[Federal Register Volume 84, Number 160 (Monday, August 19, 2019)]
[Notices]
[Pages 42964-42967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17680]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86642; File No. SR-NASDAQ-2019-064]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Certain Cutoff Times
for On-Close Orders Entered for Participation in the Nasdaq Closing
Cross and Adopt a Second Reference Price for Limit-on-Close Orders
August 13, 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 July 31, 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 amend certain cutoff times for on-close
orders entered for participation in the Nasdaq Closing Cross and adopt
a second reference price for limit-on-close orders
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 Nasdaq Closing Cross is a price discovery facility that crosses
orders at a single price and establishes the Nasdaq Official Closing
Price for a security. The Closing Cross was designed to create a robust
close that allows for efficient price discovery through a transparent
automated auction process. Nasdaq is proposing to (i) preclude on-close
orders from being cancelled or modified after 3:50 p.m. ET and (ii)
permit Limit-on-Close orders entered after 3:55 p.m. ET to be accepted
and priced at or between the First or Second Reference Prices (as
defined below). Nasdaq believes that the proposed changes will enhance
price discovery, stability and transparency in the Closing Cross
process.
Nasdaq has proposed related enhancements to the Closing Cross
process that will be implemented in conjunction with the proposed
changes.\3\ On February 27, 2019, Nasdaq filed a proposed rule change
to establish the Early Order Imbalance Indicator (``EOII'') that the
Exchange will begin disseminating at 3:50 p.m. or ten minutes prior to
the market close. The EOII will contain a subset of the information
comprising the Net Order Imbalance Indicator (``NOII''), which will be
disseminated at 3:55 p.m. or five minutes prior to the market close.
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\3\ See Securities Exchange Act Release No. 34-85292 (Mar. 12,
2019), 84 FR 9848 (Mar. 18, 2019) (SR-NASDAQ-2019-010).
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The NOII is a message disseminated by electronic means containing
information about market-on-close (``MOC''),\4\ limit-on-close
(``LOC''),\5\ imbalance only (``IO'') \6\ orders, and Close Eligible
Interest \7\ and the price at which those orders would execute at the
time of dissemination.\8\ MOC, LOC and
[[Page 42965]]
IO orders are on-close order types that are executable only during the
Closing Cross.
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\4\ A ``Market on Close Order'' or ``MOC'' is an Order Type
entered without a price that may be executed only during the Nasdaq
Closing Cross. See Rule 4702(b)(11).
\5\ Pursuant to Rule 4702(b)(12), a ``Limit on Close Order'' or
``LOC'' is an Order Type entered with a price that may be executed
only in the Nasdaq Closing Cross, and only if the price determined
by the Nasdaq Closing Cross is equal to or better than the price at
which the LOC Order was entered. See Rule 4754(a)(9).
\6\ An ``Imbalance Only Order'' or ``IO'' is an Order entered
with a price that may be executed only in the Nasdaq Closing Cross
and only against MOC Orders or LOC Orders. See Rule 4702(b)(13).
\7\ ``Close Eligible Interest'' means ``any quotation or any
order that may be entered into the system and designated with a
time-in-force of SDAY, SGTC, MDAY, MGTC, SHEX, or GTMC.'' See Rule
4754(a)(1).
\8\ See Rule 4754(a)(7).
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MOC Orders
Currently, pursuant to Rule 4702(b)(11)(A), MOC orders may be
entered, cancelled, and/or modified between 4 a.m. ET and immediately
prior to 3:55 p.m. ET. Between 3:55 p.m. ET and immediately prior to
3:58 p.m. ET, a MOC order can be cancelled and/or modified only if the
participant requests that Nasdaq correct a legitimate error in the
order.\9\ MOC orders cannot be cancelled or modified at or after 3:58
p.m. ET for any reason.
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\9\ ``Legitimate error'' for a MOC, LOC or IO order includes,
for example, an error in the Side, Size, Symbol, or Price, or
duplication of an order, as set forth in the applicable rule for
each Order Type.
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In conjunction with the adoption of EOII, Nasdaq is proposing to
revise Rule 4702(b)(11)(A) to permit MOC orders to be entered until
3:55 p.m. ET and prohibit cancellation or modification of MOC orders
after 3:50 p.m. ET except to correct a legitimate error in the order.
Nasdaq believes that these changes will enhance stability in the
Closing Cross process because they will reduce the possibility of large
indicative price movements due to participants cancelling or modifying
orders in reaction to the EOII. It will also enhance the price
discovery and liquidity of a security by increasing the number of
participants in the Nasdaq Closing Cross, which establishes the Nasdaq
Official Closing Price for a security. In addition, participants may
continue to enter MOC orders until 3:55 p.m. ET, which allows
participants to consider information in the EOII in making informed
decisions about whether and how to participate in the Closing Cross.
IO Orders
Currently, pursuant to Rule 4702(b)(13)(A), an IO order may be
entered between 4:00 a.m. ET until the time of execution of the Nasdaq
Closing Cross, but may not be cancelled or modified at or after 3:55
p.m. ET. Between 3:55 p.m. ET and immediately prior to 3:58 p.m. ET,
however, an IO order can be cancelled and/or modified if the
participant requests that Nasdaq correct a legitimate error in the
order. IO orders cannot be cancelled or modified at or after 3:58 p.m.
