[Federal Register Volume 90, Number 33 (Thursday, February 20, 2025)]
[Notices]
[Pages 10001-10007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-02818]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102413; File No. SR-NASDAQ-2025-011]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of a Proposed Rule Change To Introduce Functionality
To Initiate a Trading Halt for Exchange-Traded Products on Launch Day
February 13, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 31, 2025, The Nasdaq Stock Market LLC (the ``Exchange''
or ``Nasdaq'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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 Nasdaq's Equity 1, Equity
Definitions, and Equity 4, Equity Trading Rules, to introduce an
optional functionality for Exchange-Traded Products to initiate a
trading halt on the launch day of an Exchange-Traded Product, similar
to the halt used in initial public offerings (``IPOs'').
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings, 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 Exchange proposes to amend its Equity 1--Equity Definitions and
Equity 4--Equity Trading Rules to allow Exchange-Traded Products
(``ETPs'') \3\ to utilize an optional new halt on launch day
(hereinafter, the ``Initial ETP Open''), and resume trading using the
Nasdaq Halt Cross.\4\ As discussed in detail below, the proposed
Initial ETP Open is designed to operate similarly to Nasdaq's IPO
opening process for corporate securities with specified differences to
account for the unique characteristics of ETPs. With this proposal, an
ETP issuer launching the
[[Page 10002]]
ETP on the first day of trading would have the option to open the
security at the start of Pre-Market Hours \5\ at 4:00 a.m. Eastern Time
(``ET''), which is the case today, or delay the opening of the security
pursuant to the proposed Initial ETP Open process until Market
Hours.\6\
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\3\ As discussed later in this filing, the Exchange will add
``Exchange-Traded Products'' as a defined term in Equity 1, Section
1(a).
\4\ The ``Nasdaq Halt Cross'' is the process for determining the
price at which Eligible Interest shall be executed at the open of
trading for a halted security and for executing that Eligible
Interest. See Rule 4753(a)(4). ``Eligible Interest'' shall mean any
quotation or any order that has been entered into the system and
designated with a time-in-force that would allow the order to be in
force at the time of the Halt Cross. See Equity 4, Rule 4753(a)(5).
\5\ The term ``Pre-Market Hours'' means the period of time
beginning at 4:00 a.m. ET and ending immediately prior to the
commencement of Market Hours. See Equity 1, Section 1(a)(9).
\6\ The term ``Market Hours'' means the period of time beginning
at 9:30 a.m. ET and ending at 4:00 p.m. ET (or such earlier time as
may be designated by Nasdaq on a day when Nasdaq closes early). See
Equity 1, Section 1(a)(9).
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This functionality is intended to support efficient price discovery
by enabling ETP issuers to enter a halt on launch day, for a specified
time period, after which the ETP can be manually opened. This proposed
rule would enable ETP issuers to maximize the chances of more efficient
price discovery on launch day while also ensuring there are safeguards
for the opening price to protect investors against unexpected
volatility in the pricing of the ETP. As proposed, an ETP's initial
price would be determined based on market interest and, similar to
other auction processes, the matching of buy and sell orders in this
auction would be open to all market participants.
Background
Today, ETPs open for trading on Nasdaq at 4:00 a.m. ET at the start
of Pre-Market Hours where the ETP becomes available for buying and
selling during that time period. This is the case for an ETP's initial
day of trading as well as any other trading day for the ETP. While the
Exchange has not experienced issues with opening ETPs at 4:00 a.m. ET,
ETP issuers have indicated to the Exchange their desire for a more
high-touch launch day opening process for some ETPs, similar to the
Exchange's IPO opening process for corporate securities. Similar to the
existing IPO process for corporate securities, the proposed process for
ETPs would delay the opening of the security until Market Hours.
