[Federal Register Volume 80, Number 1 (Friday, January 2, 2015)]
[Notices]
[Pages 69-71]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30702]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73943; File No. SR-NASDAQ-2014-123]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Rules 4751(h) and 4754(b) Relating to the Closing Process
December 24, 2014.
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 December 16, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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 Substance
of the Proposed Rule Change
The Exchange proposes to make changes to Rules 4751(h) and 4754(b)
relating to the closing process.
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 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
The Exchange is proposing to adopt changes related to the close of
Regular Market Session \3\ on NASDAQ, which are designed to bring
consistency and stability to the processing of securities in the NASDAQ
Closing Cross.\4\ Each trading day, NASDAQ accepts orders designated to
participate in the Closing Cross.\5\ The Closing Cross is the process
by which NASDAQ determines the price at which orders will be executed
at market close. Beginning at 3:50 p.m. Eastern Time, NASDAQ
disseminates an Order Imbalance Indicator \6\ every five seconds until
market close, which allows market participants to see the nature of
interest in a security and make investment decisions accordingly. The
NASDAQ closing process is initiated at 4:00 p.m. Eastern Time.\7\
During the brief period between the initiation of the closing process
and the conclusion of the last Closing Cross,\8\ the continuous order
book is open to accept orders and cancellations in a security until the
Closing Cross for that security is complete. These orders can affect
the ultimate closing price of the security. Although accepting orders
and cancellations through the completion of a security's Closing Cross
allows the greatest interest to participate in the Closing Cross, the
Exchange has observed that in cases where there is aberrant volatility
in a security due to an error,\9\ accepting such order activity may
also significantly alter the closing price. In normal trading, NASDAQ
has observed that allowing order entry and cancellation in a security
up to the completion of a security's Closing Cross provides little
additional price discovery to offset the greater risk in allowing such
order activity. Accordingly, NASDAQ is proposing to close the order
book for participation in the Closing Cross once the closing process is
initiated at 4:00 p.m. Eastern Time (the ``Lockdown Period''). As a
consequence of closing the order book, orders entered for participation
in the continuous market after the Lockdown Period has begun, but prior
to completion of the Closing Cross, will not be accepted by the System.
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\3\ As defined by Rule 4120(b)(4)(D).
\4\ See Rule 4754.
\5\ See Rule 4754(a)(1) for a description of quotes and orders
eligible for participation in the Closing Cross.
\6\ The Order Imbalance Indicator provides information about
orders eligible to participate in the Closing Cross and the price at
which those orders would execute at the time of dissemination.
\7\ Once the closing process is initiated, the System will
execute crosses in each individual security traded on NASDAQ one by
one. The order in which each security is processed is random and
differs day by day.
\8\ This brief period is normally well under one second.
\9\ For example, a member firm that enters an order that is
erroneous in price and/or size may cause significant order
imbalances, which may cause the closing price of the security to be
significantly different from what is anticipated.
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Under the proposed process, at 4:00 p.m. Eastern Time, when the
closing process is initiated, the Lockdown Period is triggered at which
point the order book will no longer accept new orders for execution,
and will cease to process order cancellation requests for resting
orders. New orders received for participation in the Closing Cross
after initiation of the Lockdown Period will be cancelled back to the
member firm, and cancellations of resting orders will be processed
after the Closing Cross is complete.\10\ NASDAQ notes that the
processing and calculation of the Closing Cross will remain
unchanged.\11\ Moreover, in proposing the Lockdown Period, NASDAQ is
not altering how orders are processed prior to the Closing Cross, and
after it is completed. Rather, NASDAQ is merely providing a precise
time at which orders will not participate in the Closing Cross, in lieu
of the uncertain, albeit brief, time under the current process. In
addition to amending Rule 4754(b) to reflect the changes discussed
above, NASDAQ is making a clarifying change to the rule text to make it
clear that the Closing Cross begins at 4:00:00 p.m.. [sic]
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\10\ A member firm that sends a cancellation request during the
Lockdown Period will receive an execution message for that order if
it is executed in the Closing Cross.
\11\ The closing process will still be initiated at 4:00 p.m.
Eastern Time, and the order in which securities enter into their
individual Closing Crosses will continue to be random.
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In a related change, the Exchange is also proposing to harmonize
the processing of Market Hours Day (``MDAY'') orders \12\ in the
Closing Cross. MDAY is a time-in-force characteristic of orders, which
allows the order to be executed during the Regular Market Session.
Under NASDAQ rules, MDAY-designated orders are available from 4:00 a.m.
to 4:00 p.m. Eastern Time.\13\ Currently, an order designated as MDAY
entered after completion of the Closing Cross in a particular security
may be rejected, cancelled, or modified to an order with a time-in-
force of Immediate or Cancel,
[[Page 70]]
depending on the means of entry. Member firms may enter MDAY-designated
orders through OUCH, FLITE, RASH, INET FIX, QIX or SUMO FIX ports.\14\
These various means of connecting to the Exchange for order entry
provide member firms with differing functionality. The Exchange notes
that a MDAY-designated order entered after the conclusion of the
Regular Market Session through an OUCH, FLITE or RASH port will be
modified to an order with a time-in-force of Immediate or Cancel. A
MDAY-designated order entered after the conclusion of Regular Market
Session through an INET FIX port will be modified to a System Hours Day
order.\15\ Lastly, a MDAY-designated order entered after the conclusion
of the Regular Market Session through a QIX or SUMO FIX port will be
rejected. The Exchange notes that the vast majority of such orders are
[sic] entered near the end of the Regular Market Session by member
firms seeking to execute prior to the conclusion of the session. In an
effort to simplify the treatment of order handling on the Exchange,
NASDAQ is proposing to harmonize how MDAY orders entered after the
closing cross is initiated are handled. Specifically, NASDAQ is
proposing to no longer accept orders with a time-in-force of MDAY that
are entered after initiation of the Lockdown Period. The Exchange notes
that not accepting orders after the Closing Cross is initiated will
simplify market participant processing and avoid confusion concerning
how such orders are handled upon conclusion of the Regular Market
Session. Lastly, with the proposed implementation of the Lockdown
Period, such simplification will also aid NASDAQ in operating the
Closing Cross by reducing the logical steps necessary to process MDAY-
designated orders. As a consequence, NASDAQ is adding language to the
rule to reflect that such orders will not be accepted after 4:00 p.m.
