Document ID: SEC-2021-0886-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2021-06-24T04:00Z

[Federal Register Volume 86, Number 119 (Thursday, June 24, 2021)]
[Notices]
[Pages 33420-33425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13285]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92180; File No. SR-NASDAQ-2021-044]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 4, Rules 4702 and 4703 in Light of Planned Changes to the 
System

June 15, 2021.
    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 4, 2021, 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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[[Page 33421]]

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

    The Exchange proposes to amend Equity 4, Rules 4702 and 4703 \3\ in 
light of planned changes to the System, as described further below.
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    \3\ References herein to Nasdaq Rules in the 4000 Series shall 
mean Rules in Nasdaq Equity 4.
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    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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
    Presently, the Exchange is making functional enhancements and 
improvements to specific Order Types \4\ and Order Attributes \5\ that 
are currently only available via the RASH Order entry protocol.\6\ 
Specifically, the Exchange will be upgrading the logic and 
implementation of these Order Types and Order Attributes so that the 
features are more streamlined across the Nasdaq Systems and order entry 
protocols, and will enable the Exchange to process these Orders more 
quickly and efficiently. Additionally, this System upgrade will pave 
the way for the Exchange to enhance the OUCH Order entry protocol \7\ 
so that Participants may enter such Order Types and Order Attributes 
via OUCH, in addition to the RASH Order entry protocols.\8\ The 
Exchange plans to implement its enhancement of the OUCH protocol 
sequentially, by Order Type and Order Attribute.\9\
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    \4\ 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. See Equity 1, Section 1(a)(7).
    \5\ 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. See id.
    \6\ The RASH (Routing and Special Handling) Order entry protocol 
is a proprietary protocol that allows members to enter Orders, 
cancel existing Orders and receive executions. RASH allows 
participants to use advanced functionality, including discretion, 
random reserve, pegging and routing. See http://nasdaqtrader.com/content/technicalsupport/specifications/TradingProducts/rash_sb.pdf.
    \7\ The OUCH Order entry protocol is a Nasdaq proprietary 
protocol that allows subscribers to quickly enter orders into the 
System and receive executions. OUCH accepts limit Orders from 
members, and if there are matching Orders, they will execute. Non-
matching Orders are added to the Limit Order Book, a database of 
available limit Orders, where they are matched in price-time 
priority. OUCH only provides a method for members to send Orders and 
receive status updates on those Orders. See https://www.nasdaqtrader.com/Trader.aspx?id=OUCH.
    \8\ The Exchange designed the OUCH protocol to enable members to 
enter Orders quickly into the System. As such, the Exchange 
developed OUCH with simplicity in mind, and it therefore lacks more 
complex order handling capabilities. By contrast, the Exchange 
specifically designed RASH to support advanced functionality, 
including discretion, random reserve, pegging and routing. Once the 
System upgrades occur, then the Exchange intends to propose further 
changes to its Rules to permit participants to utilize OUCH, in 
addition to RASH, to enter order types that require advanced 
functionality.
    \9\ The Exchange notes that its sister exchanges, Nasdaq BX and 
Nasdaq PSX, plan to file similar proposed rule changes with the 
Commission shortly.
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    To support and prepare for these upgrades and enhancements, the 
Exchange recently submitted two rule filings to the Commission that 
amended its rules pertaining to, among other things, Market Maker Peg 
Orders and Orders with Reserve Size.\10\ The Exchange now proposes to 
further amend its Rules governing Order Attributes, at Rule 4703. In 
particular, the Exchange proposes to adjust the current functionality 
of the Pegging \11\ and Trade Now and Midpoint Trade Now Order 
Attributes,\12\ as described below, so that they align with how the 
System, once upgraded, will handle these Order Attributes going 
forward. The Exchange also proposes to make several associated 
clarifications, corrections, and other changes to Rule 4702 as it 
prepares to enhance its order handling processes, including changes to 
Market on Open and Limit on Open Orders.
