Document ID: SEC-2021-1398-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2021-10-08T04:00Z

[Federal Register Volume 86, Number 193 (Friday, October 8, 2021)]
[Notices]
[Pages 56302-56307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21987]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93245; File No. SR-NASDAQ-2021-075]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Discretion Attribute, at Equity 4, Rule 4703, in Light of 
Planned Changes to the System

October 4, 2021.
    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 September 23, 2021, 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 amend the Discretion Attribute, at Equity 
4, Rule 4703 \3\ in light of planned changes to the System, as 
described further below.
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    \3\ References herein to Nasdaq Rules in the 4000 Series shall 
mean Rules in Nasdaq Equity 4.
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    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 \4\ and Order Attributes \5\ that 
are currently only available via the RASH Order entry protocol.\6\ 
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 \7\ 
so that Participants may enter such Order Types and Order Attributes 
via OUCH, in addition to the RASH Order entry protocols.\8\ The 
Exchange plans to implement its enhancement of the OUCH protocol 
sequentially, by Order Type and Order Attribute.\9\
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    \4\ 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).
    \5\ 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.
    \6\ 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.
    \7\ 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.
    \8\ 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.
    \9\ The Exchange notes that its sister exchanges, Nasdaq BX and 
Nasdaq PSX, plan to file similar proposed rule changes with the 
Commission shortly.

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[[Page 56303]]

