Document ID: SEC-2017-1409-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2017-08-18T04:00Z

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

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SECURITIES AND EXCHANGE COMMISSION

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

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 

Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 

Clarify When Nasdaq Will Utilize the Secondary Source of Data

August 14, 2017.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 

on August 2, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or 

``Exchange'') filed with the Securities and Exchange Commission 

(``Commission'') the proposed rule change as described in Items I and 

II below, which Items have been prepared by the Exchange. The 

Commission is publishing this notice to solicit comments on the 

proposed rule change from interested persons.

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

    \2\ 17 CFR 240.19b-4.

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I. Self-Regulatory Organization's Statement of the Terms of Substance 

of the Proposed Rule Change

    The Exchange proposes to further clarify when Nasdaq will utilize 

the Secondary Source of data pursuant to Rule 4759.

    The text of the proposed rule change is available on the Exchange's 

Web site at http://nasdaq.cchwallstreet.com, at the principal office of 

the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 

concerning the purpose of and basis for the proposed rule change and 

discussed any comments it received on the proposed rule change. The 

text of these statements may be examined at the places specified in 

Item IV below. The Exchange has prepared summaries, set forth in 

sections A, B, and C below, of the most significant aspects of such 

statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule Change

1. Purpose

    The purpose of the proposed rule change is to clarify when Nasdaq 

will utilize the Secondary Source of data pursuant to Rule 4759. Rule 

4759 lists the proprietary and network processor feeds that are 

utilized for the handling, routing, and execution of orders, as well as 

for the regulatory compliance processes related to those functions. 

Rule 4759 also lists Secondary Sources of data that are utilized in 

emergency market conditions, and only until those emergency conditions 

are resolved. The Exchange proposes to amend this rule to describe how 

the Nasdaq trading system decides when to use the Primary or Secondary 

Source of data. Specifically, the Exchange proposes to amend Rule 4759 

to clarify that the Primary Source of data is used unless it is delayed 

by a configurable amount compared to the Secondary Source of data.\3\ 

The Exchange will revert to the Primary Source of data once the delay 

has been resolved. The configurable amount described in this rule will 

be made available to members via Equity Trader Alert.

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    \3\ As a conforming change, the Exchange proposes to remove the 

current rule text that indicates that the Secondary Source of data 

is, where applicable, utilized only in emergency market conditions 

and only until those emergency conditions are resolved. The Exchange 

does not believe that this language is needed as the amended rule 

would now indicate with more specificity when the Exchange fails 

over to the Secondary Source of data.

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    The Exchange believes that this clarification is necessary in light 

of the re-launch of NYSE MKT as NYSE American, which is scheduled for 

July 24, 2017.\4\ NYSE American rules provide for an intentional 350 

microsecond access delay to certain inbound and outbound order messages 

on that exchange, including all outbound communications to proprietary 

market data feeds. NYSE American will not apply a similar delay to 

outbound communications to the securities information processor 

(``SIP''). Due to the intentional delay of proprietary market data to 

be disseminated by NYSE American, the Exchange believes that fail over 

to the Secondary Source of Data may sometimes be necessary even during 

otherwise normal operation to ensure that the fastest and most reliable 

data is used for the handling, routing, and execution of orders, and 

for regulatory compliance purposes.

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    \4\ See Securities Exchange Act Release No 80700 (May 16, 2017), 

82 FR 23381 (May 22, 2017) (SR-NYSEMKT-2017-05) (Approval Order).

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    Currently, the Nasdaq trading system utilizes proprietary market 

data as the Primary Source for the following markets that provide a 

reliable proprietary data feed: NYSE MKT, NASDAQ OMX BX, DirectEdge A, 

DirectEdge X, CHX, NYSE, NYSE Arca,

[[Page 39472]]

NASDAQ, NASDAQ OMX PSX, BATS Y-Exchange, and BATS Exchange. For each of 

these markets, the Exchange uses SIP data as the Secondary Source.\5\ 

The trading system then uses certain real-time logic to determine 

whether emergency market conditions exist that should result in the 

failover to the Secondary Source of data from the Primary Source. 

Specifically, the trading system fails over to the Secondary Source of 

data for these markets if the Primary Source of data is delayed by a 

configurable amount compared to the Secondary Source.\6\ A significant 

delay of the Primary Source of data compared to the Secondary Source of 

data indicates that there is an emergency market condition pursuant to 

Rule 4759. In such an instance, the Exchange believes that it is 

appropriate to fail over to the Secondary Source of data as the 

Secondary Source of data is more current. If the Exchange fails over to 

the Secondary Source of data it will re-elect the Primary Source of 

data if the Primary Source of data is no longer delayed compared to the 

Secondary Source. This process ensures that the Exchange's trading and 

other systems have the most accurate view of the trading interest 

available across other markets.

