Document ID: SEC-2017-1547-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2017-09-18T04:00Z

[Federal Register Volume 82, Number 179 (Monday, September 18, 2017)]
[Notices]
[Pages 43584-43587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19709]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81579; File No. SR-NASDAQ-2017-088]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4703(a) To Allow 
Members To Designate When an Order With a RTFY or SCAN Routing Order 
Attribute Will Be Activated

September 12, 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 30, 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 4703(a) to allow members to 
designate when an Order with a RTFY or SCAN routing Order Attribute 
will be activated.
    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.

[[Page 43585]]

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 Exchange is proposing to amend Rule 4703(a) to allow members to 
designate when an Order with a RTFY or SCAN routing Order Attribute \3\ 
will be activated. RTFY is a routing option available for an order that 
qualifies as a Designated Retail Order under which orders check the 
System for available shares only if so instructed by the entering firm 
and are thereafter routed to destinations on the System routing 
table.\4\ If shares remain unexecuted after routing, they are posted to 
the book.\5\ Once on the book, should the order subsequently be locked 
or crossed by another market center, the System will not route the 
order to the locking or crossing market center.\6\ RTFY is designed to 
allow orders to participate in the opening, reopening and closing 
process of the primary listing market for a security. SCAN is a routing 
option under which orders check the System for available shares and 
simultaneously route the remaining shares to destinations on the System 
routing table. If shares remain un-executed after routing, they are 
posted on the book.\7\ Once on the book, should the order subsequently 
be locked or crossed by another market center, the System will not 
route the order to the locking or crossing market center.\8\
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    \3\ The term ``Order'' means an instruction to trade a specified 
number of shares in a specified System Security submitted to the 
Nasdaq Market Center by a Participant. 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. 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. The available Order Types and Order 
Attributes, and the Order Attributes that may be associated with 
particular Order Types, are described in Rules 4702 and 4703. One or 
more Order Attributes may be assigned to a single Order; provided, 
however, that if the use of multiple Order Attributes would provide 
contradictory instructions to an Order, the System will reject the 
Order or remove non-conforming Order Attributes. See Rule 4701(e).
    \4\ See Rule 4758(a)(1)(A)(v)b.
    \5\ Id.
    \6\ Id.
    \7\ See Rule 4758(a)(1)(A)(iv).
    \8\ Id.
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    Rule 4703 provides the various Order Attributes that may be 
assigned to Orders entered into the System. All Orders have a Time-in-
Force,\9\ during which the Order is active. During Pre-Market 
Hours,\10\ the Exchange has historically provided a member two options 
concerning when an Order with a RTFY or SCAN Order Attribute may become 
active--upon entry or at single designated time, which is currently 
8:00 a.m. ET. Orders with a RTFY or SCAN Order Attribute entered prior 
to 8:00 a.m. ET that are not designated to activate immediately are 
held by the System until 8:00 a.m. ET, at which time they become 
active. During Market Hours \11\ and Post-Market Hours,\12\ Orders with 
a RTFY or SCAN Order Attribute may only become active upon entry. The 
Exchange is proposing to provide members with greater control over 
their Orders with RTFY and SCAN Order Attributes by allowing members to 
designate when such Orders become active at any point during the 
trading day. Accordingly, the Exchange is amending Rule 4703(a) and 
paragraph (7) thereunder to make it clear that Orders with a RTFY or 
SCAN Order Attribute may either be active upon entry or at a time 
designated by the member. The Exchange is also clarifying under Rule 
4703(a)(7) that Orders with a RTFY or SCAN Order Attribute may be 
designated to activate at any time during System Hours, which 
encompasses the full trading day on Nasdaq, on the same day.\13\ Thus, 
an Order with a RTFY or SCAN Order Attribute not designated to become 
active immediately may only be designated to activate during System 
Hours of the day on which the Order was entered.
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    \9\ See Rule 4703(a).
    \10\ The term ``Pre-Market Hours'' means the period of time 
beginning at 4:00 a.m. ET and ending immediately prior to the 
commencement of Market Hours. The term ``Market Hours'' means the 
period of time beginning at 9:30 a.m. ET and ending at 4:00 p.m. ET 
(or such earlier time as may be designated by Nasdaq on a day when 
Nasdaq closes early). The term ``Post-Market Hours'' means the 
period of time beginning immediately after the end of Market Hours 
and ending at 8:00 p.m. ET. The term ``System Hours'' means the 
period of time beginning at 4:00 a.m. ET and ending at 8:00 p.m. ET 
(or such earlier time as may be designated by Nasdaq on a day when 
Nasdaq closes early). See Rule 4701(g).
    \11\ Id.
    \12\ Id.
    \13\ Id.
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    The Exchange will implement the proposed changes upon approval by 
the Commission.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ 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, by providing members with greater control over their Orders 
with a RTFY or SCAN Order Attribute and more flexibility to carry out 
their investment strategies. Currently, market participants are limited 
by the time at which their RTFY and SCAN Orders may activate--either 
upon entry or at 8:00 a.m. ET. The proposed rule change removes this 
limitation by allowing a member to designate the precise time at which 
it wishes the Order to become active. The Exchange notes that a member 
may currently replicate what is being proposed by entering an Order 
with a RTFY or SCAN Order Attribute precisely at the time that they 
wish it to become active during the trading day. The proposed change 
merely frees members from having to time their Order entry to achieve 
their investment goals. Currently, members may cancel an Order with a 
RTFY or SCAN Order Attribute at any time before it activates at 8 a.m. 
ET. Under the proposed change, members may cancel their inactive Orders 
with a RTFY or SCAN Order Attribute at any time, thus allowing them to 
react to market conditions that may cause them to violate their 
obligation of best execution to their customers should the Order 
activate and execute. Similarly, members may cancel their active Orders 
with RTFY or SCAN and enter new RTFY or SCAN Orders to activate at a 
time that the members believe will better satisfy their obligation of 
best execution.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    With this change, and as is currently the case, all Nasdaq members 
may use the SCAN Order Attribute, and all Nasdaq members may use the 
RTFY Order Attribute if they meet its