    To support and prepare for these upgrades and enhancements, the 
Exchange recently submitted three rule filings to the Commission that 
amended its rules pertaining to, among other things, Market Maker Peg 
Orders, Orders with Reserve Size, and Orders with Pegging and Trade Now 
Attributes.\10\ The Exchange now proposes to further amend its Rules 
governing the Discretion Order Attribute, at Rule 4703(g), so that it 
aligns with how the System, once upgraded, will handle these Orders 
with Discretion going forward.
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    \10\ See 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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    As set forth in Rule 4703(g), Discretion is an Order Attribute 
under which an Order has a non-displayed discretionary price range 
within which the entering Participant is willing to trade. Presently, 
the Rule provides that the System will process Discretionary Orders, 
upon entry, by generating a Non-Displayed Order with a Time-in-Force of 
Immediate-or-Cancel (a ``Discretionary IOC'') that will attempt to 
access liquidity available within the discretionary price range. The 
System will not permit the Discretionary IOC to execute, however, if 
the price of the execution would trade through a Protected Quotation. 
If more than one Order with Discretion satisfies conditions that would 
cause the generation of a Discretionary IOC simultaneously, the order 
in which such Discretionary IOCs will be presented for execution is 
random, based on the respective processing time for each such Order. 
Whenever a Discretionary IOC is generated, the underlying Order with 
Discretion will be withheld or removed from the Exchange's Book and 
will then be routed and/or placed on the Exchange's Book if the 
Discretionary IOC does not exhaust the full size of the underlying 
Order with Discretion, with its price determined by the underlying 
Order Type and Order Attributes selected by the Participant. In 
addition to prescribing a procedure for handling Discretionary Orders 
generally, the existing Rule also describes special procedures for 
handling Discretionary Orders with various types of Routing Attributes 
and with pegged discretionary price ranges.
    The Exchange proposes to amend the process by which it processes 
Discretionary Orders in several respects. First, the Exchange proposes 
to clarify existing text which states that ``[a] Participant may also 
specify a limit price beyond which the discretionary price range does 
not extend.'' The Exchange intended for this clause to address the 
specific scenario where a Participant enters a Discretionary Order with 
a Discretionary Pegging Attribute, but the existing text is not 
explicit in this regard and thus is amenable to confusion. The Exchange 
proposes to restate this provision as follows to make its intention 
explicit: ``[a] Participant may also specify a limit on the 
discretionary price range of an Order that is entered with a 
Discretionary Pegging Attribute,'' and then further clarify the outcome 
of setting such a limit by stating ``beyond which the discretionary 
pegged price may not extend.'' \11\ The Exchange notes that it uses the 
word ``may'' in this provision rather than ``shall'' because for 
Discretionary Orders with Pegging Attributes, the Rules specify the 
discretionary range applicable to those Orders; setting a limit on how 
far that range is allowed to extend is optional.
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    \11\ For example, a displayed Order to buy might have a limit 
price of $11.00 and a discretionary price range pegged to the Best 
Bid with a discretionary limit of $11.05. If the NBB is $11.02 at 
the time of entry, the order will be displayed at $11.00 with a 
discretionary price range up to $11.02. If the NBB later become 
$11.06, the Order will still be displayed at $11.00 and its 
discretionary price range will be capped at $11.05.
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    As a further organizational matter, the Exchange proposes to 
consolidate the portion of the Rule that describes the general 
procedure for handling Discretionary Orders with the portion that 
described the process for handling Discretionary Orders without a 
Routing Attribute assigned to them. Because non-routed orders conform 
to the general procedure, it is redundant to restate the process.
    Second, as to the substance of the general Discretionary Order 
handling procedures, the Exchange proposes the following changes. 
Rather than generate a Discretionary IOC immediately upon Order entry 
(regardless of available liquidity within the discretionary price 
range) and then post the unexecuted portion of the Discretionary Order 
on the Exchange's Book, the Exchange proposes instead to first, upon 
entry, execute the Discretionary Order against any previously posted 
Orders on the Exchange Book that are priced equal to or better than the 
limit price of the Discretionary Order. If no such Order exists with 
which the Discretionary Order may fully execute upon entry, then the 
Exchange will post the Discretionary Order to the Exchange's Book in 
accordance with the parameters that apply to the underlying Order Type. 
In such case, the Exchange will generate a Discretionary IOC, with a 
price equal to the highest price for an Order to buy (lowest price for 
an Order to sell) within the discretionary price range and a size equal 
to the order available for execution, if and when the System determines 
that liquidity within the discretionary price range is available for 
execution. The Exchange will then execute the Discretionary IOC 
(provided that doing so would not trade-through a Protected Quotation). 
The Exchange proposes this change to increase the efficiency with which 
the Exchange processes Discretionary Orders. The Exchange intended for 
the existing process to enable Discretionary Orders to execute 
immediately within the discretionary price range upon entry, but in 
practice, the Exchange observes that they rarely do so. Attempts to 
locate available liquidity within the discretionary range immediately 
upon entry delay Discretionary Orders from entering the priority queue 
on the Nasdaq Book, resulting in an opportunity cost when no such 
liquidity is located. The proposed rule change will reorient the order 
handling process for Discretionary Orders so that it no longer 
sacrifices potential queue priority for attempts at possible immediate 
executions within the discretionary price range. Given that immediate 
executions of Discretionary Orders within the discretionary price range 
rarely occur, the Exchange does not believe that this change will have 
any material adverse impact on the performance of such Orders. 
Moreover, the Exchange will still allow for Discretionary Orders to 
attempt to execute against available liquidity immediately upon entry 
if contra-side liquidity, priced equal to or better than the limit 
price of the Discretionary Order, is resting on the Book at that time. 
And, if participants select a Time-in-Force of Immediate-or-Cancel for 
such Orders, then the orders will attempt to execute against available 
liquidity within the discretionary price range, which is unchanged from 
current functionality.
    As noted above, whereas now, the Exchange generates a Discretionary 
IOC that is equal to the size of the Discretionary Order, and then 
posts shares to the Book that remain unexecuted after the Exchange 
executes the Discretionary IOC against available liquidity in the 
discretionary price range, the Exchange instead proposes to generate a 
Discretionary IOC that will be

