[Federal Register Volume 77, Number 50 (Wednesday, March 14, 2012)]
[Notices]
[Pages 15167-15169]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-6183]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66540; File No. SR-NASDAQ-2012-031]


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

March 8, 2012.
    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 February 27, 2012, 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, II, 
and III 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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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to introduce the ``Supplemental Order'' for 
use on NASDAQ. 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. 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.

[[Page 15168]]

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

1. Purpose
    NASDAQ proposes to introduce a new order type, to be known as the 
``Supplemental Order,'' for use on NASDAQ. The order type and its 
associated execution process are virtually identical to the ``Tracking 
Order'' and ``Tracking Order Process'' that have long been in use at 
NYSEArca.\3\ The purpose of the order is to offer institutional 
investors and other traders that have longer trading horizons a means 
to post stable trading interest executable at the national best bid or 
best offer (``NBBO''). The Exchange believes that if the Supplemental 
Order becomes widely used, market participants seeking to access 
liquidity will more readily direct their orders to NASDAQ, because they 
will have a heightened expectation of the availability of liquidity at 
the NBBO.
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    \3\ See NYSEArca Rules 7.31(f) and 7.37(c).
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    Supplemental Orders are Non-Displayed limit orders that are 
available for execution only between 9:30 a.m. and 4 p.m., and that are 
not eligible for participation in the Nasdaq Opening Cross, the Nasdaq 
Halt Cross, the Nasdaq Imbalance Cross, or the Nasdaq Closing Cross. 
All Supplemental Orders must be entered with size of one or more normal 
units of trading. Upon entry in the Nasdaq Market Center system, a 
Supplemental Order will always post to the book and thereafter become 
eligible for execution against incoming orders in accordance with the 
Nasdaq Market Center's Supplemental Process.
    An incoming order that has been designated as eligible for routing 
may interact with Supplemental Orders.\4\ Such an order will first be 
matched against orders other than Supplemental Orders in accordance 
with Rule 4757(a)(1)(A) through (C). If any of the order remains 
unexecuted, it will enter the Supplemental Process before being routed 
to other venues. In the process, the order will be matched against 
Supplemental Order(s) in price/time priority. However, executions will 
be permitted to occur only at the NBBO, and only if the size of the 
incoming order is less than or equal to the aggregate size of 
Supplemental Order interest available at the price of the order. A 
Supplemental Order may not trade through a Protected Quotation, and 
will not be permitted to execute if the NBBO is locked or crossed.
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    \4\ Orders that are not designated for routing are not 
executable against Supplemental Orders, because market participants 
entering non-routable orders either expect to post liquidity on 
NASDAQ, or seek to execute against the NASDAQ displayed quote, as 
through an Immediate or Cancel order type. By contrast, the 
Supplemental Order is designed to interact with market participants 
that seek to access liquidity at the NBBO, and that employ routable 
orders to access such liquidity at a range of trading venues.
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    Supplemental Orders post to the book, rather than interacting with 
resting orders before posting, because the market participant entering 
a Supplemental Order is willing to cede execution priority in order to 
provide liquidity to those orders that are eligible to enter into the 
Supplement Order process (i.e., orders that seek to access liquidity at 
the NBBO). NYSEArca Tracking Orders are similarly designed to post to 
the book in all circumstances.
    If a Supplemental Order is not executed in full, the remaining 
portion of the order shall continue to repost in the Supplemental 
Process until the order is fully executed, the order is cancelled by 
the member that entered the order, or the size of the order is reduced 
to less than one normal unit of trading (in which case the remaining 
order will be cancelled by the System). Supplemental Orders may be 
entered at any time between 7 a.m. and 4 p.m., but are available for 
potential execution only between 9:30 a.m. and 4 p.m. Any Supplemental 
Orders still on the book after 4 p.m. will be cancelled.
    In addition to adding descriptions of the Supplemental Order and 
its associated execution process to Rules 4751 and 4757, NASDAQ is also 
proposing to make conforming changes to Rule 4755, and to correct 
several minor typographical errors in Rule 4757.
2. Statutory Basis
    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. Specifically, NASDAQ 
believes that the proposed rule change will promote the interests of 
retail and institutional investors and other investors with longer term 
trading horizons by (i) offering liquidity providers a means to use 
NASDAQ to post larger limit orders that are only executable at the NBBO 
and that do not disclose their trading interest to other market 
participants in advance of execution, and (ii) offering market 
participants seeking to access liquidity a greater expectation of 
market depth at the NBBO than may currently be the case.
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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. The proposed change 
will allow NASDAQ to offer functionality that is similar to 
functionality already offered by NYSEArca, and will therefore promote 
competition between exchanges.

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

    The proposed rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Act \7\ and paragraph (f)(6) of Rule 19b-4 
thereunder,\8\ in that the proposed rule change: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days after the date of the 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest; 
provided the self-regulatory organization has given 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. NASDAQ 
provided the Commission with such written notice on February 8, 2012. 
NASDAQ proposes to implement the proposed rule change on a date that is 
on, or shortly after, the 30th day following the date of the filing.

[[Page 15169]]

NASDAQ believes that the proposed rule change does not significantly 
affect the protection of investors or the public interest, and does not 
impose any significant burden on competition because (i) the proposal 
seeks to enhance market quality by providing a means to encourage 
market participants to offer greater liquidity at the NBBO, and (ii) 
the proposal enhances NASDAQ's ability to compete with comparable 
functionality that is already being offered by NYSEArca.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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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 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 [email protected]. Please include 
File Number SR-NASDAQ-2012-031 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-2012-031. 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 
a.m. and 3 p.m. Copies of such 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 available publicly. All 
submissions should refer to File No. SR-NASDAQ-2012-031 and should be 
submitted on or before April 4, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6183 Filed 3-13-12; 8:45 am]
BILLING CODE 8011-01-P