Document ID: SEC-2018-0691-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq Stock Market, LLC
Posted Date: 2018-05-03T04:00Z

[Federal Register Volume 83, Number 86 (Thursday, May 3, 2018)]
[Notices]
[Pages 19586-19588]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09341]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83125; File No. SR-NASDAQ-2017-088]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To 
Amend Nasdaq Rule 4703(a) To Allow Members To Designate an Order with a 
RTFY or SCAN Routing Order Attribute To Activate at 7:00 a.m. ET

April 27, 2018.

I. Introduction

    On August 30, 2017, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Nasdaq Rule 4703(a) relating to the times 
for activating an order with a RTFY or SCAN routing order attribute. 
The proposed rule change was published for comment in the Federal 
Register on September 18, 2017.\3\ On October 31, 2017, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On December 13, 2017, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and superseded the proposed rule change as originally filed.\6\ 
On December 15, 2017, the Commission published notice of Amendment No. 
1 and instituted proceedings under Section 19(b)(2)(B) of the Act \7\ 
to determine whether to approve or disapprove the proposed rule change, 
as modified by Amendment No. 1.\8\ On March 14, 2018, pursuant to 
Section 19(b)(2) of the Act,\9\ the Commission designated a longer 
period within which to issue an order approving or disapproving the 
proposed rule change.\10\ On April 19, 2018, the Exchange filed 
Amendment No. 2 to the proposed rule change, which amended and 
superseded the proposed rule change, as modified by Amendment No. 
1.\11\ The Commission has received no

[[Page 19587]]

comments on the proposed rule change. The Commission is publishing this 
notice to solicit comments on Amendment No. 2 from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
2, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 81579 (September 12, 
2017), 82 FR 43584.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 81986, 82 FR 51453 
(November 6, 2017). The Commission designated December 17, 2017 as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ In Amendment No. 1, the Exchange: (1) Modified the proposal 
to allow members entering an order with a RTFY or SCAN routing order 
attribute to designate the order to activate at a specific time 
during Pre-Market Hours (rather than System Hours) on the same day; 
(2) specified that the proposed functionality would be offered on a 
port level basis; (3) stated that all of the times-in-force in 
Nasdaq Rule 4703(a) currently apply to orders with RTFY or SCAN 
routing order attributes and made corresponding clarifications and 
corrections throughout the proposal; (4) provided additional 
information regarding why members might use the proposed 
functionality; and (5) provided additional discussion regarding 
members' best execution obligations and the application of the 
Exchange's regulatory checks associated with the proposed 
functionality, and reminded members of their regulatory obligations 
(e.g., Market Access Rule, Regulation SHO) when using the proposed 
functionality. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2017-088/nasdaq2017088-2798107-161689.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 82335, 82 FR 60637 
(December 21, 2017).
    \9\ 15 U.S.C. 78s(b)(2).
    \10\ See Securities Exchange Act Release No. 82871, 83 FR 12229 
(March 20, 2018). The Commission designated May 16, 2018 as the date 
by which the Commission shall either approve or disapprove the 
proposed rule change.
    \11\ In Amendment No. 2, the Exchange: (1) Further narrowed the 
proposal by allowing members to designate orders with RTFY or SCAN 
routing order attributes to activate at 7:00 a.m. ET; (2) provided 
additional information regarding why members might use the proposed 
functionality; and (3) compared the proposed functionality to 
existing functionalities on other exchanges. Amendment No. 2 is 
available at https://www.sec.gov/comments/sr-nasdaq-2017-088/nasdaq2017088-3476253-162214.pdf.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to amend Nasdaq Rule 4703(a) to allow members 
to designate a 7:00 a.m. ET activation time for an order with a RTFY or 
SCAN routing order attribute.
    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.\12\ If 
shares remain unexecuted after routing, they are posted to the Nasdaq 
book.\13\ 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.\14\ RTFY is designed to allow 
orders to participate in the opening, reopening, and closing process of 
the primary listing market for a security.\15\ 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.\16\ If shares remain unexecuted after routing, they are 
posted on the Nasdaq book.\17\ 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.\18\
---------------------------------------------------------------------------

    \12\ See Nasdaq Rule 4758(a)(1)(A)(v)b.
    \13\ See id.
    \14\ See id.
    \15\ See id.
    \16\ See Nasdaq Rule 4758(a)(1)(A)(iv).
    \17\ See id.
    \18\ See id.
---------------------------------------------------------------------------

    Nasdaq Rule 4703(a) provides the times-in-force that may be 
assigned to orders entered into the system. According to Nasdaq Rule 
4703(a), members specify an order's time-in-force by designating a time 
at which the order will become active and a time at which the order 
will cease to be active. All of the times-in-force currently described 
in Nasdaq Rule 4703(a) are applicable to orders with RTFY or SCAN 
routing order attributes.\19\ According to the Exchange, during Pre-
Market Hours,\20\ members usually designate orders with RTFY or SCAN 
routing order attributes to activate upon entry or at 8:00 a.m. ET.\21\ 
The Exchange now proposes to amend Nasdaq Rule 4703(a) to provide that 
a member entering an order with a RTFY or SCAN routing order attribute 
may designate the order to activate at 7:00 a.m. ET if entered prior to 
7:00 a.m. ET on the same day.\22\ As with the existing 8:00 a.m. ET 
activation time, the Exchange proposes to offer the 7:00 a.m. ET 
activation time on a port level basis.\23\
---------------------------------------------------------------------------