Today, securities of companies listing on Nasdaq in an IPO are
halted pursuant to Equity 4, Rule 4120(a)(7) until such time as the
conditions in 4120(c)(8) are satisfied, and the Exchange releases the
IPO security for trading pursuant to the Nasdaq Halt Cross in Rule
4753.\7\ Prior to the cross execution, market participants may enter
quotes and orders eligible for participation in the cross. Pursuant to
Rule 4120(c)(8), prior to terminating the IPO halt, the security enters
a Display Only Period during which indicative information about the
potential outcome of the Nasdaq Halt Cross is displayed to market
participants every second via the Order Imbalance Indicator,\8\ and
during which market participants may continue to enter orders and
quotes in that security in Nasdaq systems.\9\
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\7\ In general, Equity 4, Rule 4120(a) sets forth Nasdaq's
authority to initiate trading halts or pauses in the circumstances
specified thereunder. Equity 4, Rule 4120(c) then sets forth the
various procedures for initiating and terminating such trading
halts. Equity 4, Rule 4753 then sets forth procedures for the
resumption of trading following various trading halts enumerated in
Rule 4120(a). Specifically, Rule 4753(b) provides, in part, that for
Nasdaq-listed securities that are the subject of a trading halt
initiated pursuant to Rule 4120(a)(7) (i.e., the IPO halt), the
Nasdaq Halt Cross shall occur at the time specified by Nasdaq
pursuant to Rule 4120, and Market Hours trading would commence when
the Nasdaq Halt Cross concludes.
\8\ ``Order Imbalance Indicator'' means a message disseminated
by electronic means containing information about Eligible Interest
and the price at which such interest would execute at the time of
dissemination. The Order Imbalance Indicator shall disseminate the
following information: (A) Current Reference Price, (B) the number
of shares of Eligible Interest that are paired at the Current
Reference Price, (C) the size of any Imbalance or Market Order
Imbalance, as applicable, (D) the buy/sell direction of any
Imbalance or Market Order Imbalance, as applicable, and (E)
indicative prices at which the Nasdaq Halt Cross would occur if the
Nasdaq Halt Cross were to occur at that time. See Rule 4753(a)(3).
\9\ Equity 4, Rule 4753(b)(1) provides that at the beginning of
the Display Only Period and continuing through the resumption of
trading, Nasdaq would disseminate by electronic means an Order
Imbalance Indicator every second.
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Rule 4120(c)(8) further states that after the conclusion of the
Display Only Period, the IPO security enters a ``Pre-Launch Period'' of
indeterminate duration, during which indicative information continues
to be disseminated,\10\ and market participants are able to submit and
cancel orders as they are currently able to do so during the Display
Only Period. The Pre-Launch Period ends and the security is released
for trading by Nasdaq when the conditions described in paragraphs
(c)(8)(A)(i), (ii), and (iii) of Rule 4120 are all met:
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\10\ See Equity 4, Rule 4753(b)(1).
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Nasdaq receives notice from the underwriter of the IPO
that the security is ready to trade. The Nasdaq system then calculates
the Current Reference Price \11\ at that time (the ``Expected Price'')
and displays it to the underwriter. If the underwriter then approves
proceeding, the Nasdaq system will conduct two validation checks.
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\11\ ``Current Reference Price'' means: (i) The single price at
which the maximum number of shares of Eligible Interest 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. (iv) If more than
one price exists under subparagraph (iii), the Current Reference
Price shall mean: (a) In the case of an IPO, the price that is
closest to the Issuer's Initial Public Offering Price; (b) In the
case of the initial pricing of a security listing under Listing
Rules IM-5315-1, IM-5405-1, or IM-5505-1, for a security that has
had recent sustained trading in a Private Placement Market (as
defined in Rule 5005(a)(34)) prior to listing, the most recent
transaction price in that market or, if none, a price determined by
the Exchange in consultation with the financial advisor to the
issuer identified pursuant to Rule 4120(c)(9); (c) In the case of
the initial pricing of a security listing under Listing Rule IM-
5315-2, the price that is closest to the price that is 20% below
(calculated as provided for in Listing Rule IM-5315-2) the lowest
price of the price range disclosed by the issuer in its effective
registration statement; (d) In the case of another halt type in
which the security has already traded during normal market hours on
that trading day, the price that is closest to the last Nasdaq
execution prior to the trading halt; (e) In the case of another halt
type in which the security has not already traded during normal
market hours on that trading day, the price that is closest to the
previous Nasdaq Official Closing Price; and (f) In the case of the
initial pricing of a security that traded in the over-the-counter
market pursuant to FINRA Form 211 immediately prior to the initial
pricing, the price that is closest to the most recent transaction
price in that market. Notwithstanding the foregoing, the Order
Imbalance Indicator will not include the Current Reference Price if
there is a Market Order Imbalance. See Rule 4753(a)(3)(A).
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First, the Nasdaq system must determine that all market
orders will be executed in the Nasdaq Halt Cross; and
Second, the security must pass the price validation test
described in subparagraph (C) of Rule 4120(c)(8), which essentially
provides that if the actual price calculated by the Nasdaq Halt Cross
differs from the Expected Price by an amount in excess of a price band
previously selected by the underwriter, the security will not be
released for trading and the Pre-Launch period will continue.