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    \5\ SIP data is used as the Primary Source for NSX, FINRA ADF, 

and IEX. There is no Secondary Source for these markets.

    \6\ A delay is indicated by data being received by the Exchange 

from the Secondary Source that has a more recent timestamp than the 

Primary Source. Fail over then occurs once such a delay has reached 

a configurable value. The configurable amount described in this rule 

will be made available to members via Equity Trader Alert. 

Currently, this configurable value is set to 1.5 seconds. The 

Exchange will issue an Equity Trader Alert to members to notify them 

of the current value and in the event that it changes this value.

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    With the upcoming launch of NYSE American, the Exchange believes 

that its current rule should be amended to better reflect intentional 

delays to the Primary Source of data. Specifically, the Exchange 

desires to make clear that even otherwise normal operation of the 

Primary Source of data may result in the Exchange electing the 

Secondary Source of data if that operation includes an intentional 

delay. This would be the case even if such operation would not normally 

be deemed an emergency market condition. Although the Exchange's 

process for determining which data to use will not change at this 

time,\7\ the Exchange believes that it is important to clarify that 

process so that members and other market participants are adequately 

apprised of when the Exchange will use the Primary or Secondary Source 

of data.

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    \7\ The Exchange may decrease the amount of delay required to 

switch to the Secondary Source of data at a later date. The Exchange 

will alert members of any such change with an Equity Trader Alert. 

See id.

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    As explained earlier in this proposed rule change, the Exchange 

employs an automated, real-time, process to determine if there is an 

emergency market condition pursuant to Rule 4759. In particular, the 

Exchange determines whether there is an emergency market condition by 

comparing the timestamp of the Primary Source of data with the 

timestamp of the Secondary Source of data. The Exchange believes that a 

significant delay in the Primary Source of data compared to the 

Secondary Source is an emergency market condition because such a delay 

is not consistent with normal operation of such data feeds. The 

Exchange does not believe that the current emergency market conditions 

language is clear, however, when dealing with markets such as NYSE 

American that have employed an intentional delay in the data 

disseminated over the direct data feeds utilized by the Exchange as the 

Primary Source of data. Currently, the Primary Source of data is used 

unless it is delayed by a configurable amount compared to the Secondary 

Source of data. The Exchange then reverts to the Primary Source of data 

once the delay has been resolved. The Primary Source of data may be 

delayed due to technical issues that would normally be considered an 

emergency market condition, or during otherwise normal operation of the 

Primary Source of data if an intentional delay has been implemented. In 

this respect, the Exchange notes that even NYSE Arca--an affiliate of 

NYSE American--has decided to use SIP data as the primary source of 

data for NYSE American due to the intentional delay of messages on 

their proprietary market data.\8\ Although Nasdaq is not proposing to 

change its Primary Source of data for NYSE American, the Exchange 

believes that modifying its rules to clarify the conditions where the 

Secondary Source of data may be elected will increase transparency of 

the operation of the Exchange to the benefit of members and other 

market participants.

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    \8\ See Securities Exchange Act Release No. 34-81061 (June 30, 

2017), 82 FR 31642 (July 7, 2017) (SR-Arca-2017-70).

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2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 

6(b) of the Act,\9\ in general, and furthers the objectives of Section 

6(b)(5) of the Act,\10\ in particular, in that it is designed to 

promote just and equitable principles of trade, to remove impediments 

to and perfect the mechanism of a free and open market and a national 

market system, and, in general to protect investors and the public 

interest.

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    \9\ 15 U.S.C. 78f(b).

    \10\ 15 U.S.C. 78f(b)(5).

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    The Exchange believes that the proposed rule change removes 