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    \10\ See Securities Exchange Act Release No. 34-90389 (November 
10, 2020), 85 FR 73304 (November 17, 2020) (SR-NASDAQ-2020-071); 
Securities Exchange Act Release No. 34-91109 (February 11, 2021), 86 
FR 10141 (February 18, 2021) (SR-NASDAQ-2020-090).
    \11\ See Rule 4703(d).
    \12\ See Rule 4703(m)-(n).
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Changes to Pegging Order Attribute
    First, the Exchange proposes to amend Rule 4703(d), which governs 
the Pegging Order Attribute. The Exchange offers three types of 
Pegging: Primary Pegging, Market Pegging, and Midpoint Pegging.\13\ The 
Rule presently provides that if, at the time of entry, there is no 
price to which a Pegged Order can be pegged, the Order will be 
rejected, provided, however, that a Displayed Order that has Market 
Pegging, or an Order with a Non-Display Attribute that has Primary 
Pegging or Market Pegging, will be accepted at its limit price. The 
Exchange proposes to replace this text by stating that if, at the time 
of entry, there is no price to which a Pegged Order, that has not been 
assigned a Routing Order Attribute, can be pegged or pegging would lead 
to a price at which the Order cannot be posted, then the Order will not 
be immediately available on the Nasdaq Book and will be entered once 
there is a permissible price.\14\ The Exchange proposes this change so 
as to enhance the manner in which the Exchange presently handles Pegged 
Orders in this scenario. Rather than reject such Orders outright, and 
require customers to continuously reenter the Orders thereafter until a 
pegging price emerges, which may cost them queue priority, the Exchange 
believes that it would be more efficient and customer-friendly to 
simply hold a Pegged Order until a permissible pegging price 
emerges.\15\
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    \13\ See Rule 4703(d) (defining ``Primary Pegging as pegging 
with reference to the inside quotation on the same side of the 
market, ``Market Pegging'' as pegging with reference to the inside 
quotation on the opposite side of the market, and ``Midpoint 
Pegging'' as pegging with reference to the midpoint between the 
inside bid and the inside offer).
    \14\ This change is applicable to Primary, Market and Midpoint 
Pegging Orders entered via RASH/QIX/FIX; OUCH/FLITE Midpoint Pegging 
behavior is not affected by this change. The Exchange also proposes 
to amend existing language in this provision which states that ``if 
the Inside Bid and Inside Offer are crossed or if there is no Inside 
Bid and/or Inside Offer, the Order will not be accepted.'' The 
proposed amendment would specify that this language applies only to 
Orders with Midpoint Pegging entered through OUCH or FLITE. The 
proposed changes to pegged orders entered through RASH, QIX, or FIX 
will allow the Exchange to handle the Order more consistent with the 
customer intended instruction, and are necessary to facilitate 
forthcoming System enhancements.
    \15\ Meanwhile, the Exchange proposes to amend the Rule to state 
that if a Pegged Order is assigned a Routing Order Attribute, and a 
permissible pegging price is not available upon entry, then the 
Order will continue to be rejected. The Exchange proposes to retain 
existing practice for Pegged Orders with Routing Order Attributes 
because the Exchange is not yet prepared to make similar changes to 
such Orders, although it contemplates doing so in the near future.
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    A similar rationale applies to the Exchange's proposal to cease 
accepting certain Market or Primary Pegged Orders at their limit prices 
if no pegging price is available. Because participants presumably 
prefer for their orders to

[[Page 33422]]

post at the pegging price, the Exchange believes that participants 
would prefer for the Exchange to hold such orders until a permissible 
pegging price emerges, rather than post the orders at their limit 
prices.16 17
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    \16\ When a Pegged Order lacks a pegging price or a permissible 
pegging price, the System will not wait indefinitely for a pegging 
price or a permissible pegging price to become available. Instead, 
the System will cancel the Order if no permissible pegging price 
becomes available within one second after Order entry or after the 
Order was removed due to the lack of a permissible pegging price and 
no longer available on the Book. The Exchange may, in the exercise 
of its discretion, modify the length of this maximum time period by 
posting advance notice of the applicable new time period on its 
website.
