[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40223-40225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15931]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69880; File No. SR-NASDAQ-2013-090]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend Exchange Rule 4754 Governing the NASDAQ Closing Cross
(``Cross'')
June 27, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on June 20, 2013, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by Nasdaq. 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 the
Substance of the Proposed Rule Change
Nasdaq proposes to amend Exchange Rule 4754 governing the NASDAQ
Closing Cross (``Cross'') to specify contingency plans for determining
the NASDAQ Official Closing Price (``NOCP'') in the event NASDAQ
experiences a system disruption that precludes normal execution of the
Cross pursuant to Rule 4754.
The text of the proposed rule change is attached as Exhibit 5.\3\
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\3\ The Commission notes that Exhibit 5 is attached to the
filing, not to this Notice.
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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
Background. Since June of 2002, NASDAQ has published contingency
plans in the event the NASDAQ closing process was to be disrupted
during the annual reconstitution of the Russell indexes. The Russell-
targeted contingency plans began as a series of scenarios, and the set
has accreted new scenarios from year to year as NASDAQ's system and the
market-wide trading ecosystem have evolved. NASDAQ has established a
pattern of communication and testing of contingency plans to ensure
that NASDAQ, its members, and the public are prepared to implement the
contingency plans if needed.
While NASDAQ has communicated the contingency plans broadly to its
members and to the investing public, NASDAQ has never included those
[[Page 40224]]
contingency plans in NASDAQ's rule manual. NASDAQ has determined to
approach contingency planning differently than in the past, and it has
also determined to add the contingency plans to NASDAQ's rule manual.
The Contingency Closing Cross process begins with communication.
Under the proposal, when NASDAQ experiences a disruption that will
preclude execution of the standard Closing Cross, the President of
NASDAQ or any Executive Vice President designated by the President will
be authorized to invoke the Contingency Procedures. When that occurs,
NASDAQ will at the earliest possible time communicate to members and
the public its determination to implement the Contingency Closing Cross
process. NASDAQ will communicate with members and the public via system
status alerts on NASDAQTrader.com, as well as via Equity Trader Alerts
and emails to pre-established notification lists.
NASDAQ is proposing to use a single method for determining the NOCP
in response to any situation in which NASDAQ's standard closing cross
process fails to operate properly. NASDAQ will employ a single offline
process to determine the price, size, and component executions for the
closing cross trade in any and all affected securities on a security-
by-security basis. NASDAQ believes that a single offline process will
address potential failures in the NASDAQ execution system due to its
separation from that system and its ability to draw on stored order
files regardless of any impairment to the execution system.\4\
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\4\ NASDAQ maintains a database of all orders entered into the
execution system, as well as other data regarding order processing.
The database is independent of and isolated from the execution
system and network and, as a result, it can operate regardless of
impairment to those systems. NASDAQ will operate the contingency
process from a server that is also independent of and isolated from
the execution system and network, and that is supported by multiple
redundant backups.
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The first step in NASDAQ's proposed Contingency Closing Cross is to
determine the proper closing price. If the standard closing cross
process fails in any security, NASDAQ will identify the last
consolidated regular way trade reported by the network processor before
4:00:00:00 p.m. for an NMS Security and it will use that price as the
NOCP. In the event an impacted security has no consolidated last sale
price (i.e. the security has not traded during the day), NASDAQ will
have no NOCP and no Contingency Cross for that security. NASDAQ will
report each NOCP to the network processor as soon as practical using
existing closing modifiers.
Once NASDAQ has identified the NOCP for a given security, NASDAQ
will operate a modified closing cross to determine the number of shares
and the specific orders that can be executed at the NOCP. Only ``on
close'' orders will participate in the Contingency Closing Cross. All
Market-on-Close (``MOC''), Limit-on-Close (``LOC'') and Imbalance Only
orders received and not cancelled prior to 3:50 p.m., as well as all
Imbalance Only orders received between 3:50 and 4:00 p.m. will be
eligible to participate. Resting DAY orders will not be eligible to
participate because the contingency closing cross will be an offline
process and it will be unable to interact with the continuous book.
Once NASDAQ has identified orders eligible to participate in the
Contingency Closing Cross and able to execute at the NOCP, NASDAQ will
execute on a price-time priority basis, the maximum number of shares
able to execute at the NOCP. If an order imbalance exists in the MOC
and LOC interest that is marketable at the NOCP, NASDAQ will select
Imbalance Only orders on the side of the market that is short of
trading interest (in price/time priority) in order to maximize the
number of paired shares to execute at the NOCP.
Once NASDAQ has completed the Contingency Closing Cross, it will
report the results to the appropriate network processor and deliver
execution reports to members. NASDAQ will publish the NOCP and total
shares executed in the Contingency Closing Cross using the proper trade
report modifiers already utilized by the processors.\5\ Additionally,
NASDAQ will deliver component executions to participants via a flat
data file formatted in DROP protocol.\6\
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\5\ NASDAQ will report both an official closing price and a bulk
trade report for each Closing Cross.
\6\ ``DROP'' is a proprietary protocol that NASDAQ uses to
deliver real-time execution information to members using the NASDAQ
system. It facilitates members' efforts to monitor, track, enter,
and cancel orders.
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After hours trading will begin either as scheduled at 4:00 p.m. or
upon resolution of the disruption that triggered NASDAQ to operate the
Contingency Closing Cross.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act \7\ in general, and furthers the objectives of
Section 6(b)(5),\8\ in particular, in that it is designed to promote
just and equitable principles of trade, remove impediments to and
perfect the mechanisms of a free and open market and a national market
system and, in general, to protect investors and the public interest.
The proposal is consistent with this provision in that it will ensure
that the Exchange continues to operate a fair and orderly market and to
provide for an effective pricing mechanism for the critical period of
the market close. The proposed independent, off-line process improves
NASDAQ's ability to maintain a fair and orderly market when the NASDAQ
execution system or network is impaired for any reason.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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The proposed Contingency Procedures for the Closing Cross are
designed to preserve NASDAQ's ability to move quickly to establish a
reliable closing price under unusual conditions. By simplifying and
codifying the Contingency Procedures, NASDAQ also enables NASDAQ
members to plan for the contingencies, including the ability to test
their systems and how they will interact with NASDAQ's systems in the
event NASDAQ triggers the Contingency Procedures.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
proposal is specifically designed to protect the other markets and
investors from harm that a NASDAQ disruption could impose. In
actuality, the proposal is pro-competitive because it promotes fair and
orderly markets and investor protection, which in turn will buttress
investor confidence and attract more investors into U.S. equities
markets. NASDAQ has never used contingency planning by other exchanges
as a competitive weapon; nor has any competitor used NASDAQ's planning
against it.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither 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
[[Page 40225]]
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) of the Act \9\ and subparagraph (f)(6)
of Rule 19b-4 thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 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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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing.\11\ However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest.\12\ The Exchange has requested that the Commission
waive the 30-day operative delay so that the Exchange can establish
this process prior to the Russell Reconstitution on June 28, 2013 and
notes that there is significant benefit to investors from providing
certainty prior to that date. The Commission believes that the waiver
of the 30-day operative delay is consistent with the protection of
investors and the public interest because the proposed rule will
provide certainty regarding the contingency procedures to market
participants prior to the date of the Russell Reconstitution.
Therefore, the Commission designates the proposal operative upon
filing.\13\
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\11\ 17 CFR 240.19b-4(f)(6)(iii).
\12\ Id.
\13\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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-2013-090 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-2013-090.
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 offices of
NASDAQ. 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-2013-090, and should be submitted on or before July 24, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15931 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P