[Federal Register Volume 80, Number 178 (Tuesday, September 15, 2015)]
[Notices]
[Pages 55406-55407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-23096]
[[Page 55406]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75863; File No. SR-NASDAQ-2015-082]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Approving a Proposed Rule Change To Introduce an Additional Data
Element to the IPO Indicator Service
September 9, 2015.
I. Introduction
On July 15, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to introduce an additional data element, the ``IPO
Book Viewer,'' to its existing IPO Indicator Service. The proposed rule
change was published for comment in the Federal Register on July 24,
2015.\3\ The Commission received no comments on the proposal. This
order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 75517 (July 24,
2015), 80 FR 45568 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to adopt Exchange Rule 7015(j) to include the
IPO Book Viewer as new data element as part of the IPO Indicator
Service.\4\ According to the Exchange, the IPO Indicator Service
currently assists Nasdaq participants in monitoring the orders they
have entered for execution in the Nasdaq Halt Cross for an IPO (``IPO
Cross'').\5\ The Exchange states that the IPO Indicator Service
provides a market participant with information about the number of
shares of its orders that would execute in the IPO Cross at the Current
Reference Price.\6\ Under the proposal, the IPO Book Viewer would be
available only to the Exchange member that is acting as the stabilizing
agent for the IPO security.\7\ Access to the IPO Book Viewer will be
limited through a secure entitlement process to designated individuals
employed by the stabilizing agent.\8\
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\4\ See Exchange Rule 7015. Nasdaq notes that the IPO Indicator
Service is available either as a feature of the Nasdaq Workstation
product, or through a standalone product known as the Nasdaq IPO
Workstation. See Notice, supra note 3, at 45568 n.4.
\5\ See id. at 45568. The Exchange states that the Nasdaq Halt
Cross is designed to provide for an orderly, single-priced opening
of securities subject to an intraday halt, including securities that
are the subject of an IPO. See id.
\6\ See id. The Exchange states that prior to an IPO Cross,
market participants enter eligible orders for participation in the
IPO Cross, and the Exchange disseminates certain information
regarding buying and selling interest entered and indicative
execution price information, such information is known collectively
as the Net Order Imbalance Indicator or ``NOII'', and includes,
among other things, the Current Reference Price. See id. and
Exchange Rules 4753(a)(3)(A) (defining ``Current Reference Price'')
and 4753(a)(5) (defining ``Eligible Interest'').
\7\ See proposed Exchange Rule 7015(j).
\8\ See Notice, supra note 3, at 45569.
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According to the Exchange, following the completion of the IPO
Cross, the stabilizing agent \9\ may enter a stabilizing bid into the
market for the purpose of supporting the price of the IPO security
during the remainder of its first day of trading.\10\ The Exchange
further states that the stabilizing agent stands ready during the
course of the day to commit its capital in support of the IPO security,
buying from investors that wish to sell the IPO security to realize
short-term gains (or to minimize short-term losses).\11\
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\9\ The Exchange notes that the stabilizing agent is typically
the lead underwriter and serves the function of being the designated
representative of the underwriting syndicate that informs the
Exchange that the IPO security is ready to commence trading,
pursuant to the Exchanges rules governing the IPO Cross. See Notice,
supra note 3 at, 45568.
\10\ See Notice, supra note 3, at 45569. The Exchange notes that
the stabilizing agent is subject to the requirements and limitations
under Regulation M regarding ``stabilizing'' the IPO security. See
id. at 45568 (citing 17 CFR 242.100).
\11\ See Notice, supra note 3, at 45569.
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The Exchange states that on the day of an IPO, beginning with the
start of the ``Display-Only Period,'' \12\ and ending upon the
completion of the IPO Cross for an IPO security, the IPO Book Viewer
would display aggregated buying and selling interest information for
the IPO security, reflecting all orders on the Nasdaq Book,\13\ and
consisting of the total number of orders and the aggregate size of all
orders, grouped in $0.05, $0.10, or $0.25 price increments.\14\ Under
the proposal, the pricing increments could be adjusted by the
stabilizing agent during the period that the IPO Book Viewer is
available.\15\ Under the proposal, the placement of the price bands
will be standardized, beginning at $0.\16\ The Exchange states that the
aggregated information that would be provided through this data element
would include all orders and size, including orders with a time-in-
force of immediate or cancel; orders with reserve size; and non-
displayed orders.\17\ Under the proposal, the information provided
through the IPO Book Viewer would be updated every five seconds, along
with updates to the NOII.\18\
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\12\ See Exchange Rule 4120(c)(7)(A) (describing ``Display Only
Period'').
