[Federal Register Volume 78, Number 23 (Monday, February 4, 2013)]
[Notices]
[Pages 7831-7833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02303]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68762; File No. SR-NASDAQ-2013-012]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend NASDAQ Rule 4756 and Rule 4763 Regarding Modification of
Previously Entered Orders
January 29, 2013.
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 January 18, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASDAQ proposes to amend NASDAQ Rule 4756 (Entry and Display of
Quotes and Orders) and Rule 4763 (Short Sale Price Test Pursuant to
Rule 201 of Regulation SHO) to stipulate how Participants in the NASDAQ
Market Center System may modify previously entered orders and to
describe how modified orders are processed. NASDAQ proposes to
implement the proposed rule change 30 days after the date of the filing
or shortly thereafter.
The text of the proposed rule change is below. Proposed new
language is italicized; deletions are bracketed.
4756. Entry and Display of Quotes and Orders
(a) Entry of Orders--Participants can enter orders into the System,
subject to the following requirements and conditions:
(1)-(2) No change.
(3) Orders can be entered into the System (or previously entered
orders cancelled or modified) from 7:00 a.m. until 8:00 p.m. Eastern
Time. Participants may modify a previously entered order without
cancelling it or affecting the priority of the order on the book solely
for the purpose of modifying the marking of a sell order as long,
short, or short exempt; provided, however, that if an order is
redesignated as short, a Short Sale Period is in effect under Rule
4763, and the order is not priced at a Permitted Price or higher under
Rule 4763(e), the order will be cancelled. In addition, a partial
cancellation of an order to reduce its share size will not affect the
priority of the order on the book. Except as provided in Rule 4761, all
other modifications of orders will result in the replacement of the
original order with a new order with a new time stamp.
(b)-(c) No change.
* * * * *
4763. Short Sale Price Test Pursuant to Rule 201 of Regulation SHO
(a)-(d) No change.
(e) Re-pricing of Orders during Short Sale Period. Except as
provided below, [D]during the Short Sale Period, short sale orders that
are limited to the national best bid or lower and short sale market
orders will be re-priced by the System one minimum allowable price
increment above the current national best bid (``Permitted Price''). To
reflect declines in the national best bid, the Exchange will continue
to re-price a short sale order at the lowest Permitted Price down to
the order's original limit price, or if a market order, until the order
is filled. Non-displayed orders between the NASDAQ bid and offer at the
time of receipt will also be re-priced upward to a Permitted Price to
correspond with a rise in the national best bid.
(1)-(2) No change.
(3) During the Short Sale Period, if an order was entered as a long
sale order or a short sale exempt order but is subsequently marked
pursuant to NASDAQ Rule 4756(a)(3) as a short sale order, the System
will cancel the order unless it is priced at a Permitted Price or
higher.
(f)-(g) 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
[[Page 7832]]
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 purpose of the proposed rule change is to stipulate how
Participants in the NASDAQ Market Center System may modify previously
entered orders and to describe how modified orders are processed.
Currently, Rule 4756 permits previously entered orders to be cancelled,
a fact that has been interpreted by NASDAQ to allow a Participant to
cancel an order in full or in part. However, new language is being
added to the rule to make it clear that a partial cancellation of an
order (i.e., a reduction in the share size of the order) does not cause
the order to lose priority on the NASDAQ Market Center book. NASDAQ
believes that it is reasonable to allow the partial cancellation of an
order without the order losing priority because the Participant that
entered the order continues to express its willingness to trade at the
price entered when the order first came onto the book. Moreover, if the
order is displayed, other Participants quoting at the same price are
aware of the priority of their orders relative to the partially
cancelled order. While a partial cancellation may provide these other
Participants with greater opportunities to provide a fill, NASDAQ does
not believe that it would be reasonable for the Participants to jump
ahead of an order with time priority merely because the size of the
order has been reduced. Similarly, if the partially cancelled order is
non-displayed, other Participants would have no awareness of its price,
its original size, or its reduced size. Again, while other Participants
at that price may have an increased opportunity to provide a fill when
the order's size is reduced, they would not have an expectation that
the priority of their orders would change vis-[agrave]-vis that of an
order that arrived on the book at an earlier time. Finally, with
respect to Participants seeking to access liquidity, the reduced size
of the order would be disseminated (if a displayed order) or not
disseminated (if a non-displayed order) via market data feeds, but
these Participants would be indifferent as to the order's priority vis-
[agrave]-vis other orders with the same price.
