October 26, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
and Rule 19b-4 thereunder,
notice is hereby given that on October 13, 2016, 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.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 4702 (Order Types) [sic] adopt a New Retail Post-Only Order. 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.Start Printed Page 75863
A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
The purpose of this filing is to amend Rule 4702 (Order Types) to adopt a new Retail Post-Only Order type. Although based on the Post-Only Order, the Retail Post-Only Order differs from the Post-Only Order in two ways. First, the Retail Post-Only Order can only be used in connection with orders sent on behalf of retail customers, whereas a Post-Only Order is available for use by any market participant. Second, if a Retail Post Only Order would remove liquidity or if posting the order would require an adjustment to the price of the order for any reason, the order will be cancelled. In contrast, a Post-Only Order is designed to have its price adjusted as needed, for example, in order to avoid locking or crossing a Protected Quotation. With the Retail Post-Only Order, Nasdaq is providing firms with another way of managing their retail customer order flow. Currently, if a firm does not want a retail customer order to remove liquidity from the Exchange upon entry, the firm can select the RTFY routing option, which routes the order to destinations in the System routing table instead of immediately removing liquidity from the Exchange order book.
Some firms, however, prefer to use their own routing infrastructure in seeking execution of a customer order rather than allowing that order to remove liquidity from the Exchange upon entry or instructing the Exchange to make a routing determination. In cancelling the order for any reason instead of adjusting its price, the Retail Post-Only Order will therefore provide firms with an alternative for handing [sic] retail customer orders.
As noted above, the first key feature of the Retail Post-Only Order is that it is designed for use by retail customers. Accordingly, a Retail Post-Only Order must meet the criteria of a Designated Retail Order, as defined in Rule 7018, in addition to the criteria set forth in Rule 4702(b)(14).
Nasdaq believes that defining a retail customer by reference to Rule 7018 is appropriate because this definition is already used in connection with other Nasdaq programs and fees, including the RTFY routing option, and defining a retail customer by reference to Rule 7018 will therefore keep the concept of “retail”—either as applied to a type of order or to a type of customer—consistent across the Exchange. Nasdaq is offering this Order to retail customers because it will provide firms that handle retail customer order flow with an alternative to the methods of handling retail order flow that currently exist on the Exchange.
By offering firms that handle retail order flow an additional choice, Nasdaq believes that the proposal could stimulate competition by attracting additional retail customer order flow to the Exchange.
The second key feature of the Retail Post-Only Order is that it will cancel if the price of the Order would otherwise adjust for any reason. Rule 4702(b)(14) therefore states that when a new Retail Post-Only order is received, it will attempt to post on the Exchange Book. A Retail Post-Only order that cannot post to the Nasdaq Book at its limit price without having its price adjusted or removing liquidity will be cancelled.
The Retail Post-Only Order is based on the Post-Only Order, and will therefore share most of the attributes of a Post-Only Order.
For example, a Retail Post-Only Order may be entered with reserve size. As with the Post-Only Order, a Retail Post-Only Order may be entered in any whole share size between one share and 999,999 shares. Orders for fractional shares are not permitted.
With respect to Time-in-Force (the period of time that the Nasdaq Market Center will hold the Order for potential execution), the Retail Post-Only Order may be entered with all times permitted by Time-in-Force;
however, a Retail Post-Only Order that is entered as “Immediate or Cancel” will be canceled (because an Immediate or Cancel order is incapable of posting to the Nasdaq Book).
Unlike the Post-Only Order, Retail Post-Only Orders cannot be designated as Intermarket Sweep Orders (“ISO”). The purpose of the Order is to allow firms to utilize their own routing infrastructure in deciding how to execute a retail customer order. Retail Post Only orders will therefore not route and have no routing strategies used in conjunction with the order, and will also not support the ISO attribute. Unlike the Post-Only Order, the Retail Post-Only Order will also not utilize the “display” attribute, since a Retail Post-Only Order may be either displayed or non-displayed.
As with Post-Only Orders, Retail Post-Only Orders will support attribution, which permits a Participant to designate that the price and size of the Order will be displayed next to the Participant's MPID in market data disseminated by Nasdaq. A Retail Post-Only order may also participate in the Nasdaq Opening Cross and/or the Nasdaq Closing Cross.
As with Post-Only Orders, Retail Post Only Orders will not support pegging (the attribute by which the price of the Order is automatically set with Start Printed Page 75864reference to the National Best Bid or Offer), since the purpose of this Order is to cancel if the price of the Order needs to be adjusted. For the same reason, Retail Post Only Orders will also not support discretion (where an order has a non-displayed discretionary price range within which the entering Participant is willing to trade).
The Retail Post-Only Order will be available for entry through Nasdaq's RASH, FIX and QIX order entry protocols. Nasdaq notes that almost all Designated Retail Orders received by the Exchange are entered through the RASH and FIX protocols. A user may also enter a Retail Post-Only Order during Pre-Market and Post-Market Hours.
During these times, a Retail Post-Only Order will be processed in a manner identical to Market Hours.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section 6(b) of the Act,
in general, and furthers the objectives of Section 6(b)(5) of the Act,
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. The Exchange believes that this proposal is consistent with the Act because it will add a new functionality (cancelling an order for any reason instead of adjusting its price) that is not currently available on the Exchange. The Exchange believes that this new functionality is consistent with the Act because it will allow firms that use this Order to utilize their own routing infrastructure in determining how to execute a retail customer order, which will facilitate the efficient execution of those orders. Nasdaq believes that it is reasonable to offer this Order to retail customers only, as this Order will provide firms that handle retail customer orders with an alternative to the functionality for handling retail order flow that currently exists on the Exchange. The Exchange also notes that it already offers functionalities that are tailored to retail customer order flow, such as the RTFY routing option. In offering firms that handle retail customer orders an alternative to the functionality that currently exists on Nasdaq for retail customer orders, the Exchange believes that it may attract additional retail customer order flow to the Exchange, which would increase the diversity of order flow on the Exchange and enhance the Exchange's market quality.
Nasdaq believes that the attributes of the Retail Post-Only Order are also consistent with the Act. Nasdaq notes that some of the Order's attributes, such as size and attribution, are the same as the attributes of the Post-Only Order, upon which the Retail Post-Only Order is based. Nasdaq also notes that the Order's attributes reflect the functionality of the Retail Post-Only Order. For example, pegging will not be offered as an order attribute, given that the purpose of the Order is to cancel rather than have its price adjusted.
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 Retail Post-Only Order is an optional order type that will be available for entry through Nasdaq's order entry protocols that are most commonly used to submit retail customer orders. The Retail Post-Only Order will provide retail customers with an order type and a resulting functionality that is not currently available on the Exchange. Although the Retail Post-Only Order will be offered to retail customers only, Nasdaq believes that this does not impose a burden on competition that is not necessary or appropriate. In providing an alternative to the Exchange's current methods of handling retail customer orders, Nasdaq believes that the proposal could stimulate competition by attracting additional retail customer order flow to the Exchange, which would increase the diversity of order flow on the Exchange and enhance the Exchange's market quality.
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 such 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:
- Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2016-141. 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 Start Printed Page 75865available publicly. All submissions should refer to File Number SR-NASDAQ-2016-141 and should be submitted on or before November 22, 2016
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Brent J. Fields,
[FR Doc. 2016-26301 Filed 10-31-16; 8:45 am]
BILLING CODE 8011-01-P