    \19\ See Amendment No. 2 at n.12.
    \20\ ``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. See Nasdaq Rule 4701(g). ``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). See id.
    \21\ See Amendment No. 2 at 5.
    \22\ Orders can be entered into the system from 4:00 a.m. ET 
until 8:00 p.m. ET. See Nasdaq Rule 4756(a)(3).
    \23\ See Amendment No. 2 at n.14. As a result, if, for example, 
a member cancels an order entered through a port set for 7:00 a.m. 
ET activation and wishes the order to instead activate at 8:00 a.m. 
ET, it must either have another port set for activation at 8:00 a.m. 
ET or, alternatively, enter the order at that time for immediate 
activation. See id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\24\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\25\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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. The Commission notes that the 
proposal would provide Exchange members with an additional time for 
activating orders with RTFY or SCAN routing order attributes, and could 
facilitate the entry of these orders.\26\
---------------------------------------------------------------------------

    \24\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ The Exchange states that, should it become aware of other 
orders that would also benefit from this change, it would consider 
filing another rule change to extend the proposed activation 
functionality to such other orders. See Amendment No. 2 at 13-14.
---------------------------------------------------------------------------

    The Commission notes that, as amended, the proposal would allow 
members to activate orders with RTFY or SCAN routing order attributes 
specifically at 7:00 a.m. ET. According to the Exchange, market 
participants have coded their systems for trading during Pre-Market 
Hours, such as 7:00 a.m. ET, as evidenced by trading sessions on other 
exchanges \27\ that start at 7:00 a.m. ET.\28\ The Commission believes 
that Exchange members may wish to activate orders with RTFY or SCAN 
routing order attributes at 7:00 a.m. ET to benefit from the liquidity 
at that time. The Commission also notes that the 7:00 a.m. ET 
activation time is similar to existing functionalities on certain other 
exchanges where orders can activate at 7:00 a.m. ET.\29\
---------------------------------------------------------------------------

    \27\ See infra note 29.
    \28\ See Amendment No. 2 at 7.
    \29\ See Cboe BZX Exchange, Inc. Rule 1.5(ee); Cboe BYX 
Exchange, Inc. Rule 1.5(ee); Cboe EDGA Exchange, Inc. Rule 1.5(ii); 
and Cboe EDGX Exchange, Inc. Rule 1.5(ii).
---------------------------------------------------------------------------

    The Exchange represents that as of the time that an order with a 
RTFY or SCAN routing order attribute is activated, the Exchange would 
subject orders that are eligible for display or execution to all of the 
Exchange's standard regulatory checks, as it currently does with all 
orders upon entry.\30\ These checks include compliance with Regulation 
NMS, Regulation SHO, and relevant Exchange rules.\31\ Moreover, the 
Exchange reminds its members of their regulatory obligations when 
submitting an order with a RTFY or SCAN routing order attribute.\32\ In 
particular, the Exchange reminds that members must comply with the 
Market Access Rule, which requires, among other things, pre-trade 
controls and procedures that are reasonably designed to assure 
compliance with Exchange trading rules and Commission rules pursuant to 
Regulation SHO and Regulation NMS.\33\ The Exchange also notes that a 
member's procedures must be reasonably designed to ensure compliance 
with the applicable regulatory requirements, not just at the time the 
order is routed to the Exchange, but also at the time the order is 
activated and becomes eligible for execution.\34\
---------------------------------------------------------------------------

    \30\ See Amendment No. 2 at 10.
    \31\ See id.
    \32\ See id.
    \33\ See id. at 10-11.
    \34\ See id. at 11.
---------------------------------------------------------------------------

    The Commission further notes the Exchange's discussion of the best 
execution obligations of members

[[Page 19588]]

utilizing the proposed 7:00 a.m. ET activation time.\35\ The Exchange 
notes that members may cancel their inactive orders with RTFY or SCAN 
routing order attributes at any time prior to the time the order 
activates, which would allow members to react to conditions that may 
cause them to violate their best execution obligations to their 
customers should the orders activate and execute.\36\ The Exchange also 
notes that members may cancel their active orders with RTFY or SCAN 
routing order attributes and enter new orders at another time that the 
members believe will satisfy their best execution obligations.\37\ The 
Commission notes that Exchange members' use of the proposed 7:00 a.m. 
ET activation time must be consistent with their best execution 
obligations.
---------------------------------------------------------------------------

    \35\ See id. at 8-10.
    \36\ See id. at 8.
    \37\ See id.
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 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-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 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-2017-088 and should be submitted 
on or before May 24, 2018.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. As noted above, in Amendment No. 2, the 
Exchange narrowed the proposal from allowing members to activate orders 
with RTFY or SCAN routing order attributes at any time during Pre-
Market Hours, to specifically allowing members to activate these orders 
at 7:00 a.m. ET, which is similar to existing functionalities on 
certain other exchanges. Moreover, Amendment No. 2 provided additional 
explanation regarding the potential benefits of a 7:00 a.m. ET 
activation time. Accordingly, the Commission finds good cause, pursuant 
to Section 19(b)(2) of the Act,\38\ to approve the proposed rule 
change, as modified by Amendment No. 2, on an accelerated basis.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\39\ that the proposed rule change (SR-NASDAQ-2017-088), as 
modified by Amendment No. 2, be, and hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \39\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
---------------------------------------------------------------------------

    \40\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-09341 Filed 5-2-18; 8:45 am]
BILLING CODE 8011-01-P