\13\ See Exchange Rule 4701(a)(1) (defining ``Nasdaq Book'').
\14\ See Notice, supra note 3, at 45569.
\15\ See Notice, supra note 3, at 45569. For example, the
Exchange states that if the IPO Book Viewer was configured to show
$0.05 increments and the Nasdaq Book had 100 Orders to buy with a
size of 200 shares each at each price from $39.99 to $39.95; and 100
Orders to buy with a size of 100 shares each at each price from
$39.94 to $39.90, the IPO Book Viewer would show 500 Orders with an
aggregate size of 100,000 shares for the $39.99 to $39.95 price
band; and 500 Orders with an aggregate size of 50,000 shares for the
$39.94 to $39.90 price band. See id. However, the Exchange notes
that the stabilizing agent could not view multiple increments at the
same time (e.g., the viewer could view all $0.05 increments or all
$0.25 increments, but could not view a $0.05 increment for prices
near the NOII and wider increments for prices further away). See id.
at, 45569 n.8.
\16\ See Notice, supra note 3, at 45569. For example, the
Exchange states that a stabilizing agent selecting $0.05 increments
would always see orders priced from $20.00 to $20.04 and from $20.05
to $20.09, but could not modify the starting point of the price band
to see orders priced from $20.01 to $20.05. See Notice, supra note
3, at 45569.
\17\ The Exchange notes that the IPO Book Viewer would not
provide any information regarding IOC or non-displayed orders or
reserve size other than in the aggregated format described above,
and will not provide any information regarding the identity of
market participants posting orders. See id.
\18\ See id.
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In addition, under the proposal, the stabilizing agent receiving
the IPO Book Viewer would be required to maintain and enforce written
policies and procedures reasonably designed to achieve the following
purposes: (i) Restrict electronic access to aggregated information only
to associated persons of the stabilizing agent who need to know the
information in connection with establishing the opening price of an IPO
security and stabilizing the IPO security; (ii) except as may be
required for purposes of maintaining books and records for regulatory
purposes, prevent the retention of aggregated information following the
completion of the IPO Cross for the IPO security; and (iii) prevent
persons with access to aggregated information from engaging in
transactions in the IPO security other than transactions in the IPO
Cross; transactions on behalf of a customer; or stabilizing.\19\ Under
the proposal, however, nothing contained in the proposed rule would be
construed to prohibit the member acting as the stabilizing agent from
(i) engaging in stabilizing consistent with that role, or (ii) using
the information provided from the IPO Book Viewer to respond to
inquiries from any person, including, without limitation, other
members, customers, or associated persons of the stabilizing agent,
regarding the expectations of the member acting as the stabilizing
agent with regard to the possibility of executing stated quantities
[[Page 55407]]
of an IPO security at stated prices in the IPO Cross.\20\ The proposal
would also require that the aggregated information provided through the
IPO Book Viewer would be available solely for display on the screen of
a computer for which an entitlement has been provided by the Exchange
and under no circumstances may a member redirect aggregated information
to another computer or reconfigure it for use in a non-displayed
format, including, without limitation, in any trading algorithm.\21\
Finally, the Exchange proposes that if a member became aware of any
violation of the restrictions contained in the proposed rule, it must
report the violation promptly to the Exchange.\22\
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\19\ See proposed Exchange Rule 7015(j)(1)(A)(i)-(iii). See also
Notice, supra note 3, at 45570.
\20\ See proposed Exchange Rule 7015(j)(1)(D). See also Notice,
supra note 3, at 45570.
\21\ See proposed Exchange Rule 7015(j)(1)(B). See also Notice,
supra note 3, at 45570.