    \17\ In this paragraph of Rule 4703(d), the Exchange again 
proposes to state that it will continue to reject a Pegged Order 
entered through RASH, QIX, or FIX when a permissible pegging price 
is unavailable, if the Pegged Order is assigned a Routing Order 
Attribute. The Exchange will continue to accept certain Market and 
Primary Pegged Orders at their limit price where they have Routing 
Order Attributes. The Exchange proposes to retain existing practice 
for Pegged Orders with Routing Order Attributes because the Exchange 
is not yet prepared to make similar changes to such Orders, although 
it contemplates doing so in the near future. See n. 15, supra.
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    The Exchange proposes similar changes to the paragraph of Rule 
4703(d) that applies to Pegged Orders entered through RASH, QIX, or FIX 
that posted to the Nasdaq Book. The text presently provides that if the 
price to which an Order is pegged is not available, the Order will be 
rejected. The Exchange proposes instead to state that if the price to 
which an Order is pegged becomes unavailable or pegging would lead to a 
price at which the Order cannot be posted,\18\ then the Exchange will 
remove the Order from the Nasdaq Book and re-enter it once there is a 
permissible price. Again, the Exchange proposes this change to enhance 
and make the System more efficient by providing for the Exchange to re-
post the Pegged Orders rather than rejecting them when there is no 
permissible pegging price and requiring participants to re-enter them 
once a valid price becomes available.\19\ The Exchange notes that the 
proposed change will not apply to Pegged Orders with Routing Attributes 
assigned to them; the existing Rule functionality will continue to 
apply to those Orders.
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    \18\ An example of a scenario where pegging would lead to a 
price at which an Order cannot be posted is as follows. Assume that 
the NBBO is $0.0002 x $0.0003. A Primary Pegged Order to buy is 
entered with a passive offset amount of $0.0003. This would result 
in the Order being made unavailable by the Exchange as -$0.0001 is 
not a permissible price. Currently, the Exchange accepts such Orders 
at its limit price, and will post the Orders to the Nasdaq Book in 
accordance with the parameters that apply to the underlying Order 
Type.
    \19\ The Exchange proposes to apply a similar time limitation to 
the holding period prescribed above. See supra, n.16. Similarly, for 
an Order with Midpoint Pegging, if the Inside Bid or Inside Offer 
become crossed, or there is no Inside Bid or Inside Offer, the 
System will cancel the Order if no permissible price becomes 
available within one second after the Order was removed and no 
longer available on the Nasdaq Book (the Exchange may, in the 
exercise of its discretion modify the length of this one second time 
period by posting advance notice of the applicable time period on 
its website). For an Order with Midpoint Pegging with a Routing 
Attribute, the new one second time period will be applicable.
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    Rule 4703(d) also subjects Pegging Orders to collars, meaning that 
any portion of a Pegging Order that would \20\ execute, either on the 
Exchange or when routed to another market center, at a price of more 
than $0.25 or 5 percent worse than the NBBO at the time when the order 
reaches the System, whichever is greater, will be cancelled. Although 
the Rule states that it applies this collar to Orders with Primary and 
Market Pegging, the Exchange has always intended for the collar to also 
apply to Orders with Midpoint Pegging, and in practice, it does so. The 
failure of the Rule to reflect the application of the collar to 
Midpoint Pegged Orders was an unintended omission. The Exchange now 
proposes to revise Rule 4703(d) to correct this omission.
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    \20\ Additionally, the Exchange proposes to replace the word 
``would'' with ``could'' in this provision, so as to clarify that 
collars apply in circumstances in which Pegged Orders might execute, 
but do not necessarily do so. An example of a circumstance in which 
such Orders do not execute is as follows. Assume that the NBBO is 
$10.00 x $10.01. A Market Pegged Order to buy posts at $10.01. The 
NBBO then updates to $10.00 x $11.00. Because re-pricing and posting 
the Market Pegged Order would result in the Order being available on 
the Book and executable at $11.00 (outside of the collars), the 
Order will be canceled.
