Document ID: SEC-2017-0614-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2017-04-17T04:00Z

[Federal Register Volume 82, Number 72 (Monday, April 17, 2017)]
[Notices]
[Pages 18196-18199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07633]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80425; File No. SR-NASDAQ-2017-031]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4703 (Order Attributes), Rule 4752 (Opening Process), Rule 
4753 (Nasdaq Halt Cross) and Rule 4754 (Nasdaq Closing Cross)

April 11, 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 March 31, 2017, 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 4752 (Opening Process), Rule 
4753 (Nasdaq Halt Cross) and Rule 4754 (Nasdaq Closing Cross) to 
specify the execution priority of an Order that has been locked or 
crossed at its non-displayed price by a Post-Only Order and re-priced 
for purposes of the Opening, Closing and Halt Cross. Nasdaq is also 
proposing to amend Rule 4703 (Order Attributes) and Rule 4753 (Halt 
Cross) to clarify the effect of the re-pricing of an Order that has 
been locked or crossed at its non-displayed price by a Post-Only Order 
for purposes of the Opening, Closing and Halt Cross.
    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 this proposal is to amend Rule 4752 (Opening 
Process), Rule 4753 (Nasdaq Halt Cross) and Rule 4754 (Nasdaq Closing 
Cross) to specify the execution priority of an Order that has been 
locked or crossed at its non-displayed price by a Post-Only Order and 
re-priced for purposes of the Opening, Closing and Halt Cross.
    Rule 4752, 4753 and 4754 set forth the operation of the Opening 
Cross, the Halt Cross, and the Closing Cross, respectively. Each Rule 
specifies the manner in which orders will be executed if less than all 
available interest is executed as part of the Cross. Specifically, Rule 
4752 states that, if the Nasdaq Opening Cross price is selected and 
fewer than all shares of Market On Open (``MOO''), Limit On Open 
(``LOO''), Opening Imbalance Only Order (``OIO'') and Early Market 
Hours Orders that are available in the Nasdaq Market Center would be 
executed, all Quotes and Orders shall be executed at the Nasdaq Opening 
Cross price in the following priority: (A) MOO and Early Market Hours 
market peg orders, with time as the secondary priority; (B) LOO orders, 
Early Market Hours limit orders, OIO orders, SDAY limit orders, SGTC 
limit orders, GTMC limit orders, SHEX limit orders, displayed quotes 
and reserve interest priced more aggressively than the Nasdaq Opening 
Cross price based on limit price with time as the secondary priority; 
(C) LOO orders, OIO Orders, Early Market Hours and displayed interest 
of quotes, SDAY limit orders, SGTC limit orders, GTMC limit orders, and 
SHEX limit orders at the Nasdaq Opening Cross price with time as the 
secondary priority; and (D) reserve interest of quotes, SDAY limit 
orders, SGTC limit orders, and GTMC limit orders and SHEX limit orders 
at the Nasdaq Opening Cross price with time as the secondary priority.
    Rule 4753 states that, if the Nasdaq Halt Cross price is selected 
and fewer than all shares of Eligible Interest that are available in 
the Nasdaq Market Center would be executed, all Eligible Interest shall 
be executed at the Nasdaq Halt Cross price in price/time priority.
    Rule 4754 states that, if the Nasdaq Closing Cross price is 
selected and fewer than all Market On Close (``MOC''), Limit On Close 
(``LOC''), Imbalance Only (``IO'') and Close Eligible Interest would be 
executed, orders will be executed at the Nasdaq Closing Cross price in 
the following priority: (A) MOC orders, with time as the secondary 
priority; (B) LOC orders, limit orders, IO orders, displayed quotes and 
reserve interest priced more aggressively than the Nasdaq Closing Cross 
price based on price with time as the secondary priority; (C) LOC 
orders, IO Orders displayed interest of limit orders, and displayed 
interest of quotes at the Nasdaq Closing Cross price with time as the 
secondary priority; (D) reserve interest at the Nasdaq Closing Cross 
price with time as the secondary priority; and (E) unexecuted MOC, LOC, 
and IO orders will be canceled.
    Nasdaq now proposes to amend the provisions of Rules 4752, 4753 and 
4754 to specifically describe the execution priority an Order that was 
entered on the Nasdaq Book and has been locked or crossed at its non-
displayed price by a Post-Only Order and re-priced for purposes of the 
Opening, Closing or Halt Cross.
    In November 2016, the Commission approved changes to the 
functionality of Post-Only Orders.\3\ As a result of this