As provided in Rule 4120(c)(8)(A), the failure to satisfy these
conditions during the process to release the security for trading would
result in a delay of the release for trading of the IPO security, and a
continuation of the Pre-Launch Period, until all conditions have been
satisfied. Market participants may continue to enter orders and order
cancellations for participation in the IPO Halt Cross during the Pre-
Launch Period up to the point that the IPO Halt Cross auction process
commences pursuant to Equity 4, Rule 4753(b).
The Exchange believes that the IPO opening process described above
has worked well in the context of Nasdaq-listed corporate securities to
provide fair executions for investors through an open and transparent
process that protects against unexpected volatility in the pricing of
an IPO security. Accordingly, the Exchange proposes to adopt a similar
process for Nasdaq-listed ETPs. Unlike the IPO opening
[[Page 10003]]
process, the Initial ETP Open will involve a Designated Liquidity
Provider (``DLP'') \12\ (i.e., the Nasdaq market maker for the ETP)
instead of an underwriter, such that Nasdaq would display the Expected
Price of the Nasdaq Halt Cross for the ETP to the DLP, who will select
price bands to ensure that the actual calculated price at which the
Nasdaq Halt Cross would occur does not deviate from the Expected Price
by more than the selected price band amounts. Additionally, the
Exchange is proposing to submit the ETP for validation checks at 9:45
a.m. ET at the latest without exception, whereas under the existing IPO
process, the Exchange does not submit the IPO security for validation
checks until the underwriter approves proceeding.
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\12\ Equity 7, Section 11(f)(2) provides that a ``Designated
Liquidity Provider'' or ``DLP'' is a registered Nasdaq market maker
for a Qualified Security (i.e., an ETP) that has committed to
maintain minimum performance standards. A DLP shall be selected by
Nasdaq based on factors including, but not limited to, experience
with making markets in exchange-traded products, adequacy of
capital, willingness to promote Nasdaq as a marketplace, issuer
preference, operational capacity, support personnel, and history of
adherence to Nasdaq rules and securities laws. Nasdaq may limit the
number of DLPs in a security, or modify a previously established
limit, upon prior written notice to members.
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Proposal
The Exchange proposes to amend (1) Equity 1, Section 1(a) to add a
new definition for ``Exchange-Traded Products,'' (2) Equity 4, Rule
4120(a) to provide the Exchange with explicit authority to declare a
trading halt in a Nasdaq-listed ETP on its first day of trading,
provided specified conditions are met, (3) Equity 4, Rule 4120(c) to
add the process by which the Exchange will initiate and terminate the
proposed trading halt for Nasdaq-listed ETPs, (4) Equity 4, Rule
4753(b) to include the proposed trading halt in the list of enumerated
provisions that would be subject to the Nasdaq Halt Cross, and (5)
Equity 7, Section 115(i) to specify that an ETP issuer may subscribe to
the IPO Workstation at no cost.
The Exchange first proposes to add a new definition for ``Exchange-
Traded Products'' in Equity 1, Section 1(a). Specifically, the Exchange
proposes to add in new paragraph (15) that the term ``Exchange-Traded
Product'' means a security listed on Nasdaq pursuant to Nasdaq Rules
5704, 5705, 5710, 5711, 5713, 5715, 5720, 5735, 5745, 5750 or 5760. The
proposed definition aligns to the definition of ``Qualified
Securities'' set forth in the Exchange's Designated Liquidity Provider
program in Equity 7, Section 114(f).\13\
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\13\ As set forth in Equity 7, Section 114(f)(1), a security may
be designated as a ``Qualified Security'' if: (A) it is an exchange-
traded product listed on Nasdaq pursuant to Nasdaq Rules 5704, 5705,
5710, 5711, 5713, 5715, 5720, 5735, 5745, 5750 or 5760; and (B) it
has at least one Designated Liquidity Provider.
