[Federal Register Volume 78, Number 84 (Wednesday, May 1, 2013)]
[Notices]
[Pages 25506-25508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-10277]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69454; File No. SR-NASDAQ-2013-068]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify NASDAQ's Rule Governing Modification of Orders in the Event of
an Issuer Corporate Action Related to a Dividend, Payment or
Distribution, and To Make Related Clarifications to Rule Text
April 25, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on April 17, 2013, The NASDAQ Stock Market LLC (``NASDAQ''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 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 modify NASDAQ's rule governing modification of
orders in the event of an issuer corporate action related to a
dividend, payment or distribution, and to make related clarifications
to rule text. The Exchange has designated the proposed changes as
immediately effective, and proposes to implement the changes on or
shortly after the 30th day after the date of the filing. The text of
the proposed rule change is available on the Exchange's Web site at
http://www.nasdaq.cchwallstreet.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
[[Page 25507]]
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. 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 Rule 4761 addresses the treatment of quotes/orders in
securities that are the subject of issuer corporate actions related to
a dividend, payment or distribution (a ``corporate action''). The rule
applies to any trading interest that is carried on the Nasdaq Market
Center book overnight.\4\ The rule contemplates a range of possible
adjustments that, depending on the nature of the corporate action,
might result in the cancellation of the order or an adjustment to its
price and/or size to reflect the expected impact of the corporate
action, effective on the ex-date of the corporate action. NASDAQ
believes that the rule, as currently written, is excessively complex,
since the rule contemplates that quotes/orders receive different
adjustments depending on the nature and magnitude of the corporate
action, whether the trading interest is a quote or order, and whether
the trading interest is on the buy or sell side.\5\ Moreover, the
current rule contemplates active management of quotes/orders by NASDAQ,
thereby causing it to assume responsibilities that may be borne more
appropriately by its members. Accordingly, NASDAQ proposes to amend the
rule to provide that in the event of any corporate action, NASDAQ will
cancel open quote/orders on the ex-date of the action, thereby imposing
on the member that entered the order the responsibility for determining
whether it wishes to reenter the order and if so, at what price and
size.\6\ The cancellation would occur immediately prior to the opening
of trading at 4 a.m. on the ex-date of the corporate action, and the
member would receive a cancellation notice, so that it could, if it
desired, reenter the order at the commencement of trading on the ex-
date.
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\4\ NASDAQ notes that the use of such good-`till-cancelled
trading interest is not prevalent, and that the majority of quotes/
orders expire by their terms at the end of regular market hours.
\5\ NASDAQ also notes that it has determined that several non-
material discrepancies exist between the current rule text and the
manner in which certain open quotes/orders are currently processed
by the Nasdaq Market Center system. This filing and the system
changes to implement it will eliminate these discrepancies.
\6\ In making this change, NASDAQ is reversing a change made in
2006, in which NASDAQ replaced a rule to purge open orders with the
current rule. Securities Exchange Act Release No. 54613 (October 17,
2006), 71 FR 62325 (October 17, 2006) (SR-NASDAQ-2006-043). At the
time, NASDAQ stated that many members had not programmed their
systems to adjust orders themselves and therefore preferred to have
NASDAQ perform the function. NASDAQ believes that the intervening
evolution in the sophistication of trading systems, as well as the
importance of active risk management by broker/dealers, justifies
the reversion to the prior rule. NASDAQ further notes that the prior
rule provided that NASDAQ would not purge orders in the event of a
corporate distribution of less than $0.01. NASDAQ is not now
proposing to retain this carve-out because NASDAQ believes that it
would increase the complexity of order processing without any
identifiable benefit.
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In addition, NASDAQ is proposing to make conforming changes to Rule
4756, which currently references the fact that open orders may be
adjusted under Rule 4761 without such orders losing time priority.
Since under the proposed rule change, all such orders will be
cancelled, the cross-reference to Rule 4761 needs to be removed.
Finally, NASDAQ is proposing to address several issues with the
language of Rule 4756(b) to make it clear that quotes do not
necessarily remain open overnight. First, the rule is being amended to
delete an obsolete reference to NASDAQ's Automatic Quote Refresh
functionality, which was discontinued on February 25, 2013.\7\ Second,
NASDAQ is modifying a description of open quotes, the original intent
of which is unclear and that accordingly may result in confusion. The
sentence in question appears to reflect the idea that an open quote
(i.e., a quote designated to remain open at the end of the trading day)
would be processed in the same manner as a System Hours GTC Order.
While accurate, this statement does not reflect the fact that a quote
may also accurately be described as an Attributable Order entered by a
NASDAQ Market Maker or NASDAQ ECN (i.e., trading interest that is
identified as having been entered by a particular market participant).
Moreover, although an Attributable Order may be entered with a time-in-
force of good-`till-cancelled and thereby remain open overnight, such
orders are exceedingly rare, such that almost all quotes/orders of
NASDAQ Market Makers expire at the end of regular market hours.
Accordingly, NASDAQ believes that the focus of the current sentence on
orders remaining open might imply that all quotes remain open
overnight, when as a factual matter this is almost never the case
because the good-`till-cancelled time-in-force is almost never used by
market participants. NASDAQ proposes to amend the sentence to provide
that ``Quotes will be processed as Attributable Orders, with such time-
in-force designation as the Nasdaq Market Maker or Nasdaq ECN may
assign.'' Finally, NASDAQ proposes to correct a typographical error in
the rule.\8\
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\7\ Securities Exchange Act Release No. 68528 (December 21,
2012), 77 FR 77165 (December 31, 2012) (SR-NASDAQ-2012-140).
\8\ NASDAQ notes that NASDAQ OMX BX, Inc. (``BX'') is filing a
similar proposed rule change to adopt a rule comparable to proposed
NASDAQ Rule 4761 and to make amendments to BX Rule 4756 similar to
those proposed with respect to NASDAQ Rule 4756. SR-BX-2013-031
(April 17, 2013).
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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,\9\ in general, and with Section
6(b)(5) of the Act \10\ 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. Specifically, NASDAQ
believes that the change will simplify NASDAQ's rule governing
adjustment of open quotes/orders in the event of corporate actions by
making it clear that all such quotes/orders will be cancelled, thereby
ensuring that market participants have appropriate notice of the
possibility that they may either deem it advisable not to reenter such
quotes/orders, or to reenter them with such adjustments to price and/or
size as the market participant deems advisable to reflect the corporate
action. Thus, the change will facilitate transactions in securities and
perfect the mechanism of a free and open market by providing additional
assurance that market participants carefully manage the trading
interest that they enter into NASDAQ. In addition, the proposed changes
to Rule 4756 are designed to make conforming changes and to improve the
clarity of that rule.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(5).
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[[Page 25508]]
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 rule change does not affect the availability
or pricing of goods or services offered by the Exchange, and therefore
does not impact competition between the Exchange and others. Rather,
the change is designed to simplify and clarify existing rules in a
manner that does not restrict the ability of members to enter and
update trading interest in NASDAQ.
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
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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6)
\12\ thereunder.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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.
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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.
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-2013-068 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-2013-068.
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-2013-068 and should be submitted on or before May 22, 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. 2013-10277 Filed 4-30-13; 8:45 am]
BILLING CODE 8011-01-P