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Changes to Trade Now and Midpoint Trade Now Order Attributes
    Additionally, the Exchange proposes to amend its rules governing 
the Trade Now and Midpoint Trade Now Order Attributes, at Rule 4703(m) 
and (n), respectively. Pursuant to Rule 4703(m), Trade Now is an Order 
Attribute that allows a resting Order that becomes locked by an 
incoming Displayed Order to execute against a locking or crossing Order 
as a liquidity taker. Pursuant to Rule 4703(n), Midpoint Trade Now is 
an Order Attribute that allows: (i) A resting Order that becomes locked 
at its non-displayed price by an incoming Midpoint Peg Post-Only Order 
to execute against a locking or crossing Order as a liquidity taker; 
and (ii) a Non-Displayed Order with Midpoint Pegging or a Midpoint Peg 
Post-Only Order (collectively, ``Midpoint Orders'') to execute against 
a M-ELO+CB Order Type, subject to certain eligibility requirements.
    The Exchange proposes to combine Rule 4703(m) and (n) under the 
general header of ``Trade Now.'' The Exchange proposes to combine these 
two related Order Attributes to streamline and simplify the 
instructions that participants must enter to address the handling of 
their orders in various locking or crossing scenarios.\21\ Rather than 
having to enable both Trade Now and Midpoint Trade Now separately, 
participants will only have to enable one Order Attribute to address 
both functionalities.\22\ Additionally, rather than require a 
participant to manually send a Trade Now instruction whenever an Order 
entered through OUCH or FLITE becomes locked, the proposed amended Rule 
will allow for a participant to enable Trade Now functionality on a 
port-level basis for all Order entry protocols and for all Order Types 
that support Trade Now, as well as on an order-by-order basis, for the 
Non-Displayed Order Type, when entered through OUCH or FLITE.\23\ For 
Orders entered through RASH or FIX, Trade Now will be available on an 
order-by-order basis for all Order Types that support Trade Now. The 
proposal will not extend Trade Now (or Midpoint Trade Now) 
functionality to new Order Types.\24\
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    \21\ An example of a crossing scenario is as follows. A non-
displayed Order to buy rests on the Book at $0.0015. Thereafter, a 
Post Only Order to sell is entered at $0.0014, which would post on 
the Book and display at $0.0014, thereby crossing the non-displayed 
Order as the price improvement requirements were not met.
    \22\ The Exchange believes that the proposal to combine the 
Trade Now and Midpoint Trade Now Order Attributes will not adversely 
impact participants because those that choose to utilize these Order 
Attributes are seeking opportunities to remove liquidity, and they 
are less fee sensitive in their choices. Participants will still be 
able to deactivate Trade Now on an order-by-order basis for RASH and 
FIX.
    \23\ This proposed change in functionality for OUCH and FLITE is 
enabled by the migration of Trade Now and Midpoint Trade Now to the 
Exchange's matching System.
    \24\ The Exchange proposes to add language to Rule 4703(m) to 
state that Trade Now allows a resting Order that becomes locked ``or 
crossed, as applicable'' at its non-displayed price by the ``posted 
price'' of an incoming Displayed Order or a Midpoint Peg Post-Only 
Order to execute against a locking or crossing Order(s) 
automatically. The Exchange proposes to add the phrase ``or crossed, 
as applicable,'' for completeness. It also proposes to add the 
phrase ``posted price'' for purposes of clarity. It merely 
communicates that the incoming Displayed Order or Midpoint Peg Post-
Only Order first posts to the Nasdaq Book, thereby locking or 
crossing the resting Order at its non-displayed price.
