[Federal Register Volume 78, Number 33 (Tuesday, February 19, 2013)]
[Notices]
[Pages 11709-11711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-03687]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68913; File No. SR-NASDAQ-2013-024]


Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Clarify the Measure Used To Determine Whether the Price of a Stock Is 
Equal to or Greater Than One Dollar Under Rule 4120(a)(11)

February 12, 2013.
    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 January 31, 2013 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 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to clarify the measure used to determine 
whether the price of a stock is equal to or greater than $1 dollar 
under Rule 4120(a)(11).
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

4120. Trading Halts

(a) Authority To Initiate Trading Halts or Pauses

    In circumstances in which Nasdaq deems it necessary to protect 
investors and the public interest, Nasdaq, pursuant to the procedures 
set forth in paragraph (c):
    (1)-(10) No change.
    (11) Shall, between 9:45 a.m. and 3:35 p.m., or in the case of an 
early scheduled close, 25 minutes before the close of trading, 
immediately pause trading for 5 minutes in any Nasdaq-listed security, 
other than rights and warrants, when the price of such security moves a 
percentage specified below within a 5-minute period.
    (A) The price move shall be 10% or more with respect to securities 
included in the S&P 500[supreg] Index, Russell 1000[supreg] Index, and 
a pilot list of Exchange Traded Products;

[[Page 11710]]

    (B) The price move shall be 30% or more with respect to all NMS 
stocks not subject to section (a)(11)(A) of this Rule with a price 
equal to or greater than $1; and
    (C) The price move shall be 50% or more with respect to all NMS 
stocks not subject to section (a)(11)(A) of this Rule with a price less 
than $1.
    The determination that the price of a stock is equal to or greater 
than $1 under paragraph (a)(11)(B) above or less than $1 under 
paragraph (a)(11)(C) above shall be based on the last reported closing 
price on Nasdaq [the previous trading day, or, if no closing price 
exists, the last sale reported to the Consolidated Tape on the previous 
trading day].
    At the end of the trading pause, Nasdaq will re-open the security 
using the Halt Cross process set forth in Nasdaq Rule 4753. In the 
event of a significant imbalance at the end of a trading pause, Nasdaq 
may delay the re-opening of a security.
    Nasdaq will issue a notification if it cannot resume trading for a 
reason other than a significant imbalance.
    Price moves under this paragraph will be calculated by changes in 
each consolidated last-sale price disseminated by a network processor 
over a five minute rolling period measured continuously. Only regular 
way in-sequence transactions qualify for use in calculations of price 
moves. Nasdaq can exclude a transaction price from use if it concludes 
that the transaction price resulted from an erroneous trade.
    If a trading pause is triggered under this paragraph, Nasdaq shall 
immediately notify the single plan processor responsible for 
consolidation of information for the security pursuant to Rule 603 of 
Regulation NMS under the Securities Exchange Act of 1934. If a primary 
listing market issues an individual stock trading pause, Nasdaq will 
pause trading in that security until trading has resumed on the primary 
listing market or notice has been received from the primary listing 
market that trading may resume. If the primary listing market does not 
reopen within 10 minutes of notification of a trading pause, Nasdaq may 
resume trading the security. The provisions of this paragraph shall be 
in effect during a pilot set to end on February 4, 2013.
* * * * *

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule change is to clarify the source of the 
price used in determining whether the price of a stock is equal to or 
greater than $1, or less than $1, for purposes of applying Rule 
4120(a)(11)(B) or (C). Rule 4120(a)(11) states that the determination 
that the price of a stock is equal to or greater than $1 under 
paragraph Rule 4120(a)(11)(B) or less than $1 under paragraph Rule 
4120(a)(11)(C) shall be based on the closing price on the previous 
trading day, or, if no closing price exists, the last sale reported to 
the Consolidated Tape on the previous trading day. As a practical 
matter, it is only in a rare circumstance that the last sale reported 
to the Consolidated Tape is used as the measure for determining the $1 
threshold. This occurs when a security is thinly-traded and no trades 
have occurred on the Exchange on the previous trading day. The Exchange 
believes that using the last reported NASDAQ closing price as the 
measure for determining the $1 threshold is a more reliable and 
accurate means of measuring the price of a low-priced security.\3\ In 
low-priced thinly-traded securities, the Exchange believes that an off-
exchange transaction in an Exchange-listed security reported to the 
Consolidated Tape is less reflective of the security's price than a 
transaction occurring on the Exchange resulting in a closing price, 
even if that closing price precedes an off-exchange transaction.
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    \3\ The Exchange notes that the changes proposed herein are 
reflective of its current practice, in that it has used the last 
reported closing price on NASDAQ as the measure for determining the 
$1 threshold price since adopting Rules 4120(a)(11)(B) and (C).
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    This rule change makes the pricing measure consistent with that 
used to determine price decline for the short sale-related circuit 
breaker. In discussing the reason it elected to use a covered 
security's listing market at the end of regular trading hours on the 
prior day as an appropriate measure of price decline for the short 
sale-related circuit breaker, the Commission stated:

