[Federal Register Volume 77, Number 200 (Tuesday, October 16, 2012)]
[Notices]
[Pages 63368-63370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-25334]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68015; File No. SR-NASDAQ-2012-111]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Provide for Automatic Cancellation of Midpoint Peg Post-Only Orders at 
Market Close

October 9, 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 September 28, 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 and 
II 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 proposes a rule change to provide for automatic cancellation 
of Midpoint Peg Post-Only Orders at market close. 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, NASDAQ included statements 
concerning the purpose of and basis for

[[Page 63369]]

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.

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

1. Purpose
    A Midpoint Peg Post-Only Order is a non-displayed order that is 
priced at the midpoint between the national best bid and best offer 
(``NBBO'') (as determined using the consolidated tape). However, like a 
Post-Only Order, the Midpoint Peg Post-Only Order does not remove 
liquidity from the System upon entry if it would lock a non-displayed 
order on the NASDAQ Market Center system (the ``System''). Rather, the 
Midpoint Peg Post-Only Order will post and lock the pre-existing order, 
but will remain undisplayed.\3\
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    \3\ SEC Rule 610(d) under Regulation NMS, 17 CFR 242.610(d), 
restricts displayed quotations that lock protected quotations in NMS 
Stocks, but does not apply to non-displayed trading interest.
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    Midpoint Peg Post-Only Orders that post to the book and lock a pre-
existing non-displayed order will execute against an incoming order 
only if the price of the incoming buy (sell) order is higher (lower) 
than the price of the pre-existing order. If a Midpoint Peg Order and a 
Midpoint Peg Post-Only Order are locked, and a Midpoint Peg Order is 
entered on the same side of the market as the Midpoint Peg Post-Only 
Order, the new order will execute against the original Midpoint Peg 
Order. This is the case because the market participant entering the 
Midpoint Peg Post-Only Order has expressed its intention not to execute 
against posted liquidity, and therefore cedes execution priority to the 
new order.
    NASDAQ believes that demand for the use of Midpoint Peg Post-Only 
Orders is limited to regular market hours, since the wider spreads 
generally prevailing during pre-market and post-market trading sessions 
would result in execution prices more at variance from the NBBO than 
would be the case during regular market hours. To this end, Midpoint 
Peg Post-Only Orders are accepted only during regular market hours. The 
proposed rule change clarifies this restriction by adding it to the 
rule text. At present, however, a Midpoint Peg Post-Only Order that is 
accepted during regular market hours but not executed and/or cancelled 
during regular market hours will continue to rest on the book until it 
is removed by another order, cancelled by the user or its Time-in-Force 
expires. To assist market participants in managing the use of these 
orders, NASDAQ is proposing to cancel all Midpoint Peg Post-Only Orders 
on the NASDAQ book at 4:00 p.m. In addition, the change provides that 
Midpoint Peg Post-Only Orders may execute during regular market hours 
only. This change will help ensure that market participants entering 
these orders are not subject to executions at prices that deviate from 
the NBBO by a greater extent that [sic] would be the case during 
regular market hours. Moreover, because such orders may execute during 
regular market hours only, they are not eligible for participation in 
the NASDAQ Opening Cross or the NASDAQ Closing Cross.
2. Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\4\ in general, and with Section 
6(b)(5) of the Act,\5\ 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 change will help promote efficient market 
operations by providing for automatic cancellation of resting Midpoint 
Peg Post-Only Orders at 4:00 p.m. This change will assist market 
participants in managing the use of these orders and help ensure that 
they are not subject to executions at prices that deviate from the NBBO 
by a greater extent that [sic] would be the case during regular market 
hours.
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    \4\ 15 U.S.C. 78f.
    \5\ 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. Specifically, 
NASDAQ does not believe that the proposed change will affect 
competition in any respect.

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 become 
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay provided for in Rule 19b-4(f)(6)(iii).\8\ NASDAQ 
believes that the proposed rule change will advance the protection of 
investors by ensuring that market participants entering Midpoint Peg 
Post-Only Orders will not be subject to executions at prices that 
deviate from the NBBO by a greater extent than would be the case during 
regular market hours. NASDAQ also believes that the proposed rule 
change will thereby minimize the likelihood of executions during post-
market hours that do not reflect the intentions of market participants. 
The Commission believes that minimizing the likelihood of unintended 
executions after hours should benefit investors. The Commission 
believes that waiver of the operative delay is consistent with investor 
protection and the public interest. As a result, the Commission is 
hereby waiving the 30-day operative delay.
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    \8\ 17 CFR 240.19b-4(f)(6)(iii).
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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.

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.

[[Page 63370]]

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-2012-111 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-2012-111. 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 on official business 
days between the hours of 10:00 a.m. and 3:00 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-2012-111, and should be submitted on or before 
November 6, 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. 2012-25334 Filed 10-15-12; 8:45 am]
BILLING CODE 8011-01-P