[Federal Register Volume 76, Number 123 (Monday, June 27, 2011)]
[Notices]
[Pages 37386-37388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-15916]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64715; File No. SR-NASDAQ-2011-084]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Amend NASDAQ Rule 4763

June 21, 2011.
    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 15, 2011, The NASDAQ Stock Market LLC (the ``Exchange'' or 
``NASDAQ'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange is filing this proposed rule change to amend NASDAQ 
Rule 4763 to modify the Exchange's procedures for early termination of 
the short sale price test restrictions of Rule 201 of Regulation SHO. 
The text of the proposed rule change is available at http://nasdaq.cchwallstreet.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, 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
    On February 26, 2010, the Commission adopted amendments to

[[Page 37387]]

Rules 200(g) and 201 of Regulation SHO.\3\ The amendments became 
effective on May 10, 2010, and compliance was required by February 28, 
2011.\4\ The amendments to Rule 201 require trading centers \5\ such as 
NASDAQ to establish, maintain, and enforce certain written policies and 
procedures reasonably designed to comply with the rule.\6\ NASDAQ is 
proposing to amend NASDAQ Rule 4763 to modify the Exchange's procedures 
for early termination of the short sale price test restrictions of Rule 
201 based on a triggering transaction that another exchange or SRO has 
determined was a clearly erroneous execution pursuant to the rules of 
that exchange or SRO.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 61595 (February 26, 
2010), 75 FR 11232 (March 10, 2010) (File No. S7-08-09; Amendments 
to Regulation SHO) (``Rule 201 Adopting Release''). In the Rule 201 
Adopting Release, the Commission also adopted amendments to Rule 
200(g) of Regulation SHO to include a ``short exempt'' marking 
requirement. 17 CFR 242.200(g).
    \4\ See Securities Exchange Act Release No. 63247 (November 4, 
2010), 75 FR 68702 (November 9, 2010) (File No. S7-08-09).
    \5\ Rule 201(a)(9) states the term ``trading center'' will have 
the same meaning as in Rule 600(b)(78). 17 CFR 242.201(a)(9). Rule 
600(b)(78) of Regulation NMS defines a ``trading center'' as ``a 
national securities exchange or national securities association that 
operates an SRO trading facility, an alternative trading system, an 
exchange market maker, an OTC market maker, or any other broker or 
dealer that executes orders internally by trading as principal or 
crossing orders as agent.'' 17 CFR 242.600(b)(78).
    \6\ See 17 CFR 242.201(b). As a general matter, Rule 201 
requires trading centers to establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent the execution 
or display of a short sale order of a covered security at a price 
that is less than or equal to the current national best bid if the 
price of that covered security decreases by 10% or more from the 
covered security's prior day's closing price. 17 CFR 
242.201(b)(1)(i).
---------------------------------------------------------------------------

    Under NASDAQ Rule 4763(d), Duration of Short Sale Price Test, once 
triggered, the short sale price test restriction shall remain in effect 
until the next trading day when a national best bid for the covered 
security is calculated and disseminated on a current and continuing 
basis by a plan processor pursuant to an effective national market 
system plan,\7\ as provided for in Rule 201(b)(1)(ii) (the ``Short Sale 
Period''). The duration of the Short Sale Period may differ under two 
different scenarios provided for in Rule 4763.\8\ First, if the 
Exchange determines pursuant to NASDAQ Rule 4763(d)(1) that the short 
sale price test restriction for a covered security was triggered 
because of a clearly erroneous execution,\9\ NASDAQ may lift the short 
sale price test restriction before the Short Sale Period ends for 
covered securities for which the Exchange is the listing market.\10\ 
Second, if NASDAQ determines pursuant to NASDAQ Rule 4763(d)(2) that 
the prior day's closing price for a covered security is incorrect in 
the System and resulted in an incorrect determination of the Trigger 
Price,\11\ the Exchange may correct the prior day's NASDAQ official 
closing price and lift the short sale price test restriction before the 
Short Sale Period ends.
---------------------------------------------------------------------------

    \7\ See 17 CFR 242.201(b)(1)(ii). See also Division of Trading 
and Markets: Responses to Frequently Asked Questions Concerning Rule 
201 of Regulation SHO, Q&A No. 2.1.
    \8\ In addition, if the price of a covered security declines 
intra-day by at least 10% on a day on which the security is already 
subject to the short sale price test restriction of Rule 201, the 
restriction will be re-triggered and, therefore, will continue in 
effect for the remainder of that day and the following day. See Rule 
201 Adopting Release, 75 FR at 11253, n. 290. In addition, Rule 201 
does not place any limit on the frequency or number of times the 
circuit breaker can be re-triggered with respect to a particular 
stock. See Division of Trading and Markets: Responses to Frequently 
Asked Questions Concerning Rule 201 of Regulation SHO, Q&A No. 2.2.
    \9\ See NASDAQ Rule 4762 which cross-references NASDAQ Rule 
11890 for the standard of determining when a trade is ``clearly 
erroneous.'' The terms of a transaction executed on NASDAQ are 
``clearly erroneous'' when there is an obvious error in any term, 
such as price, number of shares or other unit of trading, or 
identification of the security. A transaction made in clearly 
erroneous error and cancelled by both parties or determined by 
NASDAQ to be clearly erroneous will be removed from the consolidated 
tape.
    \10\ See 17 CFR 242.201(a)(3).
    \11\ The term ``Trigger Price'' is used in Rule 4763(b) to refer 
to a decrease of 10% or more in a security's price from the 
security's closing price on the listing market at the end of regular 
trading hours on the prior day.
---------------------------------------------------------------------------