[[Page 18197]]

new Post-Only functionality, Nasdaq recently amended Rule 4703 and Rule 
4753 to address the treatment of an Order that and has been locked or 
crossed at its non-displayed price by a Post-Only Order for purposes of 
the Opening, Closing and Halt Cross. Nasdaq amended Rule 4703 and Rule 
4753 to specify that, if an Order to buy (sell) that is entered on the 
Nasdaq Book is locked or crossed at its non-displayed price by a Post-
Only Order, that Order will be deemed to have a price at one minimum 
increment below (above) the price of the Post-Only for purposes of 
selecting the price of the Opening Cross, the Closing Cross, and the 
Halt Cross.\4\ This functionality applies to Non-Displayed Orders, 
Post-Only Orders, Price to Comply Orders and Midpoint Peg Post-Only 
Orders when the non-displayed price of that Order is locked or crossed 
by a Post-Only Order.\5\
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    \3\ See Securities Exchange Act Release No. 79290 (November 10, 
2016), 81 FR 81184 (November 17, 2016) (SR-NASDAQ-2016-111).
    Under the new Post-Only functionality, the behavior of Post-Only 
orders would be altered when the adjusted price of such orders lock 
or cross a non-displayed price on the Exchange's Book. Specifically, 
if the adjusted price of the Post-Only Order would lock or cross a 
non-displayed price on the Exchange's Book, the Post-Only order 
would be posted in the same manner as a Price to Comply Order. 
However, the Post-Only Order would execute if (i) it is priced below 
$1.00 and the value of price improvement associated with executing 
against an Order on the Nasdaq Book (as measured against the 
original limit price of the Order) equals or exceeds the sum of fees 
charged for such execution and the value of any rebate that would be 
provided if the Order posted to the Nasdaq Book and subsequently 
provided liquidity, or (ii) it is priced at $1.00 or more and the 
value of price improvement associated with executing against an 
Order on the Nasdaq Book (as measured against the original limit 
price of the Order) equals or exceeds $0.01 per share.
    Additionally, if the Post-Only Order would not lock or cross a 
Protected Quotation but would lock or cross a Non-Displayed Order on 
the Exchange's Book, the Post-Only Order would be posted, ranked, 
and displayed at its limit price. The Post-Only Order would execute 
if (i) it is priced below $1.00 and the value of price improvement 
associated with executing against an Order on the Nasdaq Book equals 
or exceeds the sum of fees charged for such execution and the value 
of any rebate that would be provided if the Order posted to the 
Nasdaq Book and subsequently provided liquidity, or (ii) it is 
priced at $1.00 or more and the value of price improvement 
associated with executing against an Order on the Nasdaq Book equals 
or exceeds $0.01 per share.
    \4\ See Securities Exchange Act Release No. 80216 (March 10, 
2017), 82 FR 14074 (March 16, 2017) (SR-NASDAQ-2017-028) (``Cross 
Proposal'').
    \5\ As noted in the Cross Proposal, in this scenario, the Post-
Only Order would have locked or crossed the Non-Displayed Order, 
Post-Only, Price to Comply Order, or Midpoint Peg Post-Only Order at 
its non-displayed price upon entry if the value of price improvement 
associated with executing against the Order is not met. Id.
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    Nasdaq is now proposing to amend Rules 4752, 4753 and 4754 to 
specify the execution priority of an Order that has been locked or 
crossed at its non-displayed price by a Post-Only Order and re-priced 
for purposes of the Opening, Closing and Halt Cross. Accordingly, 
Nasdaq proposes to amend Rule 4752(d)(3)(B) to state that Orders to buy 
(sell) that are locked or crossed at their non-displayed price by a 
Post-Only Order on the Nasdaq Book in Early Market Hours, and which 
have been deemed to have a price at one minimum price increment below 
(above) the price of the Post-Only Order, shall be ranked in time 
priority ahead of all orders one minimum price increment below (above) 
the price of the Post-Only Order but behind all orders at the price at 
which the Order was posted to the Nasdaq Book. This re-pricing 
functionality will apply to Non-Displayed Orders, Post-Only Orders, and 
Price to Comply Orders when the non-displayed price of that Order is 