impediments to and perfects the mechanism of a free and open market and 

protects investors and the public interest because it provides 

additional transparency around when Nasdaq will elect to use the 

Secondary Source of data for the handling, routing, and execution of 

orders, and for regulatory compliance purposes. The proposed rule 

change does not change the operation of the Exchange or its use of data 

feeds; rather it clarifies when the Exchange will elect the Secondary 

Source of data pursuant to Rule 4759. Currently, Rule 4759 indicates 

that the Exchange will fail over to the Secondary Source of data if 

there is an emergency market condition but does not specify what counts 

as an emergency market condition pursuant to the rule. In fact, the 

Exchange has an automated, real-time, process for determining whether 

an emergency market condition exists by measuring the amount of delay 

between the Primary and Secondary Sources of data. The proposed rule 

change therefore clarifies that the Exchange will elect the Secondary 

Source of data if the Primary Source of data is delayed by a 

configurable amount (made available to members via Equity Trader 

Alert), and will then revert to the Primary Source of data once the 

delay has been resolved. The Secondary Source of data may be elected 

even during otherwise normal operation because of intentional delays in 

the dissemination of market data over an exchange's proprietary market 

data feeds. The Exchange believes that this change is appropriate in 

light of the launch of the NYSE American exchange, which will come with 

an intentional delay of market data provided through proprietary data 

products used by Nasdaq as the Primary Source of data. The Exchange 

believes the additional transparency of the operation of the Exchange 

as described in the proposed rule change will remove impediments to and 

perfect the mechanism of a free and open market and a national market 

system, and, in general, protect investors and the public interest.

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

    The Exchange does not believe that the proposed rule change will 

impose any burden on competition that is not necessary or appropriate 

in furtherance

[[Page 39473]]

of the purposes of the Act. The proposed rule change is not designed to 

address any competitive issue but rather would provide members and 

other market participants with information about when Nasdaq will 

utilize its Secondary Source of data. The Exchange believes that this 

change will increase transparency around the operation of the Exchange 

without any significant impact on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 

Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 

Commission Action

    Because the foregoing proposed rule change does not: (i) 

Significantly affect the protection of investors or the public 

interest; (ii) impose any significant burden on competition; and (iii) 

become operative for 30 days from the date on which it was filed, or 

such shorter time as the Commission may designate, it has become 

effective pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ and 

subparagraph (f)(6) of Rule 19b-4 thereunder.\12\

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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).

    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 

requires a self-regulatory organization to give the Commission 

written notice of its intent to file the proposed rule change, along 

with a brief description and the text of the proposed rule change, 

at least five business days prior to the date of filing of the 

proposed rule change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this requirement.

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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 

Act \13\ normally does not become operative for 30 days after the date 

of its filing. However, Rule 19b-4(f)(6)(iii) \14\ permits the 

Commission to designate a shorter time if such action is consistent 

with the protection of investors and the public interest. The Exchange 

has asked the Commission to waive the 30-day operative delay. The 

Commission believes that waiving the 30-day operative delay is 

consistent with the protection of investors and the public interest as 

it will allow the Exchange to clarify the conditions under which the 

Secondary Source of data may be elected and increase transparency of 

the operation of the Exchange. Accordingly, the Commission hereby 

waives the operative delay and designates the proposal operative upon 

filing.\15\

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    \13\ 17 CFR 240.19b-4(f)(6).

    \14\ 17 CFR 240.19b-4(f)(6)(iii).

    \15\ For purposes only of waiving the 30-day operative delay, 

the Commission has also considered the proposed rule's impact on 

efficiency, competition, and capital formation. See 15 U.S.C. 

78c(f).

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    At any time within 60 days of the filing of the proposed rule 

change, the Commission summarily may temporarily suspend such rule 

change if it appears to the Commission that such action is: (i) 

Necessary or appropriate in the public interest; (ii) for the 

protection of investors; or (iii) otherwise in furtherance of the 

purposes of the Act. If the Commission takes such action, the 

Commission shall institute proceedings to determine whether the 

proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 

arguments concerning the foregoing, including whether the proposed rule 

change is consistent with the Act. Comments may be submitted by any of 

the following methods:

Electronic Comments

     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-2017-082 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-2017-082. This 

file number should be included on the subject line if email is used. To 

help the Commission process and review your comments more efficiently, 

please use only one method. The Commission will post all comments on 

the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 

written statements with respect to the proposed rule change that are 

filed with the Commission, and all written communications relating to 

the proposed rule change between the Commission and any person, other 

than those that may be withheld from the public in accordance with the 

provisions of 5 U.S.C. 552, will be available for Web site viewing and 

printing in the Commission's Public Reference Room, 100 F Street NE., 

Washington, DC 20549, on official business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 

for inspection and copying at the principal office of the Exchange. All 

comments received will be posted without change; the Commission does 

not edit personal identifying information from submissions. You should 

submit only information that you wish to make available publicly. All 

submissions should refer to File Number SR-NASDAQ-2017-082 and should 

be submitted on or before September 8, 2017.

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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 

pursuant to delegated authority.\16\

Eduardo A. Aleman,

Assistant Secretary.

[FR Doc. 2017-17435 Filed 8-17-17; 8:45 am]

BILLING CODE 8011-01-P