    For securities for which the Exchange is the listing market, NASDAQ 
Rule 4763 currently addresses only clearly erroneous triggering 
transactions deemed to be clearly erroneous executions under the 
Exchange's rules, and does not address situations where another 
exchange or SRO determines, under its respective rules, that a 
triggering transaction was a clearly erroneous execution. To address 
this scenario, the Exchange proposes to amend NASDAQ Rule 4763(d) to 
provide that the Exchange may also lift the short sale price test 
restrictions before the Short Sale Period ends, for covered securities 
for which the Exchange is the listing market, if the Exchange has been 
informed by another exchange or SRO that a transaction in the covered 
security that occurred at the Trigger Price was a clearly erroneous 
execution, as determined by that exchange or SRO under its rules.\12\
---------------------------------------------------------------------------

    \12\ The Exchange will only lift the short sale price test 
restrictions before the Short Sale Period ends under these 
circumstances when informed by another exchange or SRO that a 
triggering transaction has been determined to be a clearly erroneous 
execution under the rules of the exchange or SRO, consistent with 
the authority of that exchange or SRO for making such 
determinations.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\14\ in particular, in that it is designed to, among 
other things, prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. The proposal is designed to 
refine the Exchange's written policies and procedures reasonably 
designed to prevent the execution or display of a short sale order of a 
covered security in violation of the short sale price test restrictions 
established in NASDAQ Rule 4763 and Rule 201. To that end, the proposed 
rule change expands the ability of the Exchange, as a listing market, 
to lift short sale price test restrictions to include situations where 
the Exchange has been informed by another exchange or SRO that a 
transaction in the covered security that occurred at the Trigger Price 
was a clearly erroneous execution, as determined by that exchange or 
SRO under its rules.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. Rather, the change 
will promote greater competition by allowing NASDAQ to adopt 
functionality already in use at competing national securities 
exchanges.

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

    Because the foregoing 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

[[Page 37388]]

become effective pursuant to Section 19(b)(3)(A) of the Act \15\ and 
Rule 19b-4(f)(6) thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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.
    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\17\ 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest.\18\ NASDAQ has requested that the 
Commission waive the 30-day operative delay so that the proposed rule 
change may become effective and operative immediately upon filing, 
pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) 
\20\ thereunder. The Exchange believes that waiver of the delayed 
operative date is appropriate because the proposed rule change is 
consistent with the original objective of Rule 4763 (i.e., to permit 
the Exchange to lift the short sale price test restrictions before the 
end of a Short Sale Period in the event of a clearly erroneous 
triggering trade). Specifically, the current rule only addresses 
triggering transactions deemed to be clearly erroneous executions under 
the Exchange's rules. The proposed change would permit the Exchange to 
lift the short sale price test restrictions before the Short Sale 
Period ends, for covered securities for which the Exchange is the 
listing market, if the Exchange has been informed by another exchange 
or SRO that a transaction in the covered security that occurred at the 
Trigger Price was a clearly erroneous execution, as determined by that 
exchange or SRO under its rules.
---------------------------------------------------------------------------

    \17\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self regulatory organization submit to 
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.
    \18\ Id.
    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The Exchange believes that this proposal is ``non-controversial'' 
because it merely seeks to implement additional protections against the 
triggering of short sale price test restrictions based on transactions 
determined by an exchange or SRO to be clearly erroneous executions 
under the rules of that exchange or SRO. For the foregoing reasons, 
this rule filing qualifies for immediate effectiveness as a 
``noncontroversial'' rule change under paragraph (f)(6) of Rule 19b-
4.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Commission has considered the Exchange's request to waive the 
30-day operative delay, and hereby grants the request.\22\ The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will permit the Exchange to lift the short sale price test 
restrictions of Rule 201, in a covered security for which the Exchange 
is the listing market, when such restrictions were triggered by a 
transaction that another exchange or SRO has determined to be a clearly 
erroneous execution, under the rules of that exchange or SRO. For this 
reason, the Commission designates the proposed rule change to be 
operative upon filing.
---------------------------------------------------------------------------

    \22\ For the purposes only of waiving the 30-day operative delay 
of this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 e-mail to [email protected]. Please include 
File Number SR-NASDAQ-2011-084 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2011-084. 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 Web site 
viewing and printing in the Commission's Public Reference Room on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of such filing also will be available for inspection and copying at the 
principal offices 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-2011-084, and 
should be submitted on or before July 18, 2011.
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-15916 Filed 6-24-11; 8:45 am]
BILLING CODE 8011-01-P