[Federal Register Volume 78, Number 229 (Wednesday, November 27, 2013)]
[Notices]
[Pages 71011-71014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28416]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70911; File No. SR-NASDAQ-2013-143]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend NASDAQ Rule 4120(c)(7)(C) To Modify the Parameters for Releasing
Securities for Trading Upon the Termination of a Trading Halt
November 21, 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 November 14, 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
The Exchange proposes to amend NASDAQ Rule 4120(c)(7)(C) to modify
the parameters for releasing securities for trading upon the
termination of a trading halt. NASDAQ will implement the proposed
change immediately.
The text of the proposed rule change is below.\3\ Proposed new
language is italicized; proposed deletions are in brackets.
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\3\ The text of the rule change is available on the Exchange's
Web site at http://nasdaq.cchwallstreet.com, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
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* * * * *
4120. Limit Up-Limit Down Plan and Trading Halts
(a)-(b) No change.
(c) Procedure for Initiating and Terminating a Trading Halt
(1)-(6) No change.
(7)
(A)-(B) No change.
(C) If at the end of a Display Only Period or during the subsequent
process to release the security for trading, Nasdaq detects an order
imbalance in the security, Nasdaq will extend the Display Only Period
as permitted under subparagraph (A). In the case of subparagraph (B),
any order imbalance during the Pre-Launch Period or during the
subsequent process to release the security for trading will result in a
delay of the release for trading of the IPO until the end of the order
imbalance and satisfaction of the other requirements for release of the
IPO contained in subparagraph (B). Order imbalances are established as
follows:
(1) Order imbalances under subparagraph (A) shall be established
when (i) the last available Current Reference Price[s], as defined in
Rule 4753(a)(2)(A), disseminated [15 seconds and ]immediately prior to
the end of the Display Only Period and any of the three preceding
Current Reference Prices differ by more than the greater of 5 percent
or 50 cents, or (ii) all buy or sell market orders will not be executed
in the cross.
(2) Order imbalances under subparagraph (B) shall be established
when (i) the Current Reference Price[s], as defined in Rule
4753(a)(2)(A), disseminated [15 seconds and ]immediately prior to
commencing the release of the IPO for trading during the Pre-Launch
Period and any of the three preceding Current Reference Prices differ
by more than the greater of 5 percent or 50 cents, or (ii) all buy or
sell market orders will not be executed in the cross.
(3) Order imbalances under both subparagraphs (A) and (B) shall be
established during the subsequent process to release a security for
trading, which occurs at the termination of either a Display Only
Period under subparagraph (A) or a Pre-Launch Period under subparagraph
(B), if, upon completion of the cross calculation, (i) the calculated
price at which the security would be released for trading and any of
the three preceding Current Reference Prices disseminated immediately
prior to the initiation of the cross calculation differ by more than
the greater of 5 percent or 50 cents, or (ii) all buy or sell market
orders would not be executed in the cross.
* * * * *
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
The Exchange proposes to amend Rule 4120(c)(7)(C) to strengthen the
price volatility comparison of the order imbalance tests done at the
conclusion of the Display Only Period and Pre-Launch Period by
increasing the number of Current Reference Prices that are compared.
The Exchange is also proposing to extend the order imbalance tests of
the rule to also include the process by which a company's securities
are released for trading after a halt. Securities subject to a halt
under Rule 4120(a) cannot be released when there is an order imbalance
in the security. Historically, order imbalances were defined uniformly
under Rule 4120(c)(7)(C) for all halts under Rule 4120(a) as: (i) the
Current Reference Prices, as defined in Rule
[[Page 71012]]
4753(a)(2)(A),\4\ disseminated 15 seconds and immediately prior to the
end of the Display Only Period differ by more than the greater of 5
percent or 50 cents (the ``Price Volatility Test''), or (ii) all buy or
sell market orders will not be executed in the cross (the ``Imbalance
Test''). During the Display Only Period, NASDAQ disseminates an Order
Imbalance Indicator every five seconds,\5\ which includes a Current
Reference Price along with the then-current imbalance information.\6\
The Order Imbalance Indicator allows market participants insight into
the likely price at which a security will emerge from a halt.
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\4\ The Current Reference Price is defined in Rule 4753(a)(2)(A)
as the price at which the maximum number of shares can be paired. In
situations where more than one price exists, the rule establishes
the Current Reference Price in a number of scenarios.
\5\ Rule 4753(b)(1).
\6\ The Order Imbalance Indicator provides market participants
with the Current Reference Price, the number of shares matched for
execution at the Current Reference Price, the total number of shares
that cannot be matched for execution and side of executable shares,
and the indicative prices at which the Halt Cross would occur if it
were to occur at that time. See Rule 4753(a)(2).
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NASDAQ recently adopted a new process for releasing securities
approved for listing on NASDAQ in an initial public offering
(``IPO'').\7\ The changes were adopted to improve the IPO release
process by increasing NASDAQ's flexibility to commence trading when
appropriate while retaining a transparent process that has been the
hallmark of the rule. To this end, NASDAQ eliminated the former rule
requirement that limited the number of extensions of the Display Only
Period to six five-minute periods, and instead adopted a ``Pre-Launch
Period'' at the conclusion of the initial 15-minute Display Only Period
that is not of a fixed duration. Unlike other halts under Rule 4120(a),
NASDAQ does not apply the order imbalance tests at the conclusion of an
IPO launch Display Only Period, but rather thereafter transitions to
the Pre-Launch Period. Under the new rule, the Pre-Launch Period will
continue until:
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\7\ Securities Exchange Act Release No. 69897 (July 1, 2013), 78
FR 40782 (July 8, 2013) (SR-NASDAQ-2013-092).