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\12\ See Rule 4751(h)(6).
\13\ Id.
\14\ See http://www.nasdaqtrader.com/Trader.aspx?id=TradingSpecs
for a description of the various order entry port specifications.
\15\ A System Hours Day order remains available for potential
display and/or execution from 4:00 a.m. until 8:00 p.m. Eastern Time
on the day it was submitted unless cancelled by the entering party.
See Rule 4751(h)(2).
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Similarly, NASDAQ is proposing to modify the processing of Good-
til-market close orders (``GTMC'').\16\ GTMC is a time-in-force
characteristic of orders, which allows the order to be executed from
4:00 a.m. to 8:00 p.m. Eastern Time. GTMC orders entered after the
Closing Cross are converted to a time-in-force of System Hours
Immediate or Cancel. In lieu of converting such orders, NASDAQ is
proposing to no longer accept GTMC orders after initiation of the
Lockdown Period at 4:00 p.m. Eastern Time. As a consequence, NASDAQ is
amending language in the rule concerning acceptance of GTMC orders up
to 8:00 p.m. Eastern Time to reflect that such orders will not be
accepted after 4:00 p.m., and is deleting text concerning conversion of
the order. NASDAQ is also making a technical change to the rule text to
harmonize the terminology used under the other time-in-force
designations under Rule 4751(h). Specifically, NASDAQ is replacing the
word ``and'' with ``until.''
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\16\ See Rule 4751(h)(8).
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The Exchange plans on implementing the proposed changes in mid-
February 2015, and will provide at least 30 days prior notice of the
implementation date and testing opportunities for member firms via an
Equity Trader Alert.
2. Statutory Basis
The Exchange believes that the proposed rule changes [sic] are
consistent with Section 6 of the Act, in general, and further the
objectives of Section 6(b)(5) of the Act, in particular, in that they
are 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;
and are not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers. Specifically, the proposed changes
promote just and equitable principles of trade and perfect the
mechanisms of a free and open market and the national market system by
providing greater clarity concerning the System's operation during the
closing process and how orders with certain time-in-force
characteristics are processed at the market close. In addition, the
proposed changes will contribute to the protection of investors and the
public interest by making the Exchange's rules easier to understand.
The proposed change to implement the Lockdown Period is designed to
promote a stable closing process and avoid the impact of erroneous
order activity on the market close process. Closing the order book to
new orders and cancellations during the very brief period between the
initiation of the closing process at 4:00 p.m. Eastern Time and the
completion of the last Closing Cross will ensure that the System is
able to cross all securities without impact from erroneous order
activity in a single security. Accordingly, the proposed change
promotes a fair and orderly market during the closing process, and
thereby further perfects the mechanism of a free and open market. The
proposed changes to the processing of MDAY-designated orders further
these objectives because they simplify processing of orders, thereby
avoiding any market participant confusion on how such orders are
treated when entered after the Regular Market Session has ended.
Uniformly rejecting such orders, which are designed to execute during
Regular Market Session, is consistent with a market participant's
intent to execute during Regular Market Session and will remove
complication in the handling of such orders. To the extent a member
firm would like to participate in post-market hours trading, it may
enter a new order eligible to participate in post-market trading.
Likewise, the proposed changes to the processing of GTMC-designated
orders further these objectives because the changes simplify processing
of such orders when entered after the Closing Cross process has begun.
Rather than converting GTMC-designated orders to an order with a
different time-in-force if entered after the market close, NASDAQ will
no longer accept them once the Closing Cross has been initiated, which
is consistent with a market participant's intent to execute during the
period from 4:00 a.m. and 4:00 p.m. As noted above, to the extent a
member firm would like to participate in post-market hours trading, it
may enter a new order eligible to participate in post-market trading.
Moreover, simplifying the processing of both MDAY- and GTMC-designated
orders will remove complication in the handling of such orders, thereby
further improving the operation of the market.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
Specifically, the changes are designed to promote consistency and
stability in the closing process and in the handling of orders after
the Regular Market Session has ended. Such changes do not place a
burden on competition between market participants as the changes are
applied consistently to all participants. Moreover, the proposed
changes do not
[[Page 71]]
impose a burden on competition among exchanges as they are done for
regulatory purposes and are therefore irrelevant to competition.
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
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)(ii) of the Act \17\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\ 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: (i) Necessary or appropriate in the
public interest; (ii) for the protection of investors; or (iii)
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.
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\17\ 15 U.S.C. 78s(b)(3)(a)(ii).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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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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-2014-123 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File Number SR-NASDAQ-2014-123. 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 Number SR-NASDAQ-2014-123 and should
be submitted on or before January 2, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30702 Filed 12-31-14; 8:45 am]
BILLING CODE 8011-01-P