[Federal Register Volume 73, Number 68 (Tuesday, April 8, 2008)]
[Notices]
[Pages 19118-19120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-7271]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57595; File No. SR-NASDAQ-2007-067]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of a Proposed Rule Change To Establish an Imbalance 
Cross

April 1, 2008.
    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 July 18, 2007 The NASDAQ Stock Market LLC (``Nasdaq'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by Nasdaq. 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 the 
Substance of the Proposed Rule Change

    Nasdaq has submitted a proposed rule change to establish a 
continuous crossing system. The text of the proposed rule change is 
available on Nasdaq's Web site (http://www.nasdaq.com), at Nasdaq's 
principal office 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, Nasdaq 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. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 19119]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq's efficient market structure allows the price of a security 
to change quickly in response to information and market demand. 
Allowing trading to react quickly is generally beneficial to investors. 
In some circumstances, however, abrupt and significant movements in the 
price at which a security is traded can be harmful to investors. In 
order to protect the integrity of the market, NASDAQ Rule 4120 
authorizes Nasdaq Regulation to halt trading in a security based upon 
news or an emergency in the market. Nasdaq Regulation also has the 
ability under NASDAQ Rule 11890 to break trades in order to protect the 
integrity of the market.
    In order to offer additional protection for investors, Nasdaq 
proposes to create the ``Imbalance Cross'' that will systematically 
suspend trading in Nasdaq-listed securities that are the subject of 
abrupt and significant intra-day price movements. The Imbalance Cross 
shares characteristics in common with trading halts initiated pursuant 
to Rule 4120 \3\ as well as with the evaluation of potential clearly 
erroneous trades pursuant to Rule 11890.\4\ It differs from and 
supplements these two processes in one material respect: The Imbalance 
Cross will be fully automated and will be based entirely on objective, 
quantitative criteria.
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    \3\ For a detailed description of the Nasdaq Halt Cross, see 
Securities Exchange Act Release No. 53488, 71 FR 14272 (March 16, 
2006) (notice of filing of SR-NASD-2006-015).
    \4\ For a detailed description of the adjudication of potential 
clearly erroneous trades, see Securities Exchange Act Release No. 
54854, 71 FR 71208 (Dec. 8, 2006) (notice of SR-NASDAQ-2006-046).
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    The Imbalance Cross will be triggered automatically when the 
execution price of a Nasdaq-listed security moves more than a fixed 
amount away from a pre-established ``reference price'' for that 
security. The Reference Price for each security will be the price of 
any execution by the System in that security within the prior 30 
seconds. For each Nasdaq security, the System will continually compare 
the price of each execution against the prices of all executions in 
that security over the prior minute.
    As the System compares current executions against executions 
occurring within the prior 30 seconds, it will determine whether the 
current execution price is outside a ``threshold range'' for that 
security. The Threshold Range for each security will be based upon the 
current execution price for that security and will vary by price. 
Specifically, for per-share execution prices of $1.75 or under, the 
Threshold Range will be 15 percent; for execution prices over $1.75 and 
up to $25, the Threshold Range will be 10 percent; for execution prices 
over $25 and up to $50, the threshold Range will be five percent; and 
for execution prices over $50, the Threshold Range will be three 
percent. These Threshold Ranges, generally correspond to the thresholds 
established for clearly erroneous trades under NASDAQ IM 11890-4 with 
the exception of executions priced under $1.75 which will be subject to 
a straightforward 15 percent threshold.
    If the System determines that the execution price of a trade in a 
Nasdaq security exceeds the Threshold Range from the Reference Price, 
the System will automatically trigger the Imbalance Cross. When that 
occurs, the System will automatically cease executing trades in that 
security for a 60-second ``Display Only Period'' similar to the Display 
Only Period provided prior to the opening of a security subject to a 
trading halt initiated pursuant to Rule 4120. During that 60-second 
Display Only Period, the System will maintain all current quotes and 
orders and continue to accept new quotes and orders in that System 
