[Federal Register Volume 84, Number 195 (Tuesday, October 8, 2019)]
[Notices]
[Pages 53783-53786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21883]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87198; File No. SR-NASDAQ-2019-064]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, 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
October 2, 2019.
I. Introduction
On July 31, 2019, The Nasdaq Stock Market LLC (``Exchange'' or
``Nasdaq'') 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 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 proposed rule
change was published for comment in the Federal Register on August 19,
2019.\3\ On September 6, 2019, the Exchange filed Amendment No. 1 to
the proposed rule change, which amended and superseded the proposed
rule change as originally filed.\4\ The Commission received no comment
letters on the proposed rule change. The Commission is publishing this
notice to solicit comments on Amendment No. 1 from interested persons,
and is approving the proposed rule change, as modified by Amendment No.
1, on an accelerated basis.
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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. 86642 (August 13,
2019), 84 FR 42964.
\4\ In Amendment No. 1, the Exchange revised the proposal to:
(1) Specify the time during which market-on-close orders can be
cancelled or modified; (2) remove proposed changes to the Nasdaq
Pricing Schedule in Equity 7, Section 118; (3) include additional
description, examples, and justification related to the proposed
rule change; and (4) make technical, clarifying, and conforming
changes. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2019-064/srnasdaq2019064-6088461-191827.pdf.
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II. Description of the Proposal
The Nasdaq Closing Cross is the Exchange's process for determining
the price at which orders would be executed at the close and for
executing those orders.\5\ Currently, the Exchange
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disseminates the Order Imbalance Indicator (``NOII'') for the Nasdaq
Closing Cross beginning at 3:55 p.m. ET or five minutes prior to the
early closing time on a day when the Exchange closes early.\6\ The NOII
is an electronically disseminated message containing information about
market-on-close (``MOC''),\7\ limit-on-close (``LOC''),\8\ and
imbalance only (``IO'') \9\ orders, as well as close eligible interest
\10\ and the price at which those orders would execute at the time of
the NOII dissemination.\11\ The Exchange recently also adopted rules
for the early order imbalance indicator (``EOII''), which the Exchange
will begin disseminating at 3:50 p.m. ET or ten minutes prior to the
early closing time on a day when the Exchange closes early \12\ and
will contain a subset of the information comprising the NOII.\13\ The
Exchange intends to implement the EOII in conjunction with the changes
in the current proposal.\14\
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\5\ See Rule 4754(a)(6).
\6\ See Rule 4754(b)(1)(B).
\7\ A MOC order is an order entered without a price that can be
executed only during the Nasdaq Closing Cross. See Rule 4702(b)(11).
\8\ A LOC order is an order entered with a price that can 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 4702(b)(12).
\9\ An IO order is an order entered with a price that can be
executed only in the Nasdaq Closing Cross and only against MOC
orders or LOC orders. See Rule 4702(b)(13).
\10\ Close eligible interest is any quotation or any order that
can 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).
\11\ See Rule 4754(a)(7).
\12\ See Rule 4754(b)(1)(A).
\13\ See Securities Exchange Act Release No. 85292 (March 12,
2019), 84 FR 9848 (March 18, 2019) (SR-NASDAQ-2019-010).
\14\ See Amendment No. 1, supra note 4, at 4.
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Currently, pursuant to Rule 4702(b)(11)(A), MOC orders can be
entered, cancelled, or modified between 4:00 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 or modified only if the
participant requests that the Exchange correct a legitimate error in
the order.\15\ MOC orders cannot be cancelled or modified at or after
3:58 p.m. ET for any reason. The Exchange proposes to amend this rule
to provide that MOC orders can be cancelled or modified between 4:00
a.m. ET and immediately prior to 3:50 p.m. ET and that, between 3:50
p.m. ET and immediately prior to 3:58 p.m. ET, a MOC order can be
cancelled or modified only if the participant requests that the
Exchange correct a legitimate error in the order.
