability to interact with 

other market participants with the same 

time horizon.57 The Exchange also 

stated its belief that it is not unfair or 

discriminatory that non-displayed 

orders resting on Nasdaq that are priced 

more aggressively than the NBBO 

midpoint would not participate in 

MELO executions.58 According to the 

Exchange, the use of resting nondisplayed orders and MELOs would be 

available to all participants, and 

participants would simply need to 

evaluate which order type best serves 

their investment needs.59 Moreover, the 

Exchange stated that it has conducted a 

pro forma study of the effect of applying 

MELOs to the current market: It 

reviewed all executions occurring on 

Nasdaq in August 2017 and found that 

only 0.37% of resting non-displayed 

orders traded at a price better than the 

prevailing midpoint at the time of 

execution.60 According to the Exchange, 

consequently, the number of situations 

in which a participant would have to 

consider the trade-offs between posting 

a non-displayed buy (sell) order at a 

higher (lower) price as compared to 

submitting a MELO is minimal.61 In 

addition, the Exchange reiterated that 

all members may use MELOs and thus 

have access to MELO liquidity.62

Finally, in Amendment No. 2, the 

Exchange amended the proposal to 

provide that MELOs would not execute 

if there is a resting non-displayed order 

priced more aggressively than the NBBO 

midpoint; instead, MELOs would be 

held until the resting non-displayed 

order is no longer on the Nasdaq book 

or the NBBO midpoint matches the 

price of the resting non-displayed 

order.63

One commenter raised the concern 

that, under the proposal, MELO 

executions would be reported to the 

Securities Information Processors and 

provided on Nasdaq’s proprietary data 

feed in the same manner as all other 

transactions on Nasdaq.64 This 

commenter stated that this approach 

likely would raise concerns about 

market fairness and introduce 

significant complexity for investors, 

broker-dealers, and regulators when 

attempting to analyze market activity 

and assess execution quality.65 This 

commenter noted, by way of example, 

that investors may see their orders 

executed on Nasdaq at worse prices 

than other contemporaneous executions 

on Nasdaq and that, without Nasdaq 

labeling MELO executions as such, 

investors may not know why this has 

occurred.66 This commenter also 

asserted that, without labeling MELO 

executions differently than other 

executions on Nasdaq, broker-dealer 

routing logic may be influenced by 

liquidity that is not actually accessible, 

and regulators may experience 

difficulties in accurately filtering market 

data when evaluating compliance with 

regulatory requirements such as best 

execution.67 This commenter urged the 

Commission to require that executions 

resulting from MELOs be marked as 

such on the tape.68 Alternatively, the 

commenter suggested that Nasdaq offer 

the MELO order type on a separate 

exchange.69

By contrast, one commenter stated 

that it does not believe that the lack of 

specific identification of MELOs in 

trade reports would result in any 

difficulties for the markets, or 

complexity for investors or other market 

participants when assessing execution 

quality.70 According to this commenter, 

users of the MELO order type would be 

provided with anonymity and 

confidentiality, which the commenter 

asserted are critical tools in preventing 

potentially predatory counterparties 

from determining intention and using 

that information to generate short-term 

profits at the expense of longer-term 

investors.71 In addition, this commenter 

stated that Nasdaq and all other 

exchanges currently offer many order 

types that when executed do not 

provide specific indicators showing 

exactly which order types were used, 

and professed not to see how allowing 

an exchange to add another order type 

without such trade reporting disclosure 

would harm market participants’ ability 

to measure market quality, as they do 

not currently have that ability.72

In Amendment No. 2, the Exchange 

stated that it currently does not identify 

on data feeds in real time the order 

types and attributes that resulted in an 

execution (e.g., reserve order 

attribute).73 According to the Exchange, 

not identifying MELOs is important to 

ensure that investors are protected from 

market participants that would 


sradovich on DSK3GMQ082PROD with NOTICES
52078 Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices 

74See id. at 25. According to the Exchange, MELO 

is designed to increase access to, and participation 

on, Nasdaq for investors that are less concerned 

with the time to execution, but rather are looking 

to source liquidity, often in greater size, at the 

NBBO midpoint against a counterparty order that 

has the same objectives. See id. at 17. The Exchange 

noted that the proposal is designed to help ensure 

that members with MELOs are not disadvantaged by 

other order types entered by participants that have 

the benefit of knowing, and reacting to, rapid 

changes in the market. See id. at 9. 

75See id. at 25. 

76See Citadel Letter at 4. 

77See id. This commenter also suggested that the 

Exchange should clarify that MELOs cannot be 

designated IOC, see id., but the Commission notes 

that that fact is already stated in the proposal, see 

supra note 28 and accompanying text. 