    The last price reported in the consolidated system is more 
likely to reflect an anomalous trade, e.g., a trade that is not 
consistent with the current market due to, for example, the 90 
second reporting window, or an uncorrected error. Listing markets 
generally have in place specific procedures designed to ensure the 
accuracy and reliability of their closing prices. Thus, we believe 
it is appropriate to use the more accurate closing price as 
determined by the covered security's listing market rather than the 
last price reported in the consolidated system.\4\

    \4\ Securities Exchange Act Release No. 61595 (February 26, 
2010), 75 FR 11232 at 11255 (March 10, 2010) (adopting a short sale-
related circuit breaker that, if triggered, will impose a 
restriction on the prices at which securities may be sold short). 
Rule 201 of Regulation SHO requires that a trading center 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 closing price 
as determined by the listing market for the covered security as of 
the end of regular trading hours on the prior day. See 17 CFR 
242.201.
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NASDAQ agrees and believes that the Commission's analysis is 
particularly true in the case of thinly-traded securities.

    In addition to being consistent with the short sale-related circuit 
breaker, the proposed change will make the $1 threshold determination 
methodology under Rule 4120(a)(11) consistent with the Limit up-Limit 
down plan process to determine the percentage parameter applicable 
during a trading day, under which the reference price is based on the 
prior day's closing price on the primary listing market or the last 
sale on the primary listing market if no such closing price exists.\5\
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    \5\ In the Order Approving, on a Pilot Basis, the National 
Market System Plan to Address Extraordinary Market Volatility, the 
reference price used for determining which percentage parameter 
shall be applicable during a trading day shall be based on the 
closing price of the NMS stock on the primary listing exchange on 
the previous trading day, or if no closing price exists, the last 
sale on the primary listing exchange reported by the Processor. See 
Securities Exchange Act Release No. 34-67091 (May 31, 2012), 77 FR 
33498 (June 6, 2012).
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2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Securities Exchange Act of 1934 (the ``Act''),\6\ which requires 
the rules of an exchange 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 proposed rule

[[Page 11711]]

change is designed to promote more accurate determinations of the price 
of securities under the trading pause provided by Rule 4120(a)(11), 
thus promoting just and equitable principles of trade, removing 
impediments to, and perfecting the mechanism of, a free and open market 
and a national market system. The proposed rule change also is designed 
to support the principles of Section 11A(a)(1) \7\ of the Act in that 
it seeks to assure fair competition among brokers and dealers and among 
exchange markets. The Exchange believes that the proposed rule meets 
these requirements in that it promotes more accurate trading pause 
triggers, as well as transparency and uniformity across markets 
concerning decisions to pause trading in a security when there are 
significant price movements. Moreover, the Exchange believes that other 
listing markets with functionally identical rules are concurrently 
adopting the changes proposed herein.
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 rule change merely modifies how the value of a low-priced 
security is measured, replacing the current method with what the 
Exchange believes to be a more reliable and accurate measure. The 
proposed change will enhance the operation of the trading pause process 
by making the determination of the $1 threshold more accurate and 
reflective of the current value of a low-priced security, which in turn 
contributes to the protection of investors and the public interest. 
Accordingly, the proposed changes will not impose any burden on 
competition while providing more accurate trading pause determinations 
under Rule 4120(a)(11).

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
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    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) of the Act \10\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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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 No. SR-NASDAQ-2013-024 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 No. SR-NASDAQ-2013-024. 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 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-2013-024 and should be 
submitted on or before March 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03687 Filed 2-15-13; 8:45 am]
BILLING CODE 8011-01-P