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In proposed Equity 4, Rule 4120(a)(15), the Exchange proposes to
explicitly provide that the Exchange has authority to halt trading in a
Nasdaq-listed ETP on its first day of trading, provided specified
conditions are met. Specifically, proposed Rule 4120(a)(15) will
provide that Nasdaq may halt trading in an ETP for which Nasdaq is the
primary listing market on the first day of trading, provided that (i)
the issuer of the ETP being listed opts into this process, and (ii) a
broker-dealer serving in the role of DLP to the issuer of the ETP being
listed is willing to perform the functions under this Rule. The
proposed Initial ETP Open will be offered on an optional basis such
that an ETP issuer would have the option on the ETP's initial launch
day of opening the ETP at 4:00 a.m. ET (i.e., the current process), or
delaying the opening until Market Hours with the new Initial ETP Open
process. The Exchange notes that certain ETP issuers may want to open
at 4:00 a.m. ET on launch day instead of delaying the opening until
Market Hours as proposed hereunder because of the availability for
earlier buying and selling in the ETP. Other ETP issuers may seek to
use the Initial ETP Open to delay the opening of the ETP until Market
Hours because of increased trading activity in the ETP and its
underlying component securities, making pricing in the ETP potentially
less volatile. The Exchange believes that ETP issuers, with their
understanding of the ETP, are best situated to make the decision
whether to open during pre-market or regular market hours, and
therefore proposes to give them the option to choose one process over
the other. The Exchange further believes that the DLP, with their
market knowledge of the book and an understanding of the ETP, would be
well placed to provide advice on when the ETP should be released for
trading.
The Exchange proposes in new paragraph (c)(11) to Equity 4, Rule
4120 to add the process by which the Exchange will initiate and
terminate the trading halt that is being proposed under Rule
4120(a)(15), as described above. Specifically, Nasdaq proposes under
Equity 4, Rule 4120(c)(11)(A) that the process for halting and initial
pricing of a Nasdaq-listed ETP that is the subject of an Initial ETP
Open pursuant to Rule 4120(a)(15) and this Rule, respectively, will be
available on an optional basis, provided that the conditions in Rule
4120(a)(15)(i) and (ii) above are met.\14\ Proposed Rule 4120(c)(11)(A)
will also provide that the DLP is reminded that any activities
performed under this Rule are to be conducted in a manner that is
consistent with the federal securities laws, including Regulation M and
other anti-manipulation requirements.
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\14\ As discussed above, the conditions in proposed Rule
4120(a)(15)(i) and (ii) provide that Nasdaq may halt trading in an
ETP for which Nasdaq is the primary listing market on the first day
of trading, provided that (i) the issuer of the ETP being listed
opts into this process, and (ii) a broker-dealer serving in the role
of DLP to the issuer of the ETP being listed is willing to perform
the functions under this Rule.
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Proposed Rule 4120(c)(11)(B) will set forth the process and
conditions for terminating a trading halt initiated under proposed Rule
4120(a)(15), which will be similar to the existing IPO opening process
in Rule 4120(c)(8) in the manner discussed below. Similar to the
current IPO opening process, the ETP would enter a 10-minute Display
Only Period prior to the termination of the halt, during which (and up
until the resumption of trading) indicative information about the
potential outcome of the Nasdaq Halt Cross that will be conducted for
the ETP will be displayed to market participants every second through
an Order Imbalance Indicator,\15\ and during which market participants
may continue to enter orders, quotes, and cancellations in that ETP in
Nasdaq systems.
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\15\ See supra note 8.
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Specifically, proposed Rule 4120(c)(11)(B) will provide that a
trading halt initiated under Rule 4120(a)(15) shall be terminated when
Nasdaq releases the security for trading and the conditions described
in sub-paragraphs (B)(i)-(iii) are satisfied.\16\ Prior to terminating
the halt, there will be a 10-minute Display Only Period during which
market participants may enter quotes and orders in that security in
Nasdaq systems. Before the Display Only Period begins and once the
security is set up in the Nasdaq system during Pre-Market Hours, market
participants may enter orders in a security that is the subject of an
Initial ETP Open on Nasdaq.\17\ Such orders
[[Page 10004]]
will be accepted and entered into the system.
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\16\ As discussed later in this filing, proposed sub-paragraphs
(B)(i)-(iii) will set forth the conditions for when the Pre-Launch
period will end and when the ETP will be released for trading.
\17\ Nasdaq will begin accepting orders in ETP securities when
Nasdaq staff manually starts up the order window during Pre-Market
Hours and before the Display Only Period.
