[Federal Register Volume 77, Number 137 (Tuesday, July 17, 2012)]
[Notices]
[Pages 42045-42048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17351]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67413; File No. SR-NASDAQ-2012-084]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Rule 4751(f)(7) Concerning the Processing of the Price To Comply Order
July 11, 2012.
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 2, 2012, 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, 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 modify how the processing of a Price to
Comply
[[Page 42046]]
Order under Rule 4751(f)(7) operates based on the method of entry.
The text of the proposed rule change is below. Proposed new
language is italicized; proposed deletions are in brackets.
* * * * *
4751. Definitions
The following definitions apply to the Rule 4600 and 4750 Series
for the trading of securities listed on Nasdaq or a national securities
exchange other than Nasdaq.
(a)-(e)
(f) The term ``Order Type'' shall mean the unique processing
prescribed for designated orders that are eligible for entry into the
System, and shall include:
(1)-(6) No change.
(7) ``Price to Comply Order'' are orders that, if, at the time of
entry, a Price to Comply Order would lock or cross the quotation of an
external market, the order will be priced to the current low offer (for
bids) or to the current best bid (for offers) and displayed at a price
one minimum price increment lower than the offer (for bids) or higher
than the bid (for offers). The displayed and undisplayed prices of a
Price to Comply order entered through an OUCH port that crosses the
market will [may] be adjusted once and, depending on the election of
the member firm, either rest on the book or [multiple times depending
upon the election of the member firm and changes to the prevailing
NBBO] be canceled if the previously-locking price becomes available.
The displayed and undisplayed prices of a Price to Comply order entered
through an OUCH port that locks the market will be adjusted once and,
depending on the election of the member firm, either rest on the book,
be canceled, or adjusted a second time if the previously-locking price
becomes available. The displayed and undisplayed prices of a Price to
Comply order entered through a RASH port may be adjusted multiple
times, depending upon changes to the prevailing NBBO.
(8)-(14) No change.
(g)-(i) No change.
* * * * *
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
NASDAQ is proposing to modify how OUCH port-entered Price to Comply
Orders \3\ will operate. Price to Comply Orders, as described in Rule
4751(f)(7), allow member firms to quote aggressively and still comply
with the locked and crossed markets provisions of Regulation NMS.\4\
NASDAQ recently amended Rule 4751(f)(7) to clarify the effect that the
methods of order entry have on the processing of Price to Comply
Orders.\5\ The rule change clarified that OUCH port-entered Price to
Comply Orders are now eligible for price adjustment either once or
multiple times, depending on the election of the member firm.\6\ The
Exchange noted in the rule change that offering OUCH port users the
ability to have NASDAQ reprice a Price to Comply Order multiple times
will serve to reduce the excessive volume of orders entered into the
System \7\ and ultimately canceled.\8\ Accordingly, a Price to Comply
Order entered through an OUCH port that a member firm has designated
for multiple price adjustment will be adjusted more than once in
response to changes in the prevailing National Best Bid and Offer
(``NBBO'') to move the displayed price closer to the original entered
price and display the best possible price consistent with the
provisions of Regulation NMS. Prior to the clarifying rule change, OUCH
port-entered Price to Comply Orders that would lock or cross the market
would be adjusted once and thereafter rest on the book. The Exchange
has not implemented the recently-adopted changes \9\ so that it could
subsequently modify how the OUCH port-entered Price to Comply Orders
will operate under Rule 4751(f)(7), as described below.
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\3\ ``Price to Comply Order'' is an order such that, if, at the
time of entry, it would lock or cross the quotation of an external
market, the order will be priced to the current low offer (for bids)
or to the current best bid (for offers) and displayed at a price one
minimum price increment lower than the offer (for bids) or higher
than the bid (for offers).
\4\ 17 CFR 242.610.
\5\ See Securities Exchange Act Release No. 67024 (May 18,
2012), 77 FR 31055 (May 24, 2012) (SR-NASDAQ-2012-060).
\6\ Member firms must designate each OUCH protocol order port
that it wishes to use with the multiple price adjustment
functionality, and such ports will also be designated for automatic
cancellation or ``kick out'' of other order types whose price was
adjusted upon entry to prevent a violation of Rule 610(d) of
Regulation NMS. In the absence of designation from a member firm,
the Exchange will default the member's OUCH port(s) to single price
adjustment.
\7\ As defined by Rule 4751(a).
