[Federal Register Volume 84, Number 220 (Thursday, November 14, 2019)]
[Notices]
[Pages 61952-61954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24694]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87486; File No. SR-NASDAQ-2019-061]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to the Nasdaq Official Closing Price for Nasdaq-Listed 
Exchange-Traded Products

November 7, 2019.

I. Introduction

    On August 8, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``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 relating to how the Nasdaq Official Closing Price 
(``NOCP'') will be determined for a Nasdaq-listed security that is an 
exchange-traded product (``ETP''). The proposed rule change was 
published for comment in the Federal Register on August 23, 2019.\3\ On 
October 4, 2019, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which

[[Page 61953]]

to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ The Commission received one comment letter 
from the Exchange on the proposed rule change.\6\ On October 25, 2019, 
the Exchange filed Amendment No. 1 to the proposed rule change.\7\ 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. 86705 (August 19, 
2019), 84 FR 44343 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 87230, 84 FR 54714 
(October 10, 2019). The Commission designated November 21, 2019, as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ See letter from Phil Mackintosh, Chief Economist, Nasdaq, 
Inc., dated October 10, 2019, available at https://www.sec.gov/comments/sr-nasdaq-2019-061/srnasdaq2019061-6293523-193399.pdf 
(``Nasdaq Letter'').
    \7\ In Amendment No. 1, the Exchange provided additional 
justification for its proposed methodology for determining the NOCP 
for Nasdaq-listed ETPs and specified that it will implement the 
proposed rule change within 30 calendar days following Commission 
approval. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2019-061/srnasdaq2019061-6353201-195587.pdf.
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II. Description of the Proposed Rule Change

    Currently, for a Nasdaq-listed ETP that participates in the Nasdaq 
closing cross, the closing cross price will be the NOCP.\8\ For a 
Nasdaq-listed ETP that does not have a closing cross, the Nasdaq last 
sale price will be the NOCP.\9\ According to the Exchange, thinly-
traded ETPs are less likely to have a closing cross, which can result 
in a closing price that is based on a stale price that is no longer 
reflective of the value of the security.\10\ Specifically, if an ETP is 
thinly-traded, it is possible that the NOCP would be based on a Nasdaq 
last sale price that may not necessarily reflect the current value of 
the security.\11\ The Exchange now proposes to amend Nasdaq Rule 
4754(b)(4) to amend how it would determine the NOCP for a Nasdaq-listed 
ETP \12\ that does not have a closing cross.\13\
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    \8\ See Nasdaq Rule 4754(b)(4).
    \9\ See Notice, supra note 3, at 44344-45.
    \10\ See id. at 44344.
    \11\ See id.
    \12\ As used in proposed Nasdaq Rule 4754(b)(4), an ETP would 
mean a series of Portfolio Depository Receipts, Index Fund Shares, 
Managed Fund Shares, or Trust Issued Receipts (as defined in Nasdaq 
Rules 5705(a), 5705(b), 5735, and 5720, respectively); securities 
linked to the performance of indexes and commodities (including 
currencies) (as defined in Nasdaq Rule 5710); Index-Linked 
Exchangeable Notes, Equity Gold Shares, Trust Certificates, 
Commodity-Based Trust Shares, Currency Trust Shares, Commodity Index 
Trust Shares, Commodity Futures Trust Shares, Partnership Units, 
Trust Units, Managed Trust Securities, or Currency Warrants (as 
defined in Nasdaq Rule 5711(a)-(k)). The proposal would not apply to 
NextShares (as defined in Nasdaq Rule 5745) and corporate 
securities. See Notice, supra note 3, at 44344 n.4.
    \13\ The Exchange is not proposing to change the process for 
determining the price level at which the closing cross will occur. 
See id. at 44344 n.9. Nasdaq-listed ETPs that have closing crosses 
will continue to be priced using the current process for calculating 
the closing cross price. See id. at 44344.
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    Under proposed Nasdaq Rule 4754(b)(4)(A), the NOCP for a Nasdaq-
listed ETP that does not have a closing cross would be the time-
weighted average midpoint (``T-WAM'') of the national best bid and 
national best offer (``NBBO''), with certain parameters. Specifically, 
the T-WAM price would be a time-weighted average midpoint value 
calculation that uses eligible quotes during the time period of 3:58:00 
p.m. to 3:59:55 p.m., based on quotes observed every second.\14\ The T-
WAM calculation would only use eligible quotes, and an eligible quote 
would be defined as a quote whose spread is no greater than a value of 
10% of the midpoint price. Quoted spreads within the T-WAM time period 
that are greater than 10% of the midpoint price would be excluded from 
the T-WAM calculation. Crossed NBBO markets would also be excluded from 
the T-WAM calculation.
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    \14\ The Exchange states that it has considered using the last 
sale for an ETP that does not have a closing cross, but determined 
that even if the last sale occurs during the last two minutes 
leading into the closing cross, it is not necessarily reflective of 
the best price to use for the NOCP (e.g., a wide quote and a last 
sale that is based on either the bid or the offer would not be as 
accurate as the midpoint of the prevailing quotes at that time). See 
Amendment No. 1, supra note 7, at 3. According to the Exchange, 
using the proposed T-WAM methodology would eliminate a valuation 
based on a last sale transaction occurring against an excessively 
wide NBBO, and even when spreads are wide, the midpoint of the 
spread is usually close to the fair value of the underlying basket 
of the ETP. See id. The Exchange also states that this rationale is 
based, in part, on conversations with issuers, who are supportive of 
the proposal. See id.
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    As proposed, if there are no eligible quotes to use in the T-WAM 
calculation or if the ETP is halted, the Exchange would use the 
consolidated last sale price prior to 4:00:00 p.m. as the NOCP. For an 
ETP that is already listed on Nasdaq, if there are no eligible quotes 
to use in the T-WAM calculation and no consolidated last sale prices 
that day, the NOCP would be the previous day's NOCP. For an ETP that 
transferred its listing to Nasdaq, if there are no eligible quotes to 
use in the T-WAM calculation and no consolidated last sale prices that 
day, the NOCP would be the previous day's closing price as disseminated 
by the primary listing market that previously listed the ETP. For an 
ETP that is a new Nasdaq listing, if there are no eligible quotes to 
use in the T-WAM calculation and no consolidated last sale prices that 
day, the NOCP would not be disseminated.
    The Exchange proposes to implement the proposed rule change within 
30 calendar days following Commission approval and will announce the 
implementation date via Nasdaq Equity Trader Alert.\15\
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    \15\ See Notice, supra note 3, at 44345 and Amendment No. 1, 
supra note 7, at 4.
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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.\16\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\17\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating 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 not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers. The Commission also 
finds that the proposed rule change, as modified by Amendment No. 1, is 
consistent with Section 6(b)(8) of the Act,\18\ which requires that the 
rules of a national securities exchange not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \16\ 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).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(8).
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    As noted above, the proposal would amend how the Exchange would 
determine the NOCP for a Nasdaq-listed