[[Page 43586]]

requirements.\16\ Thus, the proposed change will benefit all members 
that may use, or are eligible to use, SCAN or RTFY Order Attributes by 
removing a limitation, and by providing more choice over their market 
participation.
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    \16\ As set forth in Rule 4758(a)(1)(A), RTFY is a routing 
option available for an order that qualifies as a Designated Retail 
Order. Rule 7018 defines a Designated Retail Order as an agency or 
riskless principal order that meets the criteria of FINRA Rule 
5320.03 and that originates from a natural person and is submitted 
to Nasdaq by a member that designates it pursuant to this rule, 
provided that no change is made to the terms of the order with 
respect to price or side of market and the order does not originate 
from a trading algorithm or any other computerized methodology.
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    The Exchange believes that it is equitable to limit the proposed 
change to RTFY or SCAN Orders because of the nature of the members that 
use these Order types with the current order activation delay. 
Currently, members that enter Orders with a RTFY or SCAN Order 
Attribute with delayed activation tend to represent customers on an 
agency basis--for example, individual retail investors.\17\ The 
Exchange has become aware that the proposed functionality would ease 
burdens associated with entering members' agency Orders with these 
Routing Order Attributes. Consequently, the Exchange is proposing to 
apply the proposed change to Orders with a RTFY or SCAN Order 
Attribute. Should the Exchange become aware of other Routing Order 
Attributes that would also benefit from the flexibility proposed 
herein, it will consider filing a rule change to expand the time during 
which such Orders may be designated to become active.
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    \17\ RTFY, by definition, is entered on behalf of retail 
customers, whereas the Orders with a SCAN Order Attribute are 
entered on behalf of a wide array of customer, including retail 
customers. Consequently, although the proposed change will relieve 
burdens placed on members using both RTFY and SCAN, it will 
beneficially impact SCAN Orders more so than RTFY Orders.
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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. All Nasdaq members may use the 
SCAN Order Attribute, and Nasdaq members may use the RTFY Order 
Attribute if they meet its requirements. Any member that may use, or is 
eligible to use, Orders with RTFY or SCAN Order Attributes may avail 
itself of the proposed change. The Exchange believes that the proposed 
rule change promotes competition by removing a restriction on the use 
of two Order Attributes, thereby making the process of entering Orders 
with RTFY and SCAN Order Attributes more efficient and less burdensome 
on members. Members may not have functionality that allows them to send 
large numbers of RTFY and SCAN Orders to the Exchange for execution at 
a designated time. As discussed above, such members must either enter 
RTFY and SCAN Orders for immediate execution or send them to the 
Exchange for execution at 8 a.m. ET, relying on the Exchange to queue 
and activate these Orders at this single time. The Exchange is 
proposing to allow such queuing and activation done by the Exchange to 
occur at any time, since the Exchange can better handle the large 
number of queued Orders received by certain members. Consequently, the 
proposed change eliminates the burden that affects these members, but 
will also allow any other member that currently queues RTFY and SCAN 
Orders for activation at a precise time to use the Exchange for this 
functionality instead. Should the Exchange find a similar burden placed 
on members using other Orders, it may extend the proposed activation 
functionality to other such Orders through rulemaking. The Exchange 
notes that providing members greater efficiency and control over their 
trading may make Nasdaq a more attractive venue, which may, in turn, 
cause other markets to consider similar changes that would remove 
unnecessary restrictions to the benefit of their members. For these 
reasons, the Exchange believes that the proposed change will not impose 
any burden on competition, but rather will reduce burdens, as described 
above.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2017-088 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-2017-088. 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-2017-088 and should 
be submitted on or before October 10, 2017.

[[Page 43587]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-19709 Filed 9-15-17; 8:45 am]
 BILLING CODE 8011-01-P