[[Page 56304]]

equal to the size of the available liquidity within the discretionary 
range, with any residual shares of the Discretionary Order remaining on 
the Book and retaining their existing priority. If the Discretionary 
IOC is not fully executed,\12\ the posted portion of the Discretionary 
Order will be reentered on the Nasdaq Book as a new Discretionary Order 
with a new timestamp and with an increased size to include the 
unexecuted portions of the Discretionary IOC. The Exchange believes 
that the proposed rule change will benefit participants by enabling 
their Discretionary Orders to remain executable against new incoming 
liquidity when available liquidity within the discretionary price range 
is smaller than the full size of the Discretionary Order (provided that 
Participants have not specified a minimum quantity for execution).
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    \12\ A Discretionary IOC may not execute fully in a race 
condition where an incoming order executes against all or a portion 
of the available liquidity within the discretionary price range 
before the Discretionary IOC is able to do so.
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    The Exchange proposes to move existing rule text that governs the 
situations where more than one Order with Discretion satisfies 
conditions that would cause the generation of a Discretionary IOC 
simultaneously. Whereas now, in all such situations, the order in which 
such Discretionary IOCs are presented for execution is random, based on 
the respective processing time for each such Order; going forward, the 
system will present Discretionary IOCs associated with Discretionary 
Orders without Routing differently as it gains responsibility for 
handling such Orders from RASH. That is, the system will present 
multiple Discretionary IOCs associated with such Orders for execution 
in price-time priority, as is specified in Rule 4757(a). The price by 
which the Orders will be prioritized for execution refers to the price 
of the Discretionary IOCs that are generated, meaning the highest price 
for the Order with Discretion to buy (lowest price for the Order with 
Discretion to sell) within the discretionary price range. This change 
will not affect Discretionary Orders with Routing, when Discretionary 
IOCs are generated for routing, which will continue to be handled by 
RASH under the existing random presentment procedures.
    The Exchange proposes to add to the Rule the following example to 
illustrate the new procedures. If a Participant enters a Price to 
Display Order to buy 500 shares at $11 with a discretionary price range 
of up to $11.03, then upon entry, the Nasdaq Market Center will first 
execute the Order against any orders resting on the Nasdaq Book that 
are priced equal to or better than the limit price of the Discretionary 
Order. Assuming that no such resting order exists, the Nasdaq Market 
Center will post the full size of the Price to Display Order to the 
Nasdaq Book in accordance with its parameters. If there is an Order on 
the Nasdaq Book to sell 200 shares priced at $11.03, the Nasdaq Market 
Center will generate a Discretionary IOC to buy priced at $11.03 to 
execute against the Order on the Nasdaq Book, if an execution at $11.03 
would not trade through a Protected Quotation; the remaining 300 shares 
of the original Order with Discretion will remain posted on the Nasdaq 
Book.\13\
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    \13\ The Exchange also proposes to move and reorganize, but not 
substantively modify, certain text within Rule 4703(g) to eliminate 
duplication and improve its readability.
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    With respect to procedures for processing Discretionary Orders with 
Routing Attributes assigned to them, the Exchange proposes to 
reorganize and consolidate the procedures, as well as to eliminate 
obsolete and duplicative text, and to improve readability.
    Specifically, the Exchange proposes to largely delete bulleted text 
that presently describes distinct procedures for handling Discretionary 
Orders with passive and reactive routing strategies, as well as for 
handling Discretionary Orders with Routing Attributes depending upon 
whether the discretionary price range of the Order is pegged. The 
Exchange proposes to eliminate certain existing text that describes 
order handling procedures for Discretionary Orders with passive and 
reactive routing strategies after being posted because such procedures 
do not differ from the general procedures for handling Discretionary 
Orders with respect to available liquidity on the Nasdaq Book within 
the discretionary price range.\14\ As to Discretionary Orders with 
reactive routing strategies, the Exchange believes that it is 
sufficient to state, going forward, that if a Discretionary IOC 
associated with such an Order does not exhaust the full size of the 
Discretionary Order, then the Exchange will generate and route 
additional Discretionary IOCs in response to new quotations within the 
discretionary price range according to the routing strategy assigned to 
the Order. Moreover, the Exchange proposes to retain language in the 
existing rule which states that, if a Discretionary Order uses a 
passive routing strategy, the System will not generate additional 
Discretionary IOC orders in response to new away market quotations 
within the discretionary price range unless the Order is updated in a 
manner that causes it to receive a new timestamp, in which case the 
Order will behave in the same manner as a newly entered Discretionary 
Order.
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    \14\ The Exchange proposes to retain the concept in the existing 
rule that whenever it generates a Discretionary IOC, the underlying 
Order with Discretion will be withheld or removed from the 
Exchange's Book and will then be routed and/or placed on the 
Exchange's Book if the Discretionary IOC does not exhaust the full 
size of the underlying Order with Discretion, with its price 
determined by the underlying Order Type and Order Attributes 
selected by the Participant. However, rather than applying this 
concept to all Discretionary Orders going forward, the proposal will 
apply it only to Discretionary Orders with Routing Attributes, as 
this is the context in which the concept applies, in practice.
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    Moreover, the Exchange proposes to delete existing Rule text that 
describes how the Exchange handles Discretionary Orders with Routing 
Attributes in scenarios where such Orders do and do not have pegged 
discretionary price ranges associated with them. The text presently 
states that where a Discretionary IOC associated with such an Order 
does not exhaust the full size of the Order, the Exchange will post the 
remaining size of the Order to the Nasdaq Book in accordance with the 
parameters that apply to the underlying Order Type. With respect to 
Discretionary Orders with reactive routing strategies, the Exchange 
will examine whether there is an order on the Nasdaq Book or an 
accessible quotation at another trading venue that is within the 
discretionary price range and against which the Discretionary Order 
could execute. When the Exchange currently examines the Nasdaq Book in 
the scenario where the Discretionary Order with reactive routing has a 
pegged discretionary price range, it examines only displayed orders on 
the Nasdaq Book for this purpose, whereas if the Discretionary Order 
with Routing has no pegged discretionary price range, the Exchange 
examines all orders on its Book, including non-displayed orders. This 
distinction in order handling procedures is a legacy of the existing 
limitations of the RASH protocol that will no longer be applicable 
after the Exchange migrates responsibility from RASH to the System for 
handling Discretionary Orders. That is, going forward, the System will 
be capable of and will examine the Nasdaq Book for both displayed and 
non-displayed orders in the discretionary price range against which to 
execute Discretionary Orders with Routing, regardless of whether the 
discretionary price range of such Orders is pegged.
    In the new proposed paragraph that governs Discretionary Orders 
with Routing, the Exchange also proposes to amend existing text 
concerning the