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Proposed Rule 4120(c)(11)(B) will also provide that after the
conclusion of the 10-minute Display Only Period, the security will
enter a ``Pre-Launch Period.'' Similar to the IPO opening process
discussed above, the Exchange would continue to disseminate throughout
the Pre-Launch Period (and up until the resumption of trading) an Order
Imbalance Indicator every second.\18\ Market participants would also be
able to submit and cancel interest during the Pre-Launch Period for the
Initial ETP Open as they do today during the Pre-Launch Period for an
IPO opening process. Proposed Rule 4120(c)(11)(B) will further provide
that the Pre-Launch Period shall end and the security shall be released
for trading by Nasdaq when the following conditions in proposed sub-
paragraphs (B)(i)-(iii) are all met:
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\18\ See supra note 8.
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The ETP will be submitted for the validation checks
pursuant to subparagraphs (B)(ii) and (iii) below by 9:45 a.m. ET at
the latest. Prior to 9:45 a.m. ET, if Nasdaq receives notice from the
DLP of the Initial ETP Open that the ETP is ready to trade,\19\ the
Nasdaq system will calculate the Current Reference Price (as defined in
Rule 4753(a)(3)(A)) at that time (the ``Expected Price'') and display
it to the DLP.\20\ If the DLP then approves proceeding, the Nasdaq
system will conduct the validation checks in subparagraphs (B)(ii) and
(iii) below before releasing the ETP for trading pursuant to the Nasdaq
Halt Cross.\21\ If no notice is received by 9:40 a.m. ET, the Nasdaq
system will calculate the Expected Price, and then conduct the
validation checks in subparagraphs (B)(ii) and (iii) below before
releasing the ETP for trading pursuant to the Nasdaq Halt Cross.\22\ As
discussed above, by 9:45 a.m. at the latest, the Nasdaq system will
conduct the following validation checks:
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\19\ The Exchange notes that if the DLP instead notified Nasdaq
that the ETP was not ready to trade, the Exchange would wait until
9:45 a.m. ET at the latest for the DLP to confirm that the ETP was
ready, and once confirmation is received within that time frame, the
Exchange would conduct the validation checks and open the ETP for
trading pursuant to the Nasdaq Halt Cross once the validation checks
were passed.
\20\ See supra note 11. The Exchange will display the Expected
Price (i.e., the Current Reference Price as defined in the Nasdaq
Halt Cross rule in Rule 4753(a)(3)(A)) to the DLP and all market
participants via the Order Imbalance Indicator.
\21\ Upon passing the validation checks, the Pre-Launch Period
will end and Nasdaq will open the ETP for trading pursuant to the
Nasdaq Halt Cross in Rule 4753. If the ETP does not pass the
validation checks, the Pre-Launch Period will continue and Nasdaq
will recommence another round of validation checks. This is an
iterative process. The ETP will not open for trading until it passes
the validation checks. Further, if the DLP does not approve
proceeding, then the Nasdaq system will recalculate the Expected
Price and display it to the DLP (and all other market participants)
via Order Imbalance Indicator until the DLP approves proceeding to
the Nasdaq system conducting the two validation checks in
subparagraphs (B)(ii) and (B)(iii). Notwithstanding the foregoing,
the ETP will be submitted for the validation checks by 9:45 a.m. ET
at the latest. See Rule 4120(c)(8)(i) for similar provisions with
respect to the underwriter and the IPO opening process, except the
Exchange is proposing to submit the ETP for validation checks by
9:45 a.m. ET at the latest and is also proposing to add a scenario
where Nasdaq receives no notice by 9:40 a.m. ET.
\22\ In this instance, the Exchange will conduct the validation
checks in proposed subparagraphs (B)(ii) and (B)(iii) of Rule
4120(c)(11) at 9:40 a.m. ET, and then open the ETP for trading
pursuant to the Nasdaq Halt Cross upon passing the validation
checks.
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First, the Nasdaq system must determine that all market
orders will be executed in the Nasdaq Halt Cross; and \23\
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\23\ The intent of this restriction is to ensure that if a
market participant enters an order offering to buy or sell in the
Nasdaq Halt Cross at any price, the cross should not occur unless
all such orders can be executed. The Exchange notes that the IPO
opening process has an identical restriction for the same reasons.
See Rule 4120(c)(8)(A)(ii).
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Second, the security must pass the price validation test
described below in proposed subparagraph (C) of Rule 4120(c)(11).\24\
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\24\ See Rule 4120(c)(8)(A)(iii) for identical provisions.