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    The Exchange proposes other non-substantive changes to Rule 4703(m) 
to incorporate the inclusion of the text of the Midpoint Trade Now 
Order Attribute, including a reorganization of its bulleted provisions. 
Furthermore, it

[[Page 33423]]

proposes to delete Rule 4703(n) in its entirety as well as references 
to Midpoint Trade Now in Rule 4702.
Changes to Market on Open and Limit on Open Order Types
    Finally, the Exchange proposes to amend Rule 4702(b)(8) and (9), 
which describe the Market on Open (``MOO'') \25\ and Limit on Open 
(``LOO'') \26\ Order Types, to account for a change in functionality 
that will occur when the Exchange upgrades the logic and implementation 
for processing certain aspects of LOO and MOO Orders as part of the 
forthcoming System enhancements. When these Order Types are assigned 
Pegging Attributes and submitted just prior to the onset of the Nasdaq 
Opening Cross, the proposed changes will limit the circumstances in 
which the System will hold these Order Types until after the Nasdaq 
Opening Cross occurs. The Exchange proposes these changes to streamline 
the handling of LOO and MOO orders, thereby reducing the potential for 
confusion about the Exchange's practice for holding these Order Types 
in these circumstances. Additionally, the proposed changes will allow 
these Order Types, where applicable, to participate and contribute to 
offsetting any order imbalance in the Nasdaq Opening Cross. The 
Exchange notes that only a very small number of LOO and MOO orders will 
be affected by these changes, such that the overall impact of the 
changes should be minor.
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    \25\ As set forth in Rule 4702(b)(8)(A), a MOO is an Order Type 
entered without a price that may be executed only during the Nasdaq 
Opening Cross. Subject to the qualifications provided below, MOO 
Orders may be entered between 4 a.m. ET and immediately prior to 
9:28 a.m. ET. An MOO Order may be cancelled or modified until 
immediately prior to 9:25 a.m. ET. An MOO Order shall execute only 
at the price determined by the Nasdaq Opening Cross.
    \26\ As set forth in Rule 4702(b)(9)(A), a LOO is an Order Type 
entered with a price that may be executed only in the Nasdaq Opening 
Cross, and only if the price determined by the Nasdaq Opening Cross 
is equal to or better than the price at which the LOO Order was 
entered. Subject to the qualifications provided below, LOO Orders 
may be entered between 4 a.m. ET and immediately prior to 9:28 a.m. 
ET but may not be cancelled or modified at or after 9:25 a.m. ET. 
Between 9:28 a.m. ET and 9:29:30 a.m. ET, an LOO Order may be 
entered, provided that there is a First Opening Reference Price or a 
Second Opening Reference Price. An LOO Order entered after 9:29:30 
a.m. ET that is designated as an IOC will be rejected. An LOO Order 
entered between 9:28 a.m. ET and 9:29:30 a.m. ET will be accepted at 
its limit price, unless its limit price is higher (lower) than the 
higher (lower) of the First Opening Reference Price and the Second 
Opening Reference Price for an LOO Order to buy (sell), in which 
case the LOO Order will be handled consistent with the Participant's 
instruction that the LOO Order is to be: (1) Rejected; or (2) re-
priced to the higher (lower) of the First Opening Reference Price 
and the Second Opening Reference Price, provided that if either the 
First Opening Reference Price or the Second Opening Reference Price 
is not at a permissible minimum increment, the First Opening 
Reference Price or the Second Opening Reference Price, as 
applicable, 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. The default configuration for 
Participants that do not specify otherwise will be to have such LOO 
Orders re-priced rather than rejected.