[[Page 56305]]

price and size at which the Exchange will generate a Discretionary IOC 
when, before routing, it determines that there is liquidity available 
on the Nasdaq Book within the discretionary price range with which the 
Discretionary Orders may interact.\15\ Whereas existing rule text 
states that the Exchange will generate a Discretionary IOC in this 
instance that matches the price and size of the Order on the Nasdaq 
Book, the proposed rule text states that the Exchange will generate a 
Discretionary IOC equal to the highest price for the Order with 
Discretion to buy (lowest price for the Order with Discretion to sell) 
within the discretionary price range and a size equal to the applicable 
size of the available liquidity on the Nasdaq Book.
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    \15\ The Exchange notes that certain routing strategies, such as 
Directed Orders, do not check the Nasdaq system first before routing 
to other market centers.
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    Additionally in that same paragraph, the Exchange proposes to 
change existing language that governs the generation of a Discretionary 
IOC in response to accessible quotations within the discretionary price 
range at away market centers. The existing rule text states that the 
Exchange will generate a Discretionary IOC in this instance that 
matches the price and size of the away market quotation within the 
discretionary price range. The proposed rule, by contrast, states that 
the Exchange will generate one or more Discretionary IOCs that will 
match the price of the away market quotation. The size of the 
Discretionary IOC(s) generated in this instance will be determined by 
the router to maximize execution opportunities, consistent with 
existing routing strategies.
    Last, as explained above, the Exchange proposes to move the 
following existing text to the new consolidated paragraph governing 
procedures for handling Discretionary Orders with Routing. The text 
clarifies that for these Orders (as opposed to Discretionary Orders 
without Routing), the existing practice of randomly presenting for 
execution simultaneously generated Discretionary IOCs for routing is 
still applicable; because responsibility for this functionality is 
still being managed by RASH, it will not be affected by the present 
system changes:

    Furthermore, if a new quotation satisfies conditions that would 
cause the simultaneous generation of a Discretionary IOC for more 
than one Order with Discretion that have been assigned a Routing 
Order Attribute, the order in which such Discretionary IOCs are 
presented for execution is random, based on the respective 
processing time for each such Order.