\22\ See proposed Exchange Rule 7015(j)(1)(C). See also Notice,
supra note 3, at 45570. The Exchange also proposes to define the
terms ``IPO security,'' ``stabilizing,'' ``stabilizing agent,''
``IPO Indicator Service,'' and ``IPO Book Viewer.'' See proposed
Exchange Rule 7015(j)(2).
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\23\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\24\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, 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, and Section 6(b)(8) of the Act,\25\ which requires
that the rules of the exchange do not impose any burden on competition
not necessary or appropriate in furtherance of the purposes of the Act.
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\23\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\24\ 15 U.S.C. 78f(b)(5).
\25\ 15 U.S.C. 78f(b)(8).
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As described above, the proposed rule change would provide the
Exchange member acting as stabilizing agent for an IPO security with
access to the IPO Book Viewer, which would display aggregated buying
and selling interest information for the IPO security, grouped in
$0.05, $0.10, or $0.25 price increments. The Exchange believes that the
IPO Book Viewer would, among other things, allow the stabilizing agent
to respond in a more informed way to questions from its customers and
other market participants regarding expectations that an order to buy
or sell with a stated price and size may be executable in the IPO Cross
and would assist the stabilizing agent in making decisions about the
appropriate level of capital to commit to support the IPO security once
trading commences.\26\ The Exchange proposes to provide access to the
IPO Book Viewer only to the Exchange member acting as stabilizing agent
for the IPO security because of the unique role played by the
stabilizing agent on the day of an IPO.\27\
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\26\ See Notice, supra note 3, at 45569.
\27\ See id. (noting that the stabilizing agent stands ready
during the course of the day to commit its capital in support of the
IPO security and thereby serves to dampen volatility in the IPO
security and promote the maintenance of a fair and orderly market.
Nasdaq believes that providing additional information about the pre-
opening interest in the stock to the stabilizing agent will help it
to optimize the opening of the stock and manage its own risk, which
will assist it in promoting a fair and orderly market for the IPO
security).
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The Commission notes that the Exchange has proposed a number of
safeguards to help ensure that the aggregated information is not
misused, including that the stabilizing agent maintain and enforce
written policies and procedures restricting electronic access to the
information only to certain persons, preventing the retention of the
information, and preventing those with access to the information from
trading in the IPO security, except in limited circumstances.\28\ In
addition, the Commission notes that the information provided through
the IPO Book Viewer would be available solely for display on the screen
of a computer for which an entitlement has been provided by the
Exchange, access to the IPO Book Viewer will terminate immediately upon
the completion of IPO Cross, and an Exchange member must report
promptly to the Exchange any violation of the restrictions contained in
proposed Exchange Rule 7015(j). The Commission also notes that the
proposed rule change is similar to an existing rule on another
exchange,\29\ but is generally more restrictive with respect to the use
of information about orders.\30\ Accordingly, the Commission believes
that the proposed rule change to add the IPO Book Viewer to the IPO
Indicator Service is designed to protect investors and the public
interest by providing the Exchange member acting as stabilizing agent
with additional information that could, among things, assist the
stabilizing agent in responding to questions from customers and market
participants regarding expectations that a particular order may execute
in the IPO Cross.
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\28\ See supra note 19 and accompanying text.
\29\ See NYSE Rule 104. See also Securities Exchange Act Release
No. 71175 (December 23, 2013), 78 FR 79534 (December 30, 2013) (SR-
NYSE-2013-21 and SR-NYSEMKT-2013-25).
\30\ For example, NYSE Rule 104 permits Designated Market Makers
to access disaggregated information about the price and size of any
individual order and to disclose disaggregated information about the
price and size of any individual order to floor brokers in response
to an inquiry in the normal course of business. See id. at 79538. In
contrast, the Exchange's proposal would only permit the stabilizing
agent to access aggregated order information and share such
aggregated information with others in response to inquiries. See
proposed Exchange Rule 7015(j).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-NASDAQ-2015-082) be, and it
hereby is, approved.
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\31\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-23096 Filed 9-14-15; 8:45 am]
BILLING CODE 8011-01-P