\8\ The Exchange noted that the OUCH protocol is used by member
firms that are able to submit a large volume of orders. Such member
firm will often submit a Price to Comply Order at an aggressive
price that it anticipates will be at the NBBO, but it is not
submitted at the NBBO and is not executed after repricing because
the market does not move to the adjusted order price. In such cases,
the member firm will typically submit additional aggressive orders,
which likewise are not executed. Supra note 5.
\9\ Supra note 5.
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The Exchange has determined to modify Rule 4751(f)(7) so that a
Price to Comply Order entered via an OUCH port designated for multiple
price adjustment that would lock the market can be adjusted a maximum
of two times--once upon entry and once again to move the displayed
price to the original entered price when it becomes permissible under
Regulation NMS to do so, thereby displaying the best possible price
consistent with the provisions of Regulation NMS. Under the proposed
rule change, such Price to Comply Orders that would cross the market
upon entry would be price adjusted once upon entry to display at a
permissible level and thereafter cancelled when the previously locking
level becomes available. This cancellation allows the member to
resubmit its order at a price more aggressive than the previously
locking price should the member still desire to do so.\10\ As such, and
unlike as described in the recent rule change, the process applied to
OUCH ports designated for multiple price adjustment will be similar to,
yet different than, the process applied to RASH-entered Price to Comply
Orders.
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\10\ Similarly, orders other than Price to Comply Orders that
are re-priced on entry due to Regulation NMS and submitted via OUCH
ports designated for multiple price adjustment of Price to Comply
Orders will be cancelled when the previously locking price level
becomes available.
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NASDAQ is not changing how Price to Comply Orders entered via an
OUCH port not designated for multiple price adjustment operate. Such
orders will continue to be adjusted once and thereafter remain on the
book. Likewise, NASDAQ is not proposing to change how price adjusted
orders are treated in terms of priority. Like RASH-entered Price to
Comply Orders, each time the OUCH-entered order is price adjusted it
will receive a new timestamp for purposes of determining its price/
display/time priority.\11\ As such, an
[[Page 42047]]
OUCH-entered Price to Comply Order that is repriced upon entry will
initially be prioritized among non-displayed orders at the locking
price based on its time of entry. Upon the second repricing of an OUCH-
entered Price to Comply Order that is entered at a locking price, the
order will be prioritized among displayed orders at the previously
locking price based on its time of repricing and thus is treated as a
new displayed order in terms of priority. There is no guarantee that
the OUCH-entered Price to Comply Order will receive priority amongst
displayed orders when it becomes actionable after repricing, as other
displayed orders may be entered before the Price to Comply Order is
repriced. This priority treatment is identical to the treatment
provided to RASH-entered Price to Comply Orders that are price
adjusted. The Exchange will provide public notice five business days
prior to the implementation date of the changes proposed herein,
together with the changes proposed in the recent rule filing \12\ not
modified by this proposal, and such implementation date will be no
later than thirty calendar days from the date of filing this proposal
with the Commission.
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\11\ As described in Rule 4757(a)(1).
\12\ Supra note 5.
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2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\13\ in general, and with
Section 6(b)(5) of the Act \14\ in particular, in that the proposal is
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 regulating, clearing,
settling, processing information with respect to, and 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. NASDAQ
believes this proposal is consistent with the Exchange Act and,
specifically, Rules 610 and 611 of Regulation NMS in that it is
designed to prevent orders from locking and crossing the market or
trading through protected quotes, while also promoting a more efficient
market. In this regard, NASDAQ believes that the proposed rule change
will promote the efficient use of the Exchange by reducing the number
of orders entered into the market and ultimately canceled. The proposed
rule change will accomplish this by providing the member firms that
tend to enter the greatest number of such orders via OUCH ports an
option to have the Exchange reprice two times a single order that would
lock the market upon entry. NASDAQ also believes that permitting a high
volume user the option to continue to have the Exchange reprice its
Price to Comply Order only upon order entry, when appropriate, will
ensure member firms with internal systems that act in reliance of this
function will continue to operate without disruption.
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\13\ 15 U.S.C. 78f.
\14\ 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
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \15\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. The Exchange has
provided the Commission written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date of
filing of the proposed rule change.
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-2012-084 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2012-084. 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 Web site (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 Web site 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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-NASDAQ-2012-084 and should
be submitted on or August 7, 2012.
[[Page 42048]]
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17351 Filed 7-16-12; 8:45 am]
BILLING CODE 8011-01-P