Security. In order to provide transparency for the Imbalance Cross, the 
System will disseminate an Order Imbalance Indicator every 5 seconds as 
it does for the re-opening of securities that are the subject of a 
trading halt.
    The Display Only Period for the Imbalance Cross will differ from 
the Display Only Periods for trading halts initiated pursuant to Rule 
4120. Unlike a trading halt, the Imbalance Cross will not be considered 
a regulatory halt and, therefore, it will not trigger a marketwide 
trading halt under Section X of the Nasdaq UTP Plan. As a result, other 
markets will be permitted to continue trading a Nasdaq stock that is 
undergoing a Market Re-Opening on Nasdaq. During the Imbalance Cross, 
Nasdaq's quotations will be marked ``closed,'' signaling to other 
markets that quotes and orders routed to Nasdaq will not be executed. 
Nasdaq's Imbalance Cross trade will be reported to the network 
processor as a single-price re-opening that is exempt from trade 
through restrictions pursuant to Rule 611(b)(3)
    At the conclusion of the 60-second Display Only Period, the System 
will automatically re-open the market by executing the Nasdaq Halt 
Cross as set forth in Rule 4753(b)(2)-(4) precisely as it does today 
for securities subject to a trading halt pursuant to Rule 4120. Unlike 
securities subject to a Rule 4120 trading halt, securities subject to 
an Imbalance Cross will automatically re-open at the end of the 60-
second Display Only Period and that period will not be subject to 
further extensions.
    The Imbalance Cross price will be set by the Nasdaq Halt Cross 
which, with one exception, will operate in the same manner as the Halt 
Cross operates when trading resumes following a trading halt initiated 
pursuant to Rule 4120. In other words, quotes and orders residing on 
the Nasdaq book during the Imbalance Cross will be subject to the same 
priorities and same execution algorithm that applies during the 
standard Halt Cross. Unlike the standard Halt Cross, Nasdaq proposes to 
``bound'' the Imbalance Cross price as it does the Nasdaq Closing Cross 
(see Rule 4754(b)(2)(E)). As already exists for the Nasdaq Closing 
Cross, Nasdaq will establish a benchmark price and a threshold range 
beyond which the Imbalance Cross price cannot move.
    Nasdaq believes that the proposed Imbalance Cross combines the best 
elements of its highly-effective Nasdaq Halt Cross, with the experience 
gathered in administering trading halts under Rule 4120 and the 
adjudication of potential clearly erroneous trades pursuant to Rule 
11890. The Imbalance Cross will promote the protection of investors by 
providing a meaningful pause in the midst of abrupt and significant 
price movements while permitting trading to move freely in rapid and 
stable markets.
    Nasdaq is proposing to establish the Imbalance Cross as a one-year 
pilot in order to ensure that it has sufficient flexibility to 
implement the proposal in a prudent manner. Nasdaq plans to implement 
the pilot with 100 representative securities which will be published on 
the nasdaqtrader.com Web site. Nasdaq will monitor the operation of the 
Imbalance Cross and, upon determining that circumstances warrant, 
Nasdaq will expand the pilot to cover additional securities. Should 
Nasdaq determine to modify the pilot to add additional securities to 
the initial list of 100, Nasdaq will post a notice on nasdaqtrader.com 
and provide sufficient time for members to prepare for such change. 
Nasdaq will attempt to determine within one year whether to expand the 
pilot permanently and to all securities traded on Nasdaq, in which case 
Nasdaq will file an additional proposed rule change seeking such 
approval.
    b. Statutory Basis

[[Page 19120]]

    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\5\ in general, and with Section 
6(b)(5) of the Act,\6\ in particular, in that the proposal is 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 regulating, clearing, settling, 
processing information with respect to, and 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.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date 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 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. In particular, the Commission is 
interested in commenters' views with respect to whether Nasdaq's 
Imbalance Cross trade qualifies for the single-priced reopening 
exception under Rule 611(b)(3) of Reg. NMS. 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 e-mail to [email protected]. Please include 
File Number SR-NASDAQ-2007-067 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2007-067. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of Nasdaq. 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-2007-067 and 
should be submitted on or before April 29, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-7271 Filed 4-7-08; 8:45 am]
BILLING CODE 8011-01-P