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Proposed subparagraph (C) of Rule 4120(c)(11) will provide that
prior to the conclusion of the Pre-Launch Period, the DLP may select
price bands for purposes of applying the price validation test.\25\
Under the price validation test, the System compares the Expected Price
with the actual price calculated by the Nasdaq Halt Cross. If the
actual price calculated by the Nasdaq Halt Cross differs from the
Expected Price by an amount in excess of the price band, the security
will not be released for trading and the Pre-Launch Period will
continue. The DLP may select an upper price band (i.e., an amount by
which the actual price may not exceed the Expected Price) and a lower
price band (i.e., an amount by which the actual price may not be lower
than the Expected Price). If a security does not pass the price
validation test, the DLP may, but is not required to, select different
price bands before recommencing the process to release the security for
trading.
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\25\ The DLP can select the price bands at any time before or
during the Display Only Period or Pre-Launch Period, and can modify
them at any time prior to the conclusion of the Pre-Launch Period.
As discussed later in this filing, DLPs may choose price bands
within the range of $0.00 to $0.50. If the DLP does not select any
price bands, the default bands will be set at $0.00.
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For example, assume that the Expected Price for the Nasdaq Halt
Cross shown to the DLP was $32 per share, and the DLP selected an upper
price band of $0.10 and a lower price band of $0.05. In that case, the
actual price calculated by the system for the cross could not be higher
than $32.10 nor lower than $31.95.
The price bands available for selection shall be in such
increments, and at such price points, as may be established from time
to time by Nasdaq; the available price bands shall include $0 but shall
not be in excess of $0.50. The initial available price bands will range
from $0 to $0.50, with increments of $0.01. Thus, the DLP may select a
price band of $0 (i.e., no change from the Expected Price would be
permitted in this instance), $0.01, $0.02, or any other $0.01 increment
up to $0.50. The DLP may select different price bands above and below
the Expected Price. The Exchange reserves the right to stipulate wider
increments (such as $0.05) or price bands that include certain price
points but exclude others (for example, increments of $0.01 up to
$0.10, and increments of $0.05 thereafter). However, the Exchange will
not (in the absence of the submission of a proposed rule change) allow
price bands wider than $0.50, as proposed in Rule 4120(c)(11)(C).
Nasdaq will notify member organizations and the public of changes in
available price band or increments through a notice that is widely
disseminated at least one week in advance of the change. In selecting
available price bands and increments, Nasdaq will consider input from
DLPs and other market participants and the results of past usage of
price bands to adopt price bands and increments that promote efficiency
in the initiation of trading and protect investors and the public
interest.\26\
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\26\ See proposed Rule 4120(c)(11)(C), which is similar to Rule
4120(c)(8)(B). The Exchange is proposing to add language about
reserving the right to use wider bands, which is also true for the
IPO process today even though the current IPO rule is silent in this
regard.
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Similar to the IPO opening process, the failure to satisfy the
conditions in proposed Rule 4120(c)(11)(B)(i)-(iii) during the process
to release the security for trading will result in a delay of the
release for trading of the Initial ETP Open, and a continuation of the
Pre-Launch Period, until all conditions have been satisfied.\27\ Thus,
if the conditions have not been satisfied, the Pre-Launch Period would
continue
[[Page 10005]]
seamlessly, with members able to continue to enter or cancel orders.
The ETP would then repeat the process for release until such time the
conditions required for launch (i.e., proposed Rule 4120(c)(11)(B)(i)-
(iii)) were satisfied). Thus, the DLP would be shown the applicable
Expected Price, and the ETP would launch if all market orders would be
executed and the price validation in proposed Rule 4120(c)(11)(C) was
satisfied. This process can continue until 9:45 a.m. ET, at which point
the ETP would open pursuant to the Nasdaq Halt Cross upon passing the
validation checks. The Exchange believes that opening the ETP at 9:45
a.m. ET with no exceptions is appropriate because by that time, the DLP
would be expected to step in and respond to any excess demand, and any
excess volatility in the ETP would be protected against through the
proposed validation checks. In addition, unlike an IPO where only the
underwriter may provide markets in the corporate security on the first
day of trading, other liquidity providers in addition to the DLP may
step in and begin providing markets in an ETP on its first day of
trading, which could further promote price stability in the ETP.
Similar to the IPO opening process, a DLP would be able (but not
required) to select different price bands for each attempt to launch
the ETP. Thus, a DLP might select an upper and a lower band of $0
initially, such that the security would not launch unless the
calculated price equaled the Expected Price. If the security did not
pass the validation check, however, the DLP could subsequently choose
to widen the price bands to allow the Initial ETP Open to proceed at a
price that might vary from the Expected Price. Such price deviations
are possible because market participants may continue to enter and
cancel orders during the period between the display of the Expected
Price to the DLP and the commencement of Nasdaq Halt Cross. Nasdaq may
determine at any point during the cross auction process up through the
conclusion of the Pre-Launch Period to postpone and reschedule the
Initial ETP Open.\28\ Market participants may continue to enter orders
and order cancellations for participation in the cross auction during
the Pre-Launch Period up to the point that the cross auction process
commences.\29\
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\27\ See proposed Rule 4120(c)(11)(B), which is similar to Rule
4120(c)(8)(A).