ET for any reason.
In conjunction with the adoption of EOII, Nasdaq is proposing to
revise Rule 4702(b)(13)(A) to prohibit cancellation or modification of
IO orders after 3:50 p.m. ET except to correct a legitimate error in
the order. IO orders provide liquidity and are intended to offset a buy
or sell imbalance during the Closing Cross. Nasdaq believes that this
change will enhance stability in the Closing Cross process because it
will reduce the possibility of participants modifying an IO position in
reaction to the EOII. In addition, participants may continue to enter
IO orders until 3:55 p.m. ET, which allows participants to consider
information in the EOII in making informed decisions about whether and
how to participate in the Closing Cross.
LOC Orders
Currently, pursuant to Rule 4702(b)(12)(A), LOC orders may be
entered, cancelled, and/or modified between 4 a.m. ET and immediately
prior to 3:55 p.m. ET. Between 3:55 p.m. ET and immediately prior to
3:58 p.m. ET, LOC orders may be entered provided that there is a First
Reference Price \10\ and may be cancelled, but not modified, only if
the participant requests that Nasdaq correct a legitimate error in the
order. A LOC order entered between 3:55 p.m. ET and immediately prior
to 3:58 p.m. ET is accepted at its limit price, unless its limit price
is higher (lower) than the First Reference Price for an LOC order to
buy (sell), in which case the LOC order is handled consistent with the
Participant's instruction that the LOC order is to be: (1) Rejected; or
(2) re-priced to the First Reference Price, provided that if the First
Reference Price is not at a permissible minimum increment, the First
Reference Price will be rounded (i) to the nearest permitted minimum
increment (with midpoint prices being rounded up) if there is no
imbalance, (ii) up if there is a buy imbalance, or (iii) down if there
is a sell imbalance. The default configuration for participants that do
not specify otherwise is to have such LOC orders re-priced rather than
rejected.
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\10\ ``First Reference Price'' is presently defined as ``the
Current Reference Price in the first Order Imbalance Indicator
disseminated at or after 3:55 p.m. ET.'' See Rule 4754(a)(9).
``Current Reference Price'' means the following: (i) The single
price that is at or within the current Nasdaq Market Center best bid
and offer at which the maximum number of shares of MOC, LOC, and IO
orders can be paired; (ii) if more than one price exists under
subparagraph (i), the Current Reference Price shall mean the price
that minimizes any Imbalance; (iii) if more than one price exists
under subparagraph (ii), the Current Reference Price shall mean the
entered price at which shares will remain unexecuted in the cross;
or (iv) if more than one price exists under subparagraph (iii), the
Current Reference Price shall mean the price that minimizes the
distance from the bid-ask midpoint of the inside quotation
prevailing at the time of the order imbalance indicator
dissemination. See Rule 4754(a)(7)(A).
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In conjunction with the adoption of EOII, Nasdaq is proposing to
revise Rule 4702(b)(12)(A) to expand the order entry of a LOC order
submitted after 3:55 p.m. ET (``Late LOC'') to be accepted and priced
at either the First Reference Price or the Second Reference Price. In
connection with this change, Nasdaq is proposing to revise the
definition of First Reference Price in Rule 4754(a)(9) to refer to the
Current Reference Price in the EOII disseminated at 3:50 p.m. ET, or 10
minutes prior to the early closing time on a day when Nasdaq closes
early. Nasdaq is also proposing to add a new definition of Second
Reference Price in Rule 4754(a)(11) to refer to the Current Reference
Price in the NOII disseminated at 3:55 p.m. ET, or five minutes prior
to the early closing time on a day when Nasdaq closes early.
Under the proposed rule change, a LOC order may be entered,
cancelled and/or modified between 4 a.m. ET and immediately prior to
3:50 p.m. ET. Between 3:50 p.m. ET and 3:55 p.m. ET, a LOC order may be
entered but can only be cancelled and/or modified if the participant
requests that Nasdaq correct a legitimate error in the order. Between
3:55 p.m. ET and immediately prior to 3:58 p.m. ET, a Late LOC order
may be entered, provided that there is a First Reference Price or a
Second Reference Price. Late LOC orders can also only be cancelled and/
or modified if the participant requests that Nasdaq correct a
legitimate error in the order. LOC orders cannot be cancelled or
modified at or after 3:58 p.m.
A Late LOC order to buy will be accepted at its limit price, unless
its limit price is higher than the higher of the First Reference Price
and the Second Reference Price, in which case the Late LOC order will
be handled consistent with the participant's instruction that the Late
LOC order is to be: (1) Rejected; or (2) re-priced to the higher of the
First Reference Price and the Second Reference Price. Similarly, a Late
LOC order to sell will be accepted at its limit price, unless its limit
price is lower than the lower of the First Reference Price and the
Second Reference Price, in which case the Late LOC order will be
handled consistent with the participant's instruction that the LOC
order is to be: (1) Rejected; or (2) re-priced to the lower of the
First Reference Price and the Second Reference Price.\11\ For example,
if the
[[Page 42966]]
First Reference Price for a security is $10 and the Second Reference
Price is $10.25, and a participant submits a Late LOC order to buy the
security with a limit of $11, the order would either be rejected or
repriced to $10.25 in accordance with the participant's instructions.