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    Specifically, Rule 4702(b)(8)(B) presently provides that a MOO with 
a Market Pegging Order Attribute and with a Time-in-Force other than 
Immediate-Or-Cancel that is flagged to participate in the Nasdaq 
Opening Cross and which is entered at or after 9:28 a.m. will not 
participate in the Opening Cross, but instead will be held and entered 
into the System after the Opening Cross completes. The Exchange 
proposes to amend this provision, such that, going forward, a MOO with 
a Market Pegging Order Attribute and with a Time-in-Force other than 
Immediate-Or-Cancel that is flagged to participate in the Nasdaq 
Opening Cross and which is entered at or after 9:28 a.m. will be 
rejected just as the Rule presently provides for all other MOOs that 
are entered at or after 9:28 a.m. (and prior to the Nasdaq Opening 
Cross). The rule text language, as amended, will specify, however, that 
the existing holding practice will continue to apply to Orders with 
Market Pegging and Routing Attributes and a Time-in-Force other than 
Immediate-Or-Cancel as the Exchange is not yet ready to implement a 
similar change to such Orders, although it contemplates doing so in a 
future proposal. The Exchange also notes that this clarification will 
provide for LOOs and MOOs with Routing Attributes to be handled 
similarly when entered just prior to the time of the Nasdaq Opening 
Cross.\27\
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    \27\ See Rule 4702(b)(9)(B).
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    Meanwhile, Rule 4702(b)(9)(B) presently provides that an Opening 
Cross/Market Hours LOO Order that is entered between 9:29:30 a.m. and 
the time of the Nasdaq Opening Cross will be: (i) Held and entered into 
the System after the completion of the Nasdaq Opening Cross if it has 
been assigned a Pegging or Routing Attribute, (ii) treated as an 
Opening Imbalance Only Order and entered into the System after the 
completion of the Nasdaq Opening Cross if entered through RASH, QIX, or 
FIX but not assigned a Pegging or Routing Attribute, or (iii) treated 
as an Opening Imbalance Only Order and cancelled after the Nasdaq 
Opening Cross if entered through OUCH or FLITE. The Exchange proposes 
to delete references to ``Pegging Attribute'' in this provision, such 
that going forward, a LOO Order with Pegging (and no Routing Attribute) 
entered between 9:29:30 a.m. and the time of the Opening Cross will no 
longer be held and entered into the System after the completion of the 
Opening Cross. Instead, if the LOO with Pegging is entered through 
RASH, QIX, or FIX, it will be treated as an Opening Imbalance Only 
Order and entered into the System after the Opening Cross occurs, and 
if it is entered through OUCH or FLITE, it will be treated as an 
Opening Imbalance Only Order and cancelled after the Opening Cross.\28\
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    \28\ The Exchange notes that it plans future order handling 
enhancements that may further reduce or eliminate the circumstances 
in which it holds late submitted MOO and LOO Orders. The Exchange 
will submit rule filing proposals to the Commission before 
implementing such enhancements.
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    The Exchange intends to implement the foregoing changes during the 
Third Quarter of 2021. The Exchange will issue an Equity Trader Alert 
at least 7 days in advance of implementing the changes.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\29\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\30\ 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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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposed amendments to the Pegging 
Order Attribute, at Rule 4703(d), are consistent with the Act. The 
proposals to eliminate rule text that provides for the System to reject 
certain Pegged Orders that lack a permissible pegging price, or to post 
the Orders at their limit price, are consistent with the Act because 
they eliminate unwarranted inefficiencies that arise when participants 
must repeatedly re-enter rejected Pegged Orders until a permissible 
price becomes available.31 32

[[Page 33424]]

It is also consistent with the Act to maintain the existing practice in 
the Rule of rejecting a Pegged Order without a permissible pegging 
price where the Order has been assigned a Routing Attribute. The 
Exchange is not yet prepared to hold such Orders in the same way that 
it proposes to do so for Pegged Orders without Routing Attributes, 
although it contemplates doing so in the near future.