    The Exchange intends to implement the foregoing changes during the 
Fourth Quarter of 2021. 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,\16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposed amendments to the 
Discretionary Order Attribute, at Rule 4703(g), are consistent with the 
Act. The Exchange believes that its proposal to revise its process for 
handling Discretionary Orders so that they post to the Exchange Book, 
upon entry after checking for available interest at or better than 
their limit price, rather than attempt to execute against available 
liquidity within the discretionary price range immediately upon entry, 
will benefit Participants and investors because such immediate attempts 
at execution within the discretionary price range rarely succeed and 
typically result only in Discretionary Orders posting to the Book later 
than they would otherwise, and thus resulting in potentially lower 
queue priority. The proposed amendments will provide Participants with 
an opportunity to first secure queue priority by posting to the Book 
upon entry (after checking for available interest at or better than 
their limit price), and only generate a Discretionary IOC if and when 
the System later determines that liquidity within the discretionary 
price range is available for execution. The Exchange notes that it will 
still allow for Discretionary Orders to attempt to execute against 
available liquidity within the discretionary price range immediately 
upon entry if Participants select a Time-in-Force of Immediate-or-
Cancel for such Orders.
    Additionally, the proposal to generate Discretionary IOCs that 
equal the size of available liquidity within the discretionary range, 
rather than the full size of Discretionary Orders, will benefit 
participants by enabling their Discretionary Orders to maintain their 
queue priority on the Exchange Book when available liquidity within the 
discretionary price range is smaller than the full size of the 
Discretionary Order.
    The Exchange believes that it is consistent with the Act to amend 
the Rule to state that if the Discretionary IOC is not fully executed, 
the posted portion of the Discretionary Order will be reentered on the 
Nasdaq Book as a new Discretionary Order with a new timestamp and with 
an increased size to include the unexecuted portions of the 
Discretionary IOC. The Exchange believes that the proposed rule change 
will benefit participants by enabling their Discretionary Orders to 
remain executable against new incoming liquidity when available 
liquidity within the discretionary price range is smaller than the full 
size of the Discretionary Order (provided that Participants have not 
specified a minimum quantity for execution).
    Furthermore, it is consistent with the Act to reorganize, 
consolidate, and otherwise amend the provisions of the existing Rule 
that describe procedures for handling Discretionary Orders with Routing 
Attributes, passive and reactive routing strategies, and pegged and 
non-pegged discretionary price ranges. The proposed changes will 
improve the clarity and readability of the Rule by eliminating 
unnecessary and duplicative text. It will also reflect an upgrade in 
the ability of the Exchange to examine its Book for both displayed and 
non-displayed orders against which a Discretionary Order with Routing 
and a pegged discretionary price range may execute (with such upgrade 
occurring as a product of responsibility for Discretionary Order 
handling migration from RASH to the Exchange's matching System). It 
also is consistent with the Act to clarify that for Discretionary 
Orders with Routing Attributes, the existing practice of randomly 
presenting for execution simultaneously generated Discretionary IOCs 
for routing still applies.
    Likewise, it is consistent with the Act to modify the price at 
which the Exchange will generate Discretionary IOCs when, before 
routing a Discretionary Order with Routing, the Exchange determines 
that there is liquidity available on the Nasdaq Book within the 
discretionary price range with which the Discretionary Orders may 
interact. The current practice of generating a Discretionary IOC with a 
price equal to the price of the Order on the Nasdaq Book does not 
maximize the potential for executions, whereas, generating a 
Discretionary IOC with a price equal to the highest price for an Order 
to buy (lowest price for an Order to sell) within the discretionary 
price range allows the Discretionary IOC to