locked or crossed by a Post-Only Order.
    Nasdaq proposes to amend Rule 4753(b)(3) to state that Orders to 
buy (sell) that are locked or crossed at their non-displayed price by a 
Post-Only Order on the Nasdaq Book, and which have been deemed to have 
a price at one minimum price increment below (above) the price of the 
Post-Only Order, shall be ranked in time priority ahead of all orders 
one minimum price increment below (above) the price of the Post-Only 
Order but behind all orders at the price at which the Order was posted 
to the Nasdaq Book. This re-pricing functionality will apply to Non-
Displayed Orders, Post-Only Orders, Price to Comply Orders and Midpoint 
Peg Post-Only Orders when the non-displayed price of that Order is 
locked or crossed by a Post-Only Order.
    Finally, Nasdaq proposes to amend Rule 4754(b)(3)(B) to state that 
Orders to buy (sell) that are locked or crossed at their non-displayed 
price by a Post-Only Order on the Nasdaq Book, and which have been 
deemed to have a price at one minimum price increment below (above) the 
price of the Post-Only Order, shall be ranked in time priority ahead of 
all orders one minimum price increment below (above) the price of the 
Post-Only Order but behind all orders at the price at which the Order 
was posted to the Nasdaq Book. This re-pricing functionality will apply 
to Non-Displayed Orders, Post-Only Orders, Price to Comply Orders and 
Midpoint Peg Post-Only Orders when the non-displayed price of that 
Order is locked or crossed by a Post-Only Order.
    Nasdaq also proposes to amend the language in Rule 4703 (Order 
Attributes) and Rule 4753 relating to the re-pricing of Orders that are 
locked or crossed at its non-displayed price by a Post-Only Order for 
purposes of determining the Opening, Closing or Halt Cross, as 
described above. Rule 4703(l) describes this re-pricing functionality 
as occurring ``for purposes of selecting the Nasdaq Opening Cross or 
Closing Cross price.'' Rule 4753(d) similarly describes this re-pricing 
functionality as occurring ``for purposes of selecting the Nasdaq Halt 
Cross Price.'' Nasdaq proposes to amend both 4703(l) and Rule 4753(d) 
to describe this functionality as occurring for purposes of the Nasdaq 
Opening, Closing, or Halt Cross. Nasdaq is making this change to 
clarify the effect of the re-pricing functionality, since the re-
pricing of an Order pursuant to this provision establishes both the 
price of the Order for purposes of the Cross and the execution priority 
of the Order as part of the Cross (although that execution priority may 
be modified based on the changes being proposed herein).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ 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. 
This filing supplements the Cross Proposal to re-price an Order that is 
locked or crossed at its non-displayed price by a Post-Only Order for 
purposes of the Opening, Closing and Halt Cross. As stated in that 
proposal, Nasdaq believed that such re-pricing was consistent with the 
Act because it, among other things, reflected the intent of the Nasdaq 
Opening and Closing Cross functionality.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    Nasdaq believes that this proposal is consistent with the Act for 
several reasons. First, the proposal adopts a new execution priority, 
for an Order that has a non-displayed price that is locked or crossed 
by a Post-Only Order, that reflects the configuration of Nasdaq systems 
that is necessary to fulfill a central premise of the Opening, Halt, 
and Closing Cross. Specifically, given the operation of the Opening, 
Halt and Closing Cross, Orders cannot be locked or crossed for purposes 
of the Cross. The proposed changes here reflect this premise, and the 
configuration of the Nasdaq systems that is necessary to achieve this 
result.
    Second, Nasdaq is proposing to rank Orders that are subject to this 
proposal in time priority ahead of all other Orders at that same price. 
While Nasdaq notes that, in certain scenarios, an Order might not 
participate in a Cross at its re-priced price when it might have 
participated in the Cross at its posted price on the Nasdaq Book, the 
proposal increases the likelihood that such interest will be executed 
as part of the Cross than if such interest had been assigned a 
different priority at its new price.\8\ Nasdaq also notes that there 
are