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\15\ A legitimate error for a MOC, LOC, or IO order includes an
error in the side, size, symbol, or price, or the duplication of an
order, as set forth in the applicable rule for each order type. See
id. at 5 n.9. See also Rule 4702(b)(11)(A), (12)(A), and (13)(A).
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Currently, pursuant to Rule 4702(b)(13)(A), an IO order can be
entered between 4:00 a.m. ET until the time of execution of the Nasdaq
Closing Cross, but cannot 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 or modified if the participant
requests that the Exchange 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. The Exchange proposes to amend this rule to provide that IO
orders cannot be cancelled or modified at or after 3:50 p.m. ET, except
that, between 3:50 p.m. ET and immediately prior to 3:58 p.m. ET, an IO
order can be cancelled or modified if the participant requests that the
Exchange correct a legitimate error in the order.
Currently, pursuant to Rule 4702(b)(12)(A), LOC orders can be
entered, cancelled, or modified between 4:00 a.m. ET and immediately
prior to 3:55 p.m. ET. A LOC order can be entered between 3:55 p.m. ET
and immediately prior to 3:58 p.m. ET (``Late LOC order'') provided
that there is a First Reference Price.\16\ Between 3:55 p.m. ET and
immediately prior to 3:58 p.m. ET, LOC orders can be cancelled (but not
modified) only if the participant requests that the Exchange correct a
legitimate error in the order. Currently, a Late LOC order will be
accepted at its limit price, unless its limit price is higher (lower)
than the First Reference Price for a Late LOC order to buy (sell), in
which case the Late LOC order will be handled consistent with the
participant's instruction that the Late LOC order is to be either: (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.\17\
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\16\ ``First Reference Price'' is currently 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: (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 (i), the price that
minimizes any imbalance; (iii) if more than one price exists under
(ii), the entered price at which shares will remain unexecuted in
the cross; and (iv) if more than one price exists under (iii), 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).
\17\ The default configuration for participants that do not
specify otherwise is to have Late LOC orders re-priced rather than
rejected. See Rule 4702(b)(12)(A).
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The Exchange proposes to amend Rule 4702(b)(12)(A) to provide that
LOC orders can be cancelled or modified between 4:00 a.m. ET and
immediately prior to 3:50 p.m. ET. Between 3:50 p.m. ET and immediately
prior to 3:55 p.m. ET, a LOC order can be entered but can only be
cancelled or modified if the participant requests that the Exchange
correct a legitimate error in the order. Between 3:55 p.m. ET and
immediately prior to 3:58 p.m. ET, a LOC order can only be cancelled or
modified if the participant requests that the Exchange correct a
legitimate error in the order.
The Exchange also proposes to amend Rule 4702(b)(12)(A) to permit a
Late LOC order to be entered if there is either a First Reference Price
or a Second Reference Price. In connection with this proposed change,
the Exchange proposes to amend 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 ten minutes prior to the early closing
time on a day the Exchange closes early. The Exchange also proposes 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 the
Exchange closes early.
Moreover, the Exchange proposes to amend Rule 4702(b)(12)(A) to
provide that a Late LOC order to buy (sell) will be accepted at its
limit price, unless its limit price is higher (lower) than the higher
(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 Late LOC order is to be either: (1)
Rejected; or (2) re-priced to the higher (lower) of the First Reference
Price and the Second Reference Price.\18\ If the First Reference Price
for a security is zero, Late LOC orders to buy (sell) will be priced at
the lower (higher) of the Second Reference Price and the order's limit
price. If the
[[Page 53785]]
Second Reference Price for a security is zero, Late LOC orders to buy
(sell) will be priced at the lower (higher) of the First Reference
Price and the order's limit price. If both the First Reference Price
and Second Reference Price are zero, all Late LOC orders to buy or sell
will be rejected.\19\
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\18\ 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. See
proposed Rule 4702(b)(12)(A). As is currently the case, the default
configuration for participants that do not specify otherwise will be
to have Late LOC orders re-priced rather than rejected. See id.