[[Page 56306]]

access additional liquidity at a more aggressive price in the event of 
a race condition where the liquidity with which the Order with 
Discretion is reacting is removed before the Discretionary IOC is able 
to execute against it.
    Finally, it is consistent with the Act to amend existing rule text 
to state that when the Exchange generates a Discretionary IOC to 
attempt to execute accessible liquidity within the discretionary price 
range at another market center, the Exchange will generate a 
Discretionary IOC that will match the price of the away market 
quotation, but the size will be determined by the router to maximize 
execution opportunities, consistent with existing routing strategies. 
The current rule, as written, does not contemplate the scenario where 
the remaining size of the Order with Routing is less than the size of 
the away market quotation; in which case a smaller order must be routed 
to the quoting market, comprising the full size of the Order with 
Routing. The new rule text allows for this behavior, and so more 
clearly communicates the operation of the System to Participants. 
Furthermore, additional non-displayed liquidity may exist on the 
quoting market in excess of the displayed size of the quote. It 
benefits the Participant to maximize execution opportunities for their 
orders, so the new rule text allows the router to send orders that are 
larger than the size of the away market quotation. Because an Order 
assigned both Discretion and Routing Order Attributes is withheld or 
removed from the Nasdaq Book whenever a Discretionary IOC is generated, 
thereby yielding priority on the Nasdaq Book, there are no opportunity 
costs to routing additional shares in excess of the displayed quote.

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

    The Exchange does not believe that its proposed rule changes 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 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, none of the proposed changes will unduly burden intra-
market competition among various Exchange participants. The Exchange's 
proposal to revise its processes for handling Discretionary Orders upon 
entry does have the potential to improve the relative queue positions 
of Discretionary Orders on the Exchange's Book, but these changes are 
warranted because existing processes are inefficient and result in 
opportunity costs to users of Discretionary Orders. Indeed, 
participants potentially lose queue priority when the System delays 
posting their Discretionary Orders to the Book only after making 
attempts to execute those Orders against liquidity within its 
discretionary price range immediately upon entry. Similarly, 
participants potentially lose queue priority whenever available 
liquidity within the discretionary price range is less than the size of 
a Discretionary IOC, and the System processes residual shares by 
posting them to the Book with new timestamps.
    Furthermore, routing orders to away markets for only the displayed 
size of their quotes unnecessarily limits the opportunity for execution 
against non-displayed liquidity, while restricting the price of a 
Discretionary IOC to the price of an available order on the Nasdaq Book 
(as opposed to assigning the most aggressive price allowed within the 
discretionary range) limits opportunities for execution when race 
conditions cause the original order that the Discretionary IOC was 
created to execute against to no longer be available by the time the 
Discretionary IOC is received by the System. The proposed changes have 
the potential to increase execution opportunities, but these changes 
are warranted because they will equally benefit all Exchange 
participants utilizing the Discretion Attribute by making the processes 
more efficient.
    Likewise, there will be no adverse competitive impact from the 
Exchange's proposal to examine both displayed and non-displayed orders 
in the Nasdaq Book (as opposed to only displayed orders, in current 
practice) in the scenario where the Discretionary Order with reactive 
routing has a pegged discretionary price range. As explained above, 
existing handling procedures in in this scenario a legacy of the 
limitations of the RASH protocol, which will no longer be applicable 
after the Exchange migrates responsibility from RASH to the System for 
handling Discretionary Orders.
    For similar reasons, there will be no adverse competitive impact 
associated with the Exchange's proposal to present Discretionary IOCs 
associated with Discretionary Orders without Routing in price-time 
priority, rather than in random order, as is currently the case and as 
will remain the case for Discretionary IOCs associated with 
Discretionary Orders with Routing. Whereas RASH is unable to present 
Discretionary IOCs in time-price priority, the Exchange's system will 
be capable of doing so, and thus it will do so when it assumes 
responsibility for handling Discretionary Orders without routing. 
Insofar as RASH will continue to handle Discretionary Orders with 
Routing, existing randomized processes for presenting Discretionary 
IOCs associated with those Orders will continue to apply.

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 \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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 change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing,

[[Page 56307]]

including whether the proposed rule change is consistent with the Act. 
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 Number SR-NASDAQ-2021-075 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 Number SR-NASDAQ-2021-075. 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 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-2021-075 and should be submitted 
on or before October 29, 2021.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21987 Filed 10-7-21; 8:45 am]
BILLING CODE 8011-01-P