[Federal Register Volume 78, Number 33 (Tuesday, February 19, 2013)]
[Notices]
[Pages 11709-11711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-03687]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68913; File No. SR-NASDAQ-2013-024]
Self-Regulatory Organizations; the NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Clarify the Measure Used To Determine Whether the Price of a Stock Is
Equal to or Greater Than One Dollar Under Rule 4120(a)(11)
February 12, 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 31, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to clarify the measure used to determine
whether the price of a stock is equal to or greater than $1 dollar
under Rule 4120(a)(11).
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
4120. Trading Halts
(a) Authority To Initiate Trading Halts or Pauses
In circumstances in which Nasdaq deems it necessary to protect
investors and the public interest, Nasdaq, pursuant to the procedures
set forth in paragraph (c):
(1)-(10) No change.
(11) Shall, between 9:45 a.m. and 3:35 p.m., or in the case of an
early scheduled close, 25 minutes before the close of trading,
immediately pause trading for 5 minutes in any Nasdaq-listed security,
other than rights and warrants, when the price of such security moves a
percentage specified below within a 5-minute period.
(A) The price move shall be 10% or more with respect to securities
included in the S&P 500[supreg] Index, Russell 1000[supreg] Index, and
a pilot list of Exchange Traded Products;
[[Page 11710]]
(B) The price move shall be 30% or more with respect to all NMS
stocks not subject to section (a)(11)(A) of this Rule with a price
equal to or greater than $1; and
(C) The price move shall be 50% or more with respect to all NMS
stocks not subject to section (a)(11)(A) of this Rule with a price less
than $1.
The determination that the price of a stock is equal to or greater
than $1 under paragraph (a)(11)(B) above or less than $1 under
paragraph (a)(11)(C) above shall be based on the last reported closing
price on Nasdaq [the previous trading day, or, if no closing price
exists, the last sale reported to the Consolidated Tape on the previous
trading day].
At the end of the trading pause, Nasdaq will re-open the security
using the Halt Cross process set forth in Nasdaq Rule 4753. In the
event of a significant imbalance at the end of a trading pause, Nasdaq
may delay the re-opening of a security.
Nasdaq will issue a notification if it cannot resume trading for a
reason other than a significant imbalance.
Price moves under this paragraph will be calculated by changes in
each consolidated last-sale price disseminated by a network processor
over a five minute rolling period measured continuously. Only regular
way in-sequence transactions qualify for use in calculations of price
moves. Nasdaq can exclude a transaction price from use if it concludes
that the transaction price resulted from an erroneous trade.
If a trading pause is triggered under this paragraph, Nasdaq shall
immediately notify the single plan processor responsible for
consolidation of information for the security pursuant to Rule 603 of
Regulation NMS under the Securities Exchange Act of 1934. If a primary
listing market issues an individual stock trading pause, Nasdaq will
pause trading in that security until trading has resumed on the primary
listing market or notice has been received from the primary listing
market that trading may resume. If the primary listing market does not
reopen within 10 minutes of notification of a trading pause, Nasdaq may
resume trading the security. The provisions of this paragraph shall be
in effect during a pilot set to end on February 4, 2013.
* * * * *
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this rule change is to clarify the source of the
price used in determining whether the price of a stock is equal to or
greater than $1, or less than $1, for purposes of applying Rule
4120(a)(11)(B) or (C). Rule 4120(a)(11) states that the determination
that the price of a stock is equal to or greater than $1 under
paragraph Rule 4120(a)(11)(B) or less than $1 under paragraph Rule
4120(a)(11)(C) shall be based on the closing price on the previous
trading day, or, if no closing price exists, the last sale reported to
the Consolidated Tape on the previous trading day. As a practical
matter, it is only in a rare circumstance that the last sale reported
to the Consolidated Tape is used as the measure for determining the $1
threshold. This occurs when a security is thinly-traded and no trades
have occurred on the Exchange on the previous trading day. The Exchange
believes that using the last reported NASDAQ closing price as the
measure for determining the $1 threshold is a more reliable and
accurate means of measuring the price of a low-priced security.\3\ In
low-priced thinly-traded securities, the Exchange believes that an off-
exchange transaction in an Exchange-listed security reported to the
Consolidated Tape is less reflective of the security's price than a
transaction occurring on the Exchange resulting in a closing price,
even if that closing price precedes an off-exchange transaction.