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\11\ In each case, if either the First Reference Price or the
Second Reference Price is not at a permissible minimum increment,
the First Reference Price or the Second Reference Price, as
applicable, will be rounded (i) to the nearest permitted minimum
increment (with midpoint prices being rounded up) if there is no
imbalance, (ii) up if there is a buy imbalance, or (iii) down if
there is a sell imbalance. The default configuration for
participants that do not specify otherwise will be to have Late LOC
orders re-priced rather than rejected.
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Nasdaq believes that allowing Late LOC orders to be priced at the
more aggressive of the two reference prices will provide flexibility to
market participants by allowing participants to consider information in
both the EOII and NOII in making informed decisions about whether and
how to participate in the Closing Cross. It will also increase
participation for a wider variety of liquidity providers who otherwise
would have had a Late LOC order rejected or repriced if its limit was
outside of the First Reference Price. Nasdaq believes that increased
participation may enhance price discovery and stability of the Closing
Cross because it will allow more price forming orders to offset
imbalances and to participate in the Closing Cross.
Additional Conforming Changes
In connection with the proposed rule changes, Nasdaq is proposing
to revise Sections 118(a)(1),\12\ 118(a)(2),\13\ and 118(a)(3) \14\ of
Equity 7 Pricing Schedule to reflect the revised cutoff times for
modifications to LOC orders. Nasdaq is also proposing to revise
``Eligible Interest'' to ``Close Eligible Interest'' in Rules
4754(a)(7)(E)(ii) and 4754(b)(2)(A) to correct an inadvertent error.
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\12\ Section 118(a)(1) of the Equity 7 Pricing Schedule
currently provides that the fee for execution and routing of orders
in Nasdaq-listed securities is $0.0027 per share executed for a
member with shares of liquidity provided in the Opening and Closing
Crosses, excluding Market-on-Close, Limit-on-Close (other than an
Limit-on-Close Order entered between 3:50 p.m. ET and immediately
prior to 3:55 p.m. ET), Market-on-Open, Limit-on-Open, Good-til-
Cancelled, and Immediate-or-Cancel orders, through one or more of
its Nasdaq Market Center MPIDs that represent more than 0.01% of
Consolidated Volume during the month.
\13\ Section 118(a)(2) of the Equity 7 Pricing Schedule
currently provides that the fee for execution and routing of
securities listed on NYSE is $0.0027 per share executed for a member
with shares of liquidity provided in the Opening and Closing
Crosses, excluding Market-on-Close, Limit-on-Close (other than an
Limit-on-Close Order entered between 3:50 p.m. ET and immediately
prior to 3:55 p.m. ET), Market-on-Open, Limit-on-Open, Good-til-
Cancelled, and Immediate-or-Cancel orders, through one or more of
its Nasdaq Market Center MPIDs that represent more than 0.01% of
Consolidated Volume during the month.
\14\ Section 118(a)(3) of the Equity 7 Pricing Schedule
currently provides that the fee for execution and routing of orders
in securities listed on exchanges other than Nasdaq and NYSE (``Tape
B Securities'') is $0.0027 per share executed for a member with
shares of liquidity provided in the Opening and Closing Crosses,
excluding Market-on-Close, Limit-on-Close (other than an Limit-on-
Close Order entered between 3:50 p.m. ET and immediately prior to
3:55 p.m. ET), Market-on-Open, Limit-on-Open, Good-til-Cancelled,
and Immediate-or-Cancel orders, through one or more of its Nasdaq
Market Center MPIDs that represent more than 0.01% of Consolidated
Volume during the month.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\16\ in particular, in that it is designed 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 because the proposed changes will improve the stability and
price discovery process of the Closing Cross. Prohibiting cancellation
or modification of MOC, LOC or IO orders after 3:50 p.m. ET will
enhance stability in the Closing Cross process because it will reduce
the possibility of large indicative price movements due to participants
cancelling or modifying orders in reaction to the EOII, while
participants maintain the ability to cancel or modify orders to correct
a legitimate error in the order. In addition, permitting Late LOC
orders to be repriced at the more aggressive of the First Reference
Price or Second Reference Price may enhance price discovery and
stability of the Closing Cross because it will allow more price forming
orders to offset imbalances and to participate in the Closing Cross.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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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
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Rather, the Exchange believes
that the proposed rule changes are designed to render the Nasdaq
Closing Cross more transparent and more flexible to participants. The
proposed changes will affect all participants using MOC, LOC and IO
orders equally.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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-2019-064 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-2019-064. 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
[[Page 42967]]
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-2019-064, and should
be submitted on or before September 9, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17680 Filed 8-16-19; 8:45 am]
BILLING CODE 8011-01-P