Document ID: SEC-2018-0980-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations;Proposed Rule Changes: Nasdaq Stock Market, LLC
Posted Date: 2018-06-26T04:00Z

[Federal Register Volume 83, Number 123 (Tuesday, June 26, 2018)]
[Notices]
[Pages 29861-29863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13618]

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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-83482; File No. SR-NASDAQ-2018-046)

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4702

June 20, 2018.
    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 June 8, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 Rule 4702(b)(12)(A) so that 
Participants can choose to have their Limit On Close Orders rejected if 
subject to being re-priced when entered between 3:50 p.m. ET and 
immediately prior to 3:55 p.m. ET.
    The text of the proposed rule change is available on the Exchange's 
website 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

[[Page 29862]]

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
    On July 13, 2017, the Exchange filed a proposed rule change to 
enhance the Nasdaq Closing Cross by permitting Participants to submit 
Limit On Close (``LOC'') Orders until immediately prior to 3:55 p.m. ET 
subject to certain conditions, including that such LOC Orders would be 
re-priced in certain situations.\3\ This rule change was approved by 
the Commission on September 8, 2017.\4\ The Exchange now proposes to 
amend Rule 4702(b)(12)(A) so that Participants can choose to have their 
Limit On Close Orders rejected if subject to being re-priced when 
entered between 3:50 p.m. ET and immediately prior to 3:55 p.m. ET.
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    \3\ See Securities Exchange Act Release No. 81188 (July 21, 
2017), 82 FR 35014 (July 27, 2017) (SR-NASDAQ-2017-061).
    \4\ See Securities Exchange Act Release No. 81556 (September 8, 
2017), 82 FR 43264 (September 14, 2017) (SR-NASDAQ-2017-061) 
(Approval Order).
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    A LOC Order is an Order Type entered with a price that may be 
executed only in the Nasdaq Closing Cross, and only if the price 
determined by the Nasdaq Closing Cross is equal to or better than the 
price at which the LOC Order was entered.\5\ Subject to the 
qualifications provided below, LOC Orders may be entered, cancelled, 
and/or modified between 4 a.m. ET and immediately prior to 3:50 p.m. 
ET. Between 3:50 p.m. ET and immediately prior to 3:55 p.m. ET, an LOC 
Order may be entered provided that there is a First Reference Price.\6\ 
Currently, an LOC Order entered between 3:50 p.m. ET and immediately 
prior to 3:55 p.m. ET will be accepted at its limit price, unless its 
limit price is higher (lower) than the First Reference Price for an LOC 
Order to buy (sell), in which case the LOC Order will be re-priced to 
the First Reference Price.\7\
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    \5\ See Rule 4702(b)(12).
    \6\ ``First Reference Price'' is the Current Reference Price in 
the first Order Imbalance Indicator disseminated at or after 3:50 
p.m. ET. See Rule 4754(a)(9). During this time period an LOC Order 
can also be cancelled but not modified, and only if the Participant 
requests that Nasdaq correct a legitimate error in the Order (e.g., 
Side, Size, Symbol, or Price, or duplication of an Order).
    \7\ If the First Reference Price is not at a permissible minimum 
increment, the First Reference Price will be rounded (i) to the 
nearest permitted minimum increment (with midpoint prices being 
rounded up) if there is no imbalance, (ii) up if there is a buy 
imbalance, or (iii) down if there is a sell imbalance.
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    The Exchange now proposes to permit Participants to choose to have 
LOC Orders rejected if subject to being re-priced when entered between 
3:50 p.m. ET and immediately prior to 3:55 p.m. ET. While the Exchange 
believes that accepting LOC Orders after the regular 3:50 p.m. ET 
cutoff enhances price discovery, in order to promote price stability 
during the Nasdaq Closing Cross, the Exchange re-prices these LOC 
Orders if the First Reference price is less aggressive than the Order's 
limit price. Nevertheless, certain Participants may prefer not to have 
LOC Orders re-priced. A re-priced LOC Order would only have priority at 
the less aggressive First Reference Price, and as a result would be 
less likely to receive an execution in the Nasdaq Closing Cross than if 
it had been accepted at its stated limit price. For example, if the 
First Reference Price in ABC is $10, an LOC Order to buy entered at 
3:52 with a stated limit price of $12 would be accepted at $10 today. 
If the Nasdaq Closing Cross is subsequently executed at a price of $11, 
the LOC Order would not participate even though its stated limit price 
indicates a willingness to pay up to $12. Some Participants would 
therefore prefer to have this LOC Order rejected at the outset to avoid 
this possibility when the Nasdaq Closing Cross is ultimately executed. 
Giving the option to have those LOC Orders rejected on entry rather 
than re-priced will give Participants more flexibility with respect to 
how such LOC Orders are handled. Participants that would prefer that 
LOC Orders be accepted to participate in the Nasdaq Closing Cross can 
continue to enter these LOC Orders subject to the current re-pricing 
logic, which will be the default configuration for Participants that 
have not chosen to have these LOC Orders rejected instead.
Implementation
    The Exchange proposes to introduce the change described in this 
proposed rule change in Q3 or Q4 2018. The Exchange will announce the 
implementation date of this change in an Equity Trader Alert issued to 
Participants prior to implementing the change.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ 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. 
Specifically, the Exchange believes that the proposed changes will give 
Participants more flexibility with respect to how their LOC Orders are 
handled, to the benefit of Participants and investors.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    While the Exchange permits Participants to submit LOC Orders 
between 3:50 p.m. ET and immediately prior to 3:55 p.m. ET, the 
Exchange re-prices these LOC Orders to the First Reference Price if the 
First Reference price is less aggressive than the Order's limit price. 
As mentioned in the purpose section of this proposed rule change, this 
re-pricing is done to promote stability in the Nasdaq Closing Cross 
price. However, certain Participants may prefer not to have LOC Orders 
re-priced, and instead would like to have these LOC Orders rejected on 
entry instead. The Exchange therefore proposes to facilitate this by 
giving Participants the choice to have LOC Orders handled in this 
manner. The Exchange believes that this is consistent with the 
protection of investors and the public interest as it allows 
Participants to have more flexibility in how they may achieve their 
trading goals. Specifically, Participants that choose to have an LOC 
Order rejected instead of re-priced could thereafter execute their 
trading interest in a different manner, such as by entering it onto the 
continuous book, rather than waiting for an uncertain execution in the 
Nasdaq Closing Cross where the LOC Order may have a lower priority at 
the re-priced price. Participants that consume and house the First 
Reference Price in their systems can already do this themselves today 
by checking if an LOC Order would be subject to re-pricing (i.e., 
because the limit price is more aggressive than the First Reference 
Price disseminated by the Exchange) prior to entering this interest on 
the Exchange. The Exchange believes, however, that many Participants 
would benefit from the Exchange performing this determination for them, 
and is therefore proposing to do so.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed functionality 
would be available to all Participants of the Exchange, who will now 
have the flexibility to choose to have LOC Orders

[[Page 29863]]

rejected on entry in situations where those LOC Orders would otherwise 
be re-priced to the First Reference Price. Although Participants could 
implement this logic themselves, implementing it on the Exchange will 
ensure that it is readily available to all Participants. Furthermore, 
other exchanges are free to offer similar functionality if they so 
desire.

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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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: (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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2018-046 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-2018-046. 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-2018-046 and should be submitted 
on or before July 17, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13618 Filed 6-25-18; 8:45 am]
BILLING CODE 8011-01-P