[[Page 61954]]

ETP that does not have a closing cross. The Commission notes that the 
primary listing market's closing price for a security is relied upon by 
market participants for a variety of reasons, including, but not 
limited to, calculation of index values, calculation of the net asset 
value of mutual funds and exchange-traded products, the price of 
derivatives that are based on the security, and certain types of 
trading benchmarks such as volume weighted average price strategies. 
The Commission believes that the proposed methodology for determining 
the NOCP for a Nasdaq-listed ETP that does not have a closing cross 
could provide a NOCP that is more reflective of the current value of 
the ETP than a potentially stale last sale price, especially for a 
thinly-traded ETP.\19\ In particular, the Nasdaq last sale trade for an 
ETP that occurred earlier in a trading day or even from a prior trading 
day may no longer be reflective of the value of the ETP, which should 
be priced relative to the value of its components.\20\ The Commission 
therefore believes that the Exchange's proposal is reasonably designed 
to achieve the Act's objectives to protect investors and the public 
interest. Accordingly, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act.
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    \19\ See Notice, supra note 3, at 44344-45. Moreover, according 
to the Exchange, when there is no closing cross at 4:00:00 p.m., the 
Exchange's internal research has shown that using the T-WAM of the 
time period between 3:58:00 p.m. and 3:59:55 p.m. results in a price 
that reflects a fair current valuation and is reflective of the 
price that was calculated by the closing cross. See id. at 44344 
n.12 and 44345. See also Nasdaq Letter, supra note 6 (providing more 
details regarding the Exchange's internal research relating to this 
proposal).
    \20\ See Notice, supra note 3, 44345. According to the Exchange, 
the proposal would not apply to NextShares because its reference 
trading price is reset to 100 every day for quoting purposes and the 
actual net asset value does not correspond to this reference price, 
and therefore the midpoints are not applicable in determining a more 
accurate fair value of the basket. See id. at 44344 n.4. The 
proposal also would not apply to corporate securities because, 
unlike ETPs, they do not have a net asset value along with an 
arbitrage component that keeps the prices in line. See id.
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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-2019-061 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-2019-061. 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-2019-061, and should be submitted 
on or before December 5, 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 provided additional justification for its proposed methodology 
for determining the NOCP for Nasdaq-listed ETPs and specified that it 
will implement the proposed rule change within 30 calendar days 
following Commission approval. The Commission notes that Amendment No. 
1 does not materially alter the substance of the proposal and provides 
additional clarity and justification to the proposal. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\21\ to approve the proposed rule change, as modified by Amendment 
No. 1, on an accelerated basis.
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    \21\ 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,\22\ that the proposed rule change (SR-NASDAQ-2019-061), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \22\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24694 Filed 11-13-19; 8:45 am]
 BILLING CODE 8011-01-P