\19\ See Amendment No. 1, supra note 4, for additional
description and examples of the proposed rule change.
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Finally, the Exchange proposes to replace the term ``Eligible
Interest'' with the defined term ``Close Eligible Interest'' in the
definition of ``Near Clearing Price'' in Rule 4754(a)(7)(E)(ii) to
correct an inadvertent error.\20\
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\20\ See id. at 10.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\21\ In particular, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\22\ 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 foster cooperation and coordination
with persons engaged in 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.
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\21\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\22\ 15 U.S.C. 78f(b)(5).
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As discussed above, the Exchange proposes to expand the time
periods during which MOC, LOC, and IO orders can be cancelled or
modified only if the participant requests that the Exchange correct a
legitimate error in the order (i.e., from between 3:55 p.m. ET and
immediately prior to 3:58 p.m. ET, to between 3:50 p.m. ET and
immediately prior to 3:58 p.m. ET). The Commission believes that the
proposal could reduce the possibility of large price movements in the
Nasdaq Closing Cross process that may result from modifications and
cancellations of MOC, LOC, and IO orders starting at 3:50 p.m. ET in
response to the EOII.\23\ The Commission also notes that the time
periods for entering MOC, LOC, and IO orders remain unchanged, and
participants may consider information in the EOII and NOII, as
applicable, in entering these orders.
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\23\ The proposal could also result in an increased number of
MOC, LOC, and IO orders that participate in the Nasdaq Closing Cross
because it restricts the cancellation and modification of these
orders by providing for a longer period of time during which these
orders can only be cancelled or modified if the participant requests
that the Exchange correct a legitimate error in the order.
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In addition, as discussed above, the Exchange proposes to permit
the entry of Late LOC orders provided that there is either a First
Reference Price or a Second Reference Price, and to permit a Late LOC
order to be priced at the more aggressive of the First Reference Price,
Second Reference Price, or its limit price. The Commission believes
that the proposal may encourage additional participation in the Nasdaq
Closing Cross by allowing participants to consider the information
disseminated in both the EOII and NOII in making decisions with respect
to the use of Late LOC orders. Moreover, the proposal may increase
participation in the Nasdaq Closing Cross because, under the proposal,
a Late LOC order with a limit price that is more aggressive than the
Second Reference Price would not be rejected or re-priced if its limit
price is less aggressive than the First Reference Price.\24\
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\24\ Currently, a Late LOC order with a limit price that is more
aggressive than the Second Reference Price (which is currently
defined as the ``First Reference Price'') is either rejected or re-
priced to the Second Reference Price.
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The Commission also believes the proposal to replace the term
``Eligible Interest'' with the defined term ``Close Eligible Interest''
in the definition of ``Near Clearing Price'' in Rule 4754(a)(7)(E)(ii)
is consistent with the Act because using a defined term would render
the rule text more precise and accurate.
IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 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 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 October 29, 2019.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. As discussed above, in Amendment No. 1, the
Exchange revised the proposal to: (1) Specify the time during which MOC
orders can be cancelled or modified; (2) remove proposed changes to the
Nasdaq Pricing Schedule in Equity 7, Section 118; (3) include
additional description, examples, and justification related to the
proposed rule change; and (4) make technical, clarifying, and
conforming changes. The Commission believes that Amendment No. 1 does
not raise any novel regulatory issues or make any significant
substantive changes to the
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original proposal, which was subject to a full notice and comment
period during which no comments were received. The Commission also
notes that Amendment No. 1 provides additional accuracy, clarity, and
justification to the proposal. Accordingly, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\25\ to approve the
proposed rule change, as modified by Amendment No. 1, on an accelerated
basis.
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\25\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\26\ that the proposed rule change (SR-NASDAQ-2019-064), as
modified by Amendment No. 1, be, and hereby is, approved on an
accelerated basis.
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\26\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21883 Filed 10-7-19; 8:45 am]
BILLING CODE 8011-01-P