In addition, NASDAQ is modifying Rule 4756 to provide that a sell
order may be modified in order to change its marking as long, short, or
short exempt without affecting its priority on the book.\3\
Participants sometimes wish to modify the marking of a sell order on
the book due to changes in the Participant's holdings of the security
in question. At present, such a modification may only be achieved by
the cancellation of the existing order and its replacement with a new
order with a different time stamp. NASDAQ believes that it is
reasonable to allow the modification of an order for this purpose
without affecting its priority, since the order's marking has no
bearing on the timing of its entry onto the book vis-[agrave]-vis other
orders at the same price.\4\ In the event, however, that a long or
short exempt order is redesignated as a short sale order and the
security that is the subject of the order is in a Short Sale Period, as
provided for in Rule 4763 and Rule 201 under Regulation SHO,\5\ the
order will be evaluated to determine whether its price would be a
Permitted Price within the meaning of Rule 4763(e). If not, the order
will be cancelled rather than repriced.\6\ NASDAQ believes that
cancelling the order under these circumstances is preferable to
repricing it, because it alerts the Participant entering the order to
the existence of the Short Sale Period and forces the Participant to
evaluate its intentions with regard to the order.
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\3\ The proposed rule does not affect Participants' obligations
contained in Regulation SHO under the Act, and Participants must
continue to comply with such obligations, including the order
marking and locate requirements. See 17 CFR 242.200 et seq.
\4\ A change to the marking of the order would be effected
through the submission of a ``modify order'' message.
\5\ 17 CFR 242.201.
\6\ If an order originally marked as long or short is marked as
short exempt, the order will not be cancelled or repriced. Rule
4763(g).
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Finally, NASDAQ is amending Rule 4756 to make it clear that, except
as provided in Rule 4761,\7\ all other modifications of previously
submitted orders, including increases in size \8\ and changes in price,
will result in the cancellation of the original order and its
replacement with a new order with a new time stamp. Although the
addition of this rule language does not reflect a change in the way the
NASDAQ system currently operates, NASDAQ believes that the clarity of
the rule will be enhanced by including the new language. NASDAQ further
believes that the functionality described by the rule language is
important to ensuring that Participants cannot use an existing order
unfairly to retain priority with respect to a materially different
order.
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\7\ Rule 4761 provides for automatic adjustment of open orders
in response to issuer corporate actions related to a dividend,
payment, or distribution.
\8\ NASDAQ reminds Participants that if a seller increases the
size of a pending sell order, the resulting modified order is
considered a new order and must be marked by the broker-dealer to
reflect the seller's net position at the time of order modification
pursuant to Rule 200 of Regulation SHO.
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2. Statutory Basis
NASDAQ believes that its proposal is consistent with Section 6(b)
of the Act \9\ in general, and furthers the objectives of Section
6(b)(5) of the Act \10\ 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. Specifically, NASDAQ believes that permitting Participants to
change the marking of sell orders without affecting their priority on
the NASDAQ book will eliminate an aspect of the NASDAQ Market Center
system that had unnecessarily made it more difficult for posted sell
orders to execute. Thus, the change will enhance the fairness and
efficiency of the NASDAQ market without affecting the ability of
Participants to comply with applicable regulatory requirements. In
addition, the changes to the rule that describe the effect of a partial
order cancellation promote the clarity of the rule with respect to the
ability of a Participant to reduce the size of an existing order
without affecting its priority. NASDAQ further believes that allowing
an order to retain priority under these conditions is consistent with
the operation of a free and open market and the protection of investors
and the public interest, since the Participant that entered an order
that is partially cancelled has nevertheless expressed a continued
willingness to trade at a specified price, and therefore should retain
priority over Participants that joined that price at a later time.
Finally, NASDAQ believes that the proposed addition of language to
clearly stipulate that all other order modifications will result in the
cancellation and replacement of the original order with a new order
with new time priority is consistent with the protection of investors
and the public interest because the new language will make clear an
existing feature of the market that NASDAQ believes is important to
ensuring that Participants cannot use an existing order unfairly to
[[Page 7833]]
retain priority with respect to a materially different order.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ 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, as amended. Specifically,
NASDAQ believes that the change with respect to allowing Participants
to modify the long, short, or short exempt marking of a sell order
without affecting its priority will assist NASDAQ in competing with the
BATS Exchange and the BATS Y-Exchange, which already allow their
Participants to do so. NASDAQ further believes that the other changes
will not have any effect on competition.
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 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 if consistent with the protection of investors
and the public interest, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6)
thereunder.\12\ At any time within 60 days of the filing of such
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.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change.
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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-2013-012 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-2013-012. 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 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2013-012 and should
be submitted on or before February 25, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02303 Filed 2-1-13; 8:45 am]
BILLING CODE 8011-01-P