\28\ See proposed Rule 4120(c)(11)(B), which is similar to Rule
4120(c)(8)(A), except the Exchange is not adopting language that
provides that it would consult with the underwriter to postpone and
reschedule the IPO. This language is designed to allow IPOs to be
postponed and rescheduled because the underwriter, for example, did
not think the corporate security was ready to trade, or Nasdaq had
to postpone and reschedule the IPO due to a market event or system
disruption. As discussed above, the Exchange is proposing to open
the ETP at 9:45 a.m. ET at the latest, even if the DLP does not
indicate that the ETP is ready to trade. However, the Exchange would
like to retain the ability to postpone and reschedule the proposed
Initial ETP Launch in the event of a serious market event or system
disruption.
\29\ See proposed Rule 4120(c)(11)(B), which is similar to Rule
4120(c)(8)(A).
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The Exchange notes that the DLP's involvement in timing the
commencement of trading in the ETP is consistent with the underwriter's
involvement in the existing IPO opening process. Similar to the
underwriter in an IPO, the Exchange believes that the DLP, with their
market knowledge of the book and an understanding of the security,
would be well placed to provide advice on when the ETP should be
released for trading. Accordingly, the Exchange believes it is in the
best interest of the market to give DLPs input into the timing of when
to proceed with opening the ETP via the Nasdaq Halt Cross to help
ensure the fair and orderly launch of trading in the ETP. The proposed
language allowing the DLP to postpone and reschedule the Initial ETP
Open with the concurrence of Nasdaq is designed to allow flexibility if
unforeseen market or system events make it inadvisable to proceed with
the Initial ETP Open.
The Exchange is also proposing to update Rule 4753(b) to include
proposed Rule 4120(a)(15) in the list of enumerated provisions that
would be subject to the Nasdaq Halt Cross. As such, any ETP that is
subject to the Initial ETP Open will be opened using the Nasdaq Halt
Cross for trading during Market Hours.
Lastly, the Exchange proposes to amend Equity 7, Section 115, which
sets forth pricing for various Nasdaq services such as the Nasdaq IPO
Workstation. Today, the Nasdaq IPO Workstation provides subscribing
member firms with access to the IPO Indicator service, which provides
information on orders that would be received in an IPO during the
launch process. This tool assists subscribing member firms in
monitoring their orders in the Nasdaq Halt Cross leading up to the
launch of an IPO.\30\ The IPO Indicator provides the same information
in the Order Imbalance Indicator \31\ together with information about
the subscribing member firms on Nasdaq in the IPO security. The IPO
Indicator allows the subscriber to select an IPO security by ticker and
see the Current Reference Price, the number of paired shares, and the
number of imbalance shares during the Display Only and Pre-Launch
Periods. The subscriber can also see the total number of IPO shares the
member firm has entered for execution in the IPO Halt Cross, the nature
of such shares (buy or sell), and the number of IPO shares that would
be executed in the Nasdaq Halt Cross at that time for each of those
categories. A subscriber can also access further detail on its IPO
shares presented by individual order or order block, which will include
the number of IPO shares in a particular order or order block, the
number and percentage of IPO shares of the order or order block that
would be executed in the Nasdaq Halt Cross if it occurred at any given
time in the process, based on the Order Imbalance Indicator
disseminated every second, and the price at which the order or order
block was submitted. As such, the IPO Indicator provides member firms
with information consistent with what Nasdaq currently disseminates
during the IPO opening process, but as it relates to the member firm's
orders and in greater detail.
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\30\ See Securities Exchange Act Release No. 74041 (January 13,
2015), 80 FR 2762 (January 20, 2015) (SR-NASDAQ-2014-110) (Order
Approving a Proposed Rule Change to Offer the New IPO Workstation).
\31\ See supra note 8.