---------------------------------------------------------------------------
\3\ The Exchange notes that the changes proposed herein are
reflective of its current practice, in that it has used the last
reported closing price on NASDAQ as the measure for determining the
$1 threshold price since adopting Rules 4120(a)(11)(B) and (C).
---------------------------------------------------------------------------
This rule change makes the pricing measure consistent with that
used to determine price decline for the short sale-related circuit
breaker. In discussing the reason it elected to use a covered
security's listing market at the end of regular trading hours on the
prior day as an appropriate measure of price decline for the short
sale-related circuit breaker, the Commission stated:
The last price reported in the consolidated system is more
likely to reflect an anomalous trade, e.g., a trade that is not
consistent with the current market due to, for example, the 90
second reporting window, or an uncorrected error. Listing markets
generally have in place specific procedures designed to ensure the
accuracy and reliability of their closing prices. Thus, we believe
it is appropriate to use the more accurate closing price as
determined by the covered security's listing market rather than the
last price reported in the consolidated system.\4\
\4\ Securities Exchange Act Release No. 61595 (February 26,
2010), 75 FR 11232 at 11255 (March 10, 2010) (adopting a short sale-
related circuit breaker that, if triggered, will impose a
restriction on the prices at which securities may be sold short).
Rule 201 of Regulation SHO requires that a trading center establish,
maintain, and enforce written policies and procedures reasonably
designed to prevent the execution or display of a short sale order
of a covered security at a price that is less than or equal to the
current national best bid if the price of that covered security
decreases by 10% or more from the covered security's closing price
as determined by the listing market for the covered security as of
the end of regular trading hours on the prior day. See 17 CFR
242.201.
---------------------------------------------------------------------------
NASDAQ agrees and believes that the Commission's analysis is
particularly true in the case of thinly-traded securities.
In addition to being consistent with the short sale-related circuit
breaker, the proposed change will make the $1 threshold determination
methodology under Rule 4120(a)(11) consistent with the Limit up-Limit
down plan process to determine the percentage parameter applicable
during a trading day, under which the reference price is based on the
prior day's closing price on the primary listing market or the last
sale on the primary listing market if no such closing price exists.\5\
---------------------------------------------------------------------------
\5\ In the Order Approving, on a Pilot Basis, the National
Market System Plan to Address Extraordinary Market Volatility, the
reference price used for determining which percentage parameter
shall be applicable during a trading day shall be based on the
closing price of the NMS stock on the primary listing exchange on
the previous trading day, or if no closing price exists, the last
sale on the primary listing exchange reported by the Processor. See
Securities Exchange Act Release No. 34-67091 (May 31, 2012), 77 FR
33498 (June 6, 2012).
---------------------------------------------------------------------------
2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Securities Exchange Act of 1934 (the ``Act''),\6\ which requires
the rules of an exchange 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
[[Page 11711]]
change is designed to promote more accurate determinations of the price
of securities under the trading pause provided by Rule 4120(a)(11),
thus promoting just and equitable principles of trade, removing
impediments to, and perfecting the mechanism of, a free and open market
and a national market system. The proposed rule change also is designed
to support the principles of Section 11A(a)(1) \7\ of the Act in that
it seeks to assure fair competition among brokers and dealers and among
exchange markets. The Exchange believes that the proposed rule meets
these requirements in that it promotes more accurate trading pause
triggers, as well as transparency and uniformity across markets
concerning decisions to pause trading in a security when there are
significant price movements. Moreover, the Exchange believes that other
listing markets with functionally identical rules are concurrently
adopting the changes proposed herein.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f(b)(5).
\7\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------
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, as amended. The
proposed rule change merely modifies how the value of a low-priced
security is measured, replacing the current method with what the
Exchange believes to be a more reliable and accurate measure. The
proposed change will enhance the operation of the trading pause process
by making the determination of the $1 threshold more accurate and
reflective of the current value of a low-priced security, which in turn
contributes to the protection of investors and the public interest.
Accordingly, the proposed changes will not impose any burden on
competition while providing more accurate trading pause determinations
under Rule 4120(a)(11).
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\
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 prior to
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 and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(3)(A)(iii).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's 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, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
---------------------------------------------------------------------------
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. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) of the Act \10\ to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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 No. SR-NASDAQ-2013-024 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 No. SR-NASDAQ-2013-024. 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 available publicly. All
submissions should refer to File No. SR-NASDAQ-2013-024 and should be
submitted on or before March 12, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03687 Filed 2-15-13; 8:45 am]
BILLING CODE 8011-01-P