78See Clearpool Letter at 3. 

79See id. 

80See id. 

81See id. 

82See Amendment No. 2 at 8. 

83See id. at 22. 84See id. 85See id. According to the Exchange, this process 

may include metrics tied to participant behavior, 

such as the percentage of MELOs cancelled prior to 

completion of the Holding Period, the average 

duration of MELOs, and the percentage of MELOs 

where the NBBO midpoint is within the limit price 

when received. See id. 86See id. at 23. The Exchange stated that punitive 

fees or other prerequisite requirements tied to 

MELO usage would be implemented by rule filing 

under Section 19(b) of the Act, should the Exchange 

determine that they are necessary to maintain a fair 

and orderly market. See id. 

87 15 U.S.C. 78s(b)(2)(B). 

88 Id. 

89 15 U.S.C. 78f(b)(5). 

90 15 U.S.C. 78f(b)(8). 

91 17 CFR 240.19b–4. 

otherwise take advantage of such 

knowledge and undermine the 

usefulness of the order type.74 In 

addition, the Exchange stated that, like 

any of the order types or attributes 

provided by the Exchange, members 

must assess which ones would provide 

them with the best execution in 

achieving their investment goals.75

Lastly, one commenter asserted that 

allowing MELOs to be cancelled at any 

time during the Holding Period does not 

appear to be consistent with the 

intended use of the order type.76

Instead, according to this commenter, a 

MELO should only be permitted to be 

cancelled after the Holding Period has 

expired and the order has been placed 

in the order book.77 Another 

commenter, by contrast, did not have an 

issue with providing market 

participants the ability to cancel MELOs 

during the Holding Period.78 This 

commenter stated that it believes this 

would be an important feature of the 

MELO order type because many firms 

use algorithms to source liquidity 

simultaneously from multiple venues.79

According to the commenter, to the 

extent that liquidity is found elsewhere 

than Nasdaq within the Holding Period, 

it would be critically important that the 

firm be able to cancel its orders from 

Nasdaq and re-allocate those shares to 

other venues.80 This commenter stated 

that it does not believe any market 

participants would be gamed or harmed 

in such a circumstance.81

In Amendment No. 2, the Exchange 

stated that MELOs may be cancelled at 

any time, including during the Holding 

Period, in order to allow members to 

effectively manage risk.82 The Exchange 

also acknowledged that the potential 

exists for some participants to use 

MELOs in a way that conflicts with the 

stated intention of the order type to 

allow longer term investors the 

opportunity to safely find like-minded 

counterparties at the midpoint on 

Nasdaq.83 For this reason, the Exchange 

represented that MELOs would be 

subject to real-time surveillance to 

determine if the order type is being 

abused by market participants.84 The 

Exchange also stated that it plans to 

implement a process, at the same time 

as the implementation of MELOs, to 

monitor the use of MELOs, with the 

intent to apply additional measures, as 

necessary, to ensure their usage is 

appropriately tied to the intent of the 

order type.85 According to the 

Exchange, manipulative abuse is subject 

to potential disciplinary action under 

the Exchange’s rules, and other behavior 

that is not necessarily manipulative but 

nonetheless frustrates the purposes of 

the MELO order type may be subject to 

penalties or other participant 

requirements to discourage such 

behavior, should it occur.86

V. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

NASDAQ–2017–074, as Modified by 

Amendment Nos. 1 and 2, and Grounds 

for Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 87 to determine 

whether the proposed rule change, as 

modified by Amendment Nos. 1 and 2, 

should be approved or disapproved. 

Institution of proceedings is appropriate 

at this time in view of the legal and 

policy issues raised by the proposal, as 

discussed below. Institution of 

proceedings does not indicate that the 

Commission has reached any 

conclusions with respect to any of the 

issues involved. Rather, as described 

below, the Commission seeks and 

encourages interested persons to 

provide additional comment on the 

proposed rule change, as modified by 

Amendment Nos. 1 and 2. 

Pursuant to Section 19(b)(2)(B) of the 

Act,88 the Commission is providing 

notice of the grounds for disapproval 

under consideration. As discussed 

above, the Exchange has proposed to 

offer a new MELO order type, which 

would be non-displayed, pegged to the 

NBBO midpoint, and eligible for 

execution only after a half-second 

Holding Period has completed following 

the acceptance of the MELO by the 

Exchange system (although MELOs 

could be cancelled at any time, 

including during the Holding Period). In 

addition, MELOs would be eligible to 

execute only against other MELOs and 

would not be eligible to execute against 

any other trading interest on the Nasdaq 

book, including resting contra-side 

orders that are priced more aggressively 

than the NBBO midpoint. 