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The Exchange now proposes to offer this tool to subscribing member
DLPs and non-member ETP issuers so that they may receive similar
information described above for the ETP securities subject to the
Initial ETP Open.\32\ Today, member firms may subscribe to the Nasdaq
IPO workstation at no cost.\33\ DLPs are member firms, so they would
also be able to subscribe to the Nasdaq IPO workstation at no cost to
access the IPO Indicator under this proposal. The Exchange proposes in
new paragraph (k) to Equity 7, Section 115 that an ETP issuer may
likewise subscribe to the IPO Workstation at no cost so that they may
receive similar information on orders in the proposed Initial ETP Open.
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\32\ The DLP and ETP issuer would receive the information
described above for the IPO Indicator on a consolidated basis and
not on an individual member firm's order basis.
\33\ See Equity 7, Section 115(i).
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Implementation
To implement this proposal, Nasdaq will release an Equity Trader
Alert no later than the second quarter of 2025 announcing the
implementation date.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\34\ in general, and furthers the
[[Page 10006]]
objectives of Section 6(b)(5) of the Act,\35\ 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. The proposed rule change aims to
protect investors and the public interest by strengthening safeguards
against unexpected volatility in the pricing of ETPs on their launch
day.
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\34\ 15 U.S.C. 78f(b).
\35\ 15 U.S.C. 78f(b)(5).
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The proposed rule change achieves these goals by offering an
optional new issuer halt that enhances the price discovery process for
ETPs on their initial day of trading. This function is similar to the
IPO opening process in Rules 4120(a)(7), 4120(c)(8), and 4753, which
has proven effective in managing price discovery for newly listed
securities. While the IPO opening process currently provides protection
by ensuring the final price does not deviate from recent indicative
prices beyond set price band thresholds (such a $0.50 change), similar
safeguards are required to ensure stability and investor confidence in
ETP pricing upon launch.
The Exchange believes that its proposal to offer optional
functionality to permit ETP issuers the ability to open on launch day
by entering into a new issuer halt would maximize the chances of more
efficient price discovery and remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, protect investors because the initial sale price would be
based on market interest and the matching of buy and sell orders in an
auction would be open to all market participants. Today, the ETP would
simply open for trading at 4:00 a.m. ET during Pre-Market Hours at an
initial price that is based on the ETP's Net Asset Value, as provided
by the ETP issuer to Nasdaq. Accordingly, the Exchange believes that
the proposed process would provide safeguards for the opening price of
the ETP that is based on additional market information thereby
protecting investors and the public interest.
Although the Exchange is providing ETP issuers the discretion to
elect either the current process or the new proposed process, the
Exchange believes that each price discovery process is designed to
arrive at an opening price that represents the price for the underlying
ETP. In particular, Nasdaq believes that the change will facilitate the
commencement of orderly trading in ETPs on their first day of trading,
by providing the DLP with flexibility throughout the initial launch
process to allow order entry and the development of price stability
prior to opening. The Exchange also believes that it is reasonable and
appropriate to use the Nasdaq Halt Cross process under Rule 4753 to
open trading in the ETP (upon passing the validation checks) because it
is consistent with the process that is used by Nasdaq when opening an
IPO security. It will ensure that the process for resuming trading
following the Initial ETP Launch is consistent with other types of
halts initiated by Nasdaq, including the IPO halt.
The Exchange also believes that it is reasonable, equitable and not
unfairly discriminatory to offer the IPO Workstation to all subscribing
DLP member firms and non-member ETP issuers at no cost because they
will be provided with more information regarding orders submitted for
participation in the Initial ETP Open, similar to the IPO process as
discussed above. Both the DLP and ETP issuer would be able to subscribe
for this tool for the Initial ETP Open at no cost, just as all
subscribing member firms do today for IPOs.
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. Specifically, the change will
not affect the ability of market participants to participate fully in
an ETPs launch day because it is an optional functionality that permits
ETPs to enter into a new issuer halt on its launch day, for a specified
time period, and then manually open. Rather, the change is designed to
promote stability and reduce volatility in the pricing of the ETP on
its launch day, and therefore does not impose any restriction on
competition. In particular, the Exchange believes that the optional
initial launch process will enhance the competitiveness of its process
for initial pricing of ETPs without imposing any burdens on the ability
of DLP or other market participants to participate in that process.
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 Exchange consents, the Commission will:
A. by order approve or disapprove such 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NASDAQ-2025-011 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-2025-011. 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 (https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and
[[Page 10007]]
copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR-NASDAQ-2025-011 and should be submitted
on or before March 13, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02818 Filed 2-19-25; 8:45 am]
BILLING CODE 8011-01-P