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    \31\ The Exchange notes that as part of this proposed change, if 
there is no Pegging Price upon entry for a Displayed Order that has 
Market Pegging, or an Order with a Non-Display Attribute that has 
Primary Pegging or Market Pegging, then it will no longer accept 
such Orders at their limit price. The Exchange believes that this 
proposed change is consistent with the Act because it better aligns 
with customer intentions for Pegged Orders to post at a Pegging 
Price. That is, the Exchange believes that participants prefer for 
Pegged Orders to be entered at a Pegging Price, rather than its 
entered limit price, even if that means that the Order must wait for 
a Pegging Price to become available. As discussed above, the 
Exchange does not propose this change for Pegged Orders with Routing 
Attributes.
    \32\ It is also consistent with the Act to limit the time period 
for which the Exchange will hold, without canceling, Pegged Orders 
for which there is no pegging price or permissible pegging price 
because the Exchange does not believe that customers would want the 
Exchange to hold their orders indefinitely. Moreover, holding such 
orders indefinitely would encumber the Exchange's System. The 
Exchange believes that a one second holding period for such orders 
is long enough to provide the above-stated efficiencies for 
participants, but not too long as to encumber them. However, the 
Exchange believes that it is reasonable to reserve discretion to 
alter the holding period, from time to time, should it determine 
that doing so better meets the needs of customers or its System 
resources.
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    Moreover, the proposal to amend Rule 4703(d) to state expressly 
that Midpoint Pegging Orders are subject to price collars, like Orders 
with Primary and Market Pegging, will correct an unintended omission 
and ensure that the Rule is consistent with existing Exchange practice 
and with customer expectations. The application of these collars will 
prevent Pegged Orders from having prices that deviate too far away from 
where the security was trading when the Order was first entered.\33\
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    \33\ Additionally, the Exchange believes that it is consistent 
with the Act to replace the word ``would'' with ``could'' in this 
provision, because doing so would clarify that collars apply in 
circumstances in which Pegged Orders might execute, but do not 
necessarily do so. See supra, n.20.
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    The Exchange's proposals to amend its rules governing the Trade Now 
and Midpoint Trade Now Order Attributes, at Rule 4703(m) and (n), 
respectively, are consistent with the Act. The proposal to combine 
these two related Order Attributes will streamline and simplify the 
instructions that participants must enter to address the handling of 
their orders in various locking or crossing scenarios. Rather than 
having to enable both Trade Now and Midpoint Trade Now separately, 
participants will only have to enable one Order Attribute to address 
both functionalities. Additionally, rather than require a participant 
to manually send a Trade Now instruction whenever an Order entered 
through OUCH or FLITE becomes locked, the proposed amended Rule will 
allow for a participant to enable Trade Now functionality on a port-
level basis for all Order entry protocols and for all Order Types that 
support Trade Now, as well as on an order-by-order basis, for the Non-
Displayed Order Type, when entered through OUCH and FLITE.\34\ The 
proposal will also make conforming changes to Rule 4702 to delete 
references to Midpoint Trade Now, which is consistent with the Act 
because the changes will ensure that the Rules remain current and 
accurate.
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    \34\ As noted above, for Orders entered through RASH or FIX, 
Trade Now will be available on an order-by-order basis for all Order 
Types that support Trade Now.
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    Furthermore, it is consistent with the Act to add language to Rule 
4703(m) to state that Trade Now allows a resting Order that becomes 
locked ``or crossed, as applicable,'' at its non-displayed price by the 
``posted price'' of an incoming Displayed Order or a Midpoint Peg Post-
Only Order to execute against a locking or crossing Order(s) 
automatically. The Exchange proposes to add the phrase ``or crossed, as 
applicable,'' for completeness. The Exchange also proposes to add the 
phrase ``posted price'' for purposes of clarity. It merely communicates 
that the incoming Displayed Order or Midpoint Peg Post-Only Order first 
posts to the Nasdaq Book, thereby locking or crossing the resting Order 
at its non-displayed price.