The Commission is instituting 

proceedings to allow for additional 

analysis of, and input from commenters 

with respect to, the consistency of the 

proposal with Sections 6(b)(5) 89 and 

6(b)(8) 90 of the Act. Section 6(b)(5) of 

the Act requires that the rules of a 

national securities exchange be 

designed, among other things, 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, and 

not be designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. Section 

6(b)(8) of the Act requires that the rules 

of a national securities exchange not 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

V. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their data, views, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written views of interested 

persons concerning whether the 

proposed rule change, as modified by 

Amendment Nos. 1 and 2, is consistent 

with Section 6(b)(5), 6(b)(8), or any 

other provision of the Act, or rules and 

regulations thereunder. Although there 

does not appear to be any issues 

relevant to approval or disapproval 

which would be facilitated by an oral 

presentation of data, views, and 

arguments, the Commission will 

consider, pursuant to Rule 19b–4 under 

the Act,91 any request for an 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 216 / Thursday, November 9, 2017 / Notices 52079 

92Section 19(b)(2) of the Act, as amended by the 

Securities Acts Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants to the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Acts Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

93 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 

3(a)(57). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.17Ad–22(e)(5). 

4OCC’s By-Laws and Rules can be found on 

OCC’s public Web site: http://optionsclearing.com/ 

about/publications/bylaws.jsp. 

5 17 CFR 240.17Ad–22. 

6 17 CFR 240.17Ab2–2. 

7 15 U.S.C. 78q–1. 

8 12 U.S.C. 5461 et seq. 

9 17 CFR 240.17Ad–22(a)(5). 

opportunity to make an oral 

presentation.92

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule change, as modified by 

Amendment Nos. 1 and 2, should be 

approved or disapproved by November 

30, 2017. Any person who wishes to file 

a rebuttal to any other person’s 

submission must file that rebuttal by 

December 14, 2017. 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 No. SR– 

NASDAQ–2017–074 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 No. 

SR–NASDAQ–2017–074. The 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. 

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 No. 

SR–NASDAQ–2017–074 and should be 

submitted by November 30, 2017. 

Rebuttal comments should be submitted 

by December 14, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.93

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24371 Filed 11–8–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82009; File No. SR–OCC– 

2017–008] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of Filing of Proposed Rule Change 

Related to The Options Clearing 

Corporation’s Collateral Risk 

Management Policy 

November 3, 2017. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934,1 and 

Rule 19b–4 thereunder,2 notice is 

hereby given that on October 27, 2017, 

The Options Clearing Corporation 

(‘‘OCC’’) 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 OCC. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

This proposed rule change by The 

Options Clearing Corporation (‘‘OCC’’) 

would formalize and update OCC’s 

Collateral Risk Management Policy 

(‘‘CRM Policy’’). This policy would 

promote compliance with Rule 17Ad– 

22(e)(5), which generally requires a 

covered clearing agency to have policies 

and procedures reasonably designed to, 

among other things, limit the assets it 

accepts as collateral to those with low 

credit, liquidity, and market risks and 

subject such assets to appropriate 

haircuts and concentration limits that 

are reviewed for continued sufficiency 

not less than annually.3 The Collateral 

Risk Management Policy is included as 

confidential Exhibit 5 of the filing. 

The proposed rule change does not 

require any changes to the text of OCC’s 

By-Laws or Rules. All terms with initial 

capitalization that are not otherwise 

defined herein have the same meaning 

as set forth in the OCC By-Laws and 

Rules.4

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

OCC 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. OCC has prepared 

summaries, set forth in sections (A), (B), 

and (C) below, of the most significant 

aspects of these statements. 

(A) Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

(1) Purpose 

Background 

On September 28, 2016, the 

Commission adopted amendments to 

Rule 17Ad–22 5 and added new Rule 

17Ab2–2 6 pursuant to Section 17A of 

the Securities Exchange Act of 1934, as 

amended, (‘‘Act’’) 7 and the Payment, 

Clearing, and Settlement Supervision 

Act of 2010 (‘‘Payment, Clearing and 

Settlement Supervision Act’’) 8 to 

establish enhanced standards for the 

operation and governance of those 

clearing agencies registered with the 

Commission that meet the definition of 

a ‘‘covered clearing agency,’’ as defined 

by Rule 17Ad–22(a)(5) 9 (collectively, 

the new and amended rules are herein 

referred to as ‘‘CCA’’ rules). The CCA 

rules require that a covered clearing 

agency, among other things, establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to: 

‘‘[l]imit the assets it accepts as collateral to 

those with low credit, liquidity, and market 

risks, and set and enforce appropriately 

conservative haircuts and concentration 

limits if the covered clearing agency requires 


sradovich on DSK3GMQ082PROD with NOTICES