[Federal Register Volume 84, Number 74 (Wednesday, April 17, 2019)]
[Notices]
[Pages 16064-16066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07633]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85603; File No. SR-NASDAQ-2019-028]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Extend the Current Pilot Program Related to Clearly Erroneous
Transactions
April 11, 2019.
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 April 9, 2019, 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 extend the current pilot program related
to Nasdaq Rule 11890, Clearly Erroneous Transactions, to the close of
business on October 18, 2019.
The text of the proposed rule change is available on the Exchange's
website 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 purpose of the proposed rule change is to extend the current
pilot program related to Rule 11890, Clearly Erroneous Transactions, to
the close of business on October 18, 2019. This change is being
proposed in connection with proposed amendments to the Plan to Address
Extraordinary Market Volatility (the ``Limit Up-Limit Down Plan'' or
the ``Plan'') that would allow the Plan to continue to operate on a
permanent basis.\3\
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\3\ See Securities Exchange Act Release No. 84843 (December 18,
2018), 83 FR 66464 (December 26, 2018) (File No. 4-631)
(``Eighteenth Amendment'').
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On September 10, 2010, the Commission approved, on a pilot basis,
changes to Rule 11890 that, among other things: (i) Provided for
uniform treatment of clearly erroneous[thinsp]execution reviews in
multi-stock events involving twenty or more securities; and (ii)
reduced the ability of the Exchange to deviate from the objective
standards set forth in the rule.\4\ In 2013, the Exchange adopted a
provision designed to address the operation of the Plan.\5\ Finally, in
2014, the Exchange adopted two additional provisions providing that:
(i) A series of transactions in a particular security on one or more
trading days may be viewed as one event if all such transactions were
effected based on the same fundamentally incorrect or grossly
misinterpreted issuance information resulting in a severe valuation
error for all such transactions; and (ii) in the event of any
disruption or malfunction in the operation of the electronic
communications and trading facilities of an Exchange, another SRO, or
responsible single plan processor in connection with the transmittal or
receipt of a trading halt, an Officer, acting on his or her own motion,
shall nullify any transaction that occurs after a trading halt has been
declared by the primary listing market for a security and before such
trading halt has officially ended according to the primary listing
[[Page 16065]]
market.\6\ These changes are currently scheduled to operate for a pilot
period that coincides with the pilot period for the Limit Up-Limit Down
Plan,\7\ including any extensions to the pilot period for the Plan.\8\
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\4\ See Securities Exchange Act Release No. 62886 (September 10,
2010), 75 FR 56613 (September 16, 2010) (SR-NASDAQ-2010-076).
\5\ See Securities Exchange Act Release No. 68819 (February 1,
2013), 78 FR 9438 (February 8, 2013) (SR-NASDAQ-2013-022).
\6\ See Securities Exchange Act Release No. 72434 (June 19,
2014), 79 FR 36110 (June 25, 2014) (SR-NASDAQ-2014-044).
\7\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down
Release'').
\8\ See Securities Exchange Act Release No. 71785 (March 24,
2014), 79 FR 17621 (March 28, 2014) (SR-NASDAQ-2014-028).
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The Commission recently published the proposed Eighteenth Amendment
to the Plan to allow the Plan to operate on a permanent, rather than
pilot, basis. The Exchange proposes to amend Rule 11890 to untie the
pilot program's effectiveness from that of the Plan and to extend the
pilot's effectiveness to the close of business on October 18, 2019--
i.e., six months after the expiration of the current pilot period for
the Plan. If the pilot period is not either extended, replaced or
approved as permanent, the prior versions of paragraphs (a)(2)(C),
(c)(1), (b)(i), and (b)(ii) shall be in effect, and the provisions of
paragraphs (g) through (i) shall be null and void.\9\ In such an event,
the remaining sections of Rule 11890 would continue to apply to all
transactions executed on the Exchange. The Exchange understands that
the other national securities exchanges and Financial Industry
Regulatory Authority (``FINRA'') will also file similar proposals to
extend their respective clearly erroneous execution pilot programs, the
substance of which are identical to Rule 11890.
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\9\ See supra notes 4-6. The prior versions of paragraphs
(a)(2)(C), (c)(1), (b)(i), and (b)(ii) generally provided greater
discretion to the Exchange with respect to breaking erroneous
trades.
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The Exchange does not propose any additional changes to Rule 11890.
The Exchange believes the benefits to market participants from the more
objective clearly erroneous executions rule should continue on a
limited six month pilot basis after Commission approves the Plan to
operate on a permanent basis. Assuming the Plan is approved by the
Commission to operate on a permanent, rather than pilot, basis the
Exchange intends to assess whether additional changes should also be
made to the operation of the clearly erroneous execution rules.
Extending the effectiveness of Rule 11890 for an additional six months
should provide the Exchange and other national securities exchanges
additional time to consider further amendments to the clearly erroneous
execution rules in light of the proposed Eighteenth Amendment to the
Plan.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\10\ in general, and
Section 6(b)(5) of the Act,\11\ in particular, in that it is designed
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest and not to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change promotes just
and equitable principles of trade in that it promotes transparency and
uniformity across markets concerning review of transactions as clearly
erroneous. The Exchange believes that extending the clearly erroneous
execution pilot under Rule 11890 for an additional six months would
help assure that the determination of whether a clearly erroneous trade
has occurred will be based on clear and objective criteria, and that
the resolution of the incident will occur promptly through a
transparent process. The proposed rule change would also help assure
consistent results in handling erroneous trades across the U.S.
equities markets, thus furthering fair and orderly markets, the
protection of investors and the public interest. Based on the
foregoing, the Exchange believes the amended Clearly Erroneous
Transactions rule should continue to be in effect on a pilot basis
while the Exchange and the other national securities exchanges consider
and develop a permanent proposal for clearly erroneous execution
reviews.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposal would ensure
the continued, uninterrupted operation of harmonized clearly erroneous
execution rules across the U.S. equities markets while the Exchange and
other national securities exchanges consider further amendments to
these rules in light of the proposed Eighteenth Amendment to the Plan.
The Exchange understands that the other national securities exchanges
and FINRA will also file similar proposals to extend their respective
clearly erroneous execution pilot programs. Thus, the proposed rule
change will help to ensure consistency across market centers without
implicating any competitive issues.
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)(iii) of the Act \12\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give 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.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become effective and operative immediately upon filing.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the current clearly erroneous execution pilot program to
continue uninterrupted, without any changes, while the Exchange and the
other national securities exchanges consider and develop a permanent
proposal for clearly erroneous execution reviews. For this reason, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change as operative upon filing.\16\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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[[Page 16066]]
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.
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-2019-028 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2019-028. 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 website (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 website 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2019-028 and should be submitted
on or before May 8, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07633 Filed 4-16-19; 8:45 am]
BILLING CODE 8011-01-P