    Finally, it is consistent with the Act to amend Rule 4702(b)(8) and 
(9) to limit the circumstances in which the Exchange will hold MOO and 
LOO Orders with Pegging Attributes that are submitted just prior to the 
Nasdaq Opening Cross. As discussed above, these changes will streamline 
the handling of such Orders, by rejecting them in the case of MOO 
Orders or allowing them to participate as Opening Imbalance Orders in 
the case of LOO Orders, thereby reducing the potential for confusion 
about the Exchange's practice for holding these Order Types in these 
circumstances. Again, the Exchange proposes to maintain its existing 
practice of holding Market Pegged MOO Orders with Routing Attributes 
and LOO Orders with Routing Attributes entered near the time of the 
Opening Cross because the Exchange is not yet prepared to handle such 
Orders similarly to how it proposes to handle such Orders without 
Routing Attributes, although it contemplates submitting a rule filing 
proposal to do so in the near future.

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. As a general principle, the 
proposed changes are reflective of the significant competition among 
exchanges and non-exchange venues for order flow. In this regard, 
proposed changes that facilitate enhancements to the Exchange's System 
and order entry protocols as well as those that amend and clarify the 
Exchange's Rules regarding its Order Attributes, are pro-competitive 
because they bolster the efficiency, integrity, and overall 
attractiveness of the Exchange in an absolute sense and relative to its 
peers.
    Moreover, none of the proposed changes will unduly burden intra-
market competition among various Exchange participants. Participants 
will experience no competitive impact from its proposals to hold (up to 
one second), rather than reject (or accept at their limit price), 
Pegging Orders (other than those with Routing Attributes) in 
circumstances in which no permissible pegging price is available, as 
these proposals will merely eliminate unwarranted inefficiencies that 
ensue from the System requiring participants to repeatedly re-enter 
Pegged Orders until a price becomes available, or the System posting 
Pegged Orders at their limit prices, if there is no pegging price. 
Moreover, the proposal to amend Rule 4703(d) to state expressly that 
Midpoint Pegging Orders are subject to price collars, like Orders with 
Primary and Market Pegging, will have no competitive impact as the 
proposal is consistent with existing Exchange practice and with 
customer expectations.
    The Exchange's proposals to amend its rules governing the Trade Now 
and Midpoint Trade Now Order Attributes will have no competitive impact 
on participants other than by rendering these Order Attributes more 
efficient and easier for participants to utilize.\35\
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    \35\ The proposal to combine the Trade Now and Midpoint Trade 
Now Order Attributes also will not burden competition because 
participants that choose to utilize these Order Attributes are 
seeking opportunities to remove liquidity, and they are less fee 
sensitive in their choices. Allowing participants to remove 
liquidity through one instruction will enhance the efficiency of 
their activities.
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    Lastly, the Exchange perceives no burden on competition arising 
from its proposed changes to the circumstances in which it will hold 
late-submitted LOO and MOO Orders with Pegging Attributes (other than 
those Orders with

[[Page 33425]]

Routing Attributes assigned to them). The proposed changes will 
streamline the handling of such Orders, thereby reducing the potential 
for confusion about the Exchange's practice for holding these Order 
Types in these circumstances. The Exchange proposes to maintain its 
existing practice of holding Market Pegged MOO Orders with Routing 
Attributes and LOO Orders with Routing Attributes \36\ entered near the 
time of the Opening Cross because the Exchange is not yet prepared to 
handle such Orders similarly to how it proposes to handle such Orders 
without Routing Attributes, although it contemplates submitting a rule 
filing proposal to do so in the near future. Moreover, any impact of 
the proposed changes is expected to be minimal, as very few MOO and LOO 
Orders have historically been subject to holding.
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    \36\ The Exchange's proposal to add the word ``Routing'' to the 
rule text will merely clarify that the existing holding practice 
will continue for certain MOO and LOO Orders.
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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 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 \37\ and Rule 19b-4(f)(6) thereunder.\38\
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    \37\ 15 U.S.C. 78s(b)(3)(A).
    \38\ 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 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-2021-044 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-2021-044. 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-2021-044, and should be submitted 
on or before July 15, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13285 Filed 6-23-21; 8:45 am]
BILLING CODE 8011-01-P