[[Page 18198]]

instances in which a locked or crossed Order may participate in a Cross 
at its posted price on the Nasdaq Book.\9\
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    \8\ For example, if the non-displayed price of a sell Order was 
entered at $10.15, and was locked by a Post-Only Order to buy at 
$10.15, the price of the sell Order would be adjusted to $10.16 for 
purposes of the Cross. That Order would now have priority over all 
other Orders at $10.16.
    \9\ Pursuant to this functionality, an Order is only re-priced 
at the time that the Cross price is being calculated. To the extent 
that a member cancels any locking Post-Only Orders prior to the 
calculation of the Cross price, the locked Order would not be re-
priced. This might occur prior to the Opening, Closing, or Halt 
Cross, which reduces the likelihood that a locked Order will be re-
priced and will be unable to participate in the Cross.
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    Third, Nasdaq notes that re-priced Orders that do not participate 
in the Opening or Halt Cross remain on the Nasdaq Book, and that the 
proposed functionality would not impair the ability of such Orders to 
participate in the Regular Market Session after the conclusion of the 
Cross.
    Finally, this proposed change is limited to an Order with a non-
displayed price that is locked by a Post-Only Order for purposes of the 
Open, Halt and Closing Cross. While non-displayed liquidity may enhance 
market quality in other ways, such liquidity does not contribute to the 
price discovery process in the same manner as displayed liquidity. Had 
the Order been displayed, the priority of the Order would not have 
changed, as the Order would be setting the best displayed price on the 
Exchange. Use of the Nasdaq systems and Order types is completely 
voluntary, and members may always opt to use a different Order type to 
achieve a different result.
    Nasdaq believes that amending the language in Rule 4703 and Rule 
4753 relating to the re-pricing of an Order that is locked or crossed 
at its non-displayed price for purposes of the Opening, Closing or Halt 
Cross is consistent with the Act because it more accurately describes 
the effect of this re-pricing functionality as it relates to the Cross.

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 change adopts an 
execution priority for a more aggressively-priced Order that has been 
locked or crossed at its non-displayed price by a Post-Only Order and 
re-priced for purposes of the Opening, Closing or Halt Cross that 
reflects the configuration of Nasdaq systems that is necessary to 
ensure that Orders are not locked or crossed for purposes of the 
Opening, Halt or Closing Cross. To the extent that such Orders will be 
ranked in time priority ahead of all other Orders at that same price, 
the proposal increases the likelihood that such interest will be 
executed as part of the Cross than if such interest had been assigned a 
different priority at its new price. There are instances where a locked 
or crossed Order may participate in a Cross at its posted price on the 
Nasdaq Book, and re-priced Orders that do not participate in the 
Opening or Halt Cross would remain eligible to participate in the 
Regular Market Session after the conclusion of the Cross. Moreover, the 
use of Exchange Order types and attributes is voluntary, and no member 
is required to use any specific Order type or attribute or even to use 
any Exchange Order type or attribute or any Exchange functionality at 
all. If an Exchange member believes for any reason that the proposed 
rule change will be detrimental, that perceived detriment can be 
avoided by choosing not to enter or interact with the Order types 
modified by this proposed rule change. Finally, the proposal will apply 
equally to all Orders that meet its criteria.

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 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 \12\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \13\ 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 so that 
the proposal may become operative immediately upon filing. The Exchange 
believes the proposal reflects the configuration of Nasdaq systems 
necessary to ensure that Orders are not locked or crossed for purposes 
of the Opening, Halt or Closing Cross, while increasing the likelihood 
that re-priced Orders will be executed as part of the Cross than if 
such interest had been assigned a different priority at its new price. 
The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the 30-day operative delay and 
designates the proposal operative upon filing.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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 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, 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-2017-031 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-2017-031. This 
file number should be included on the

[[Page 18199]]

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-2017-031 and should be submitted on or before May 
8, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07633 Filed 4-14-17; 8:45 am]
 BILLING CODE 8011-01-P