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(1) the IPO is released when the following two conditions are
simultaneously met:
NASDAQ receives notice from the underwriter of the IPO
that the security is ready to trade, and
there is no order imbalance in the security (as discussed
below); or
(2) the underwriter, with concurrence of NASDAQ, determines at any
point during the IPO Halt Cross process up through the Pre-Launch
Period to postpone and reschedule the IPO.
The Exchange adopted the condition that there be no order
imbalance, as defined in Rule 4120(c)(7)(C), in a halted security prior
to its release for trading to ensure that the security price is
reasonably stable and trading interest is balanced at the time trading
commences. With the changes to the IPO release process discussed above,
NASDAQ adopted a new definition of order imbalance applicable only to
IPO halt securities, while retaining the same definition of an order
imbalance for all other halts under Rule 4120(a). NASDAQ defines an
order imbalance in an IPO security as occurring when (1) the Current
Reference Price, as defined in Rule 4753(a)(2)(A), disseminated 15
seconds and immediately prior to commencing the release of the IPO for
trading during the Pre-Launch Period differs by more than the greater
of 5 percent or 50 cents, or (2) all buy or sell market orders will not
be executed in the cross. This protection is designed to prevent
circumstances where a misunderstanding by the underwriter as to the
state of the order book risks launching trading at a time of material
volatility in the book for the security. As a consequence, if an
underwriter gives notice to launch the IPO security, it must also be
free of an order imbalance prior to release for price calculation and
trading.
All order imbalances are calculated by the Halt Cross system, which
automatically prevents launch of a halted security when an order
imbalance exists. For halts under Rule 4120(a) other than IPO halts, at
the conclusion of the Display Only Period and any extensions thereof
permitted by the rule, the Halt Cross system determines if an order
imbalance exists by performing the two order imbalance tests. If there
is not an order imbalance, the system calculates the release price of
the security based on the trading interest at the conclusion of the
Display Only Period and releases the halted security for trading. The
conclusion of all halts under Rule 4120(a) other than IPO halts is
initiated by the Halt Cross system automatically, resulting in the
release of a security immediately after the issuance of a Current
Reference Price. IPO halts, however, do not necessarily conclude in
synch with the dissemination of a Current Reference Price because the
underwriter initiates the conclusion of the Pre-Launch Period without
consideration to the dissemination of the Current Reference Price.
Enhanced Volatility Test
The Exchange proposes to strengthen the Price Volatility Test
applied to all halts under Rule 4120(a) by increasing the number of
prices to which the last disseminated Current Reference Price is
compared. The current rule text provides that NASDAQ compares the
Current Reference Price available immediately prior to the conclusion
of either the Display Only Period \8\ or Pre-Launch Period,\9\ as
applicable, to the Current Reference Price issued 15 seconds prior to
the conclusion of these periods. This calculation results in a single
comparison of prices, notwithstanding that there are two additional
Current Reference Prices disseminated between the Current Reference
Prices compared by the test. For example, in the case of a Display Only
Period that concludes pursuant to Rule 4120(c)(7)(A) at 10:00:00 with
the last disseminated Current Reference Price occurring at 10:00:00,
the Halt Cross system will compare the last disseminated Current
Reference Price to the Current Reference Price issued at 09:59:45.
Because Current Reference Prices are disseminated every five seconds,
two additional Current Reference Prices were disseminated at 09:59:50
and 09:59:55, between the two Current Reference Prices used by the
Price Volatility Test. Either of the two intermediate Current Reference
Prices may reflect volatile pricing that would not be considered by the
current Price Volatility Test.
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\8\ For halts concluded pursuant to Rule 4120(c)(7)(A).
\9\ For halts concluded pursuant to Rule 4120(c)(7)(B).
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NASDAQ is proposing to amend Rule 4120(c)(7)(C) to reflect that the
Price Volatility Test will compare the last available Current Reference
Price to each of the three preceding Current Reference Prices. As a
consequence, the Price Volatility Test will more robustly detect price
volatility at the conclusion of a Display Only Period or Pre-Launch
Period by conducting three price comparisons of the most recent Current
Reference Prices as compared to the single comparison done now. The
order imbalance tests are designed to ensure that the security price is
reasonably stable at the time trading commences. NASDAQ believes that
testing against the three prior Current Reference Prices increases the
likelihood that instability will be detected and, as a consequence,
trading in the security will be afforded additional time to stabilize,
resulting in a launch that is more reflective of all the trading
interest in the security.
[[Page 71013]]
Extension of the Order Imbalance Tests
NASDAQ is also proposing to extend the order imbalance tests to the
release process, which occurs after the conclusion of a Display Only
Period or Pre-Launch Period, as applicable, and before the release of
the security. During this release process period, the Halt Cross system
closes the order book, and then calculates the price at which the
security will be opened. As noted above, the release price of an IPO is
calculated at the conclusion of the Pre-Launch Period, which is not
systematically determined by the expiration of a set time period, but
rather is initiated by the underwriter to the IPO. The time between the
dissemination of the last Current Reference Price and the close of the
Pre-Launch Period may be as long as nearly five seconds, during which
market participants may continue to enter and cancel orders. NASDAQ
notes that, for a halt concluded pursuant to Rule 4120(c)(7)(A), there
is a very brief time after the dissemination of the Current Reference
Price and the closing of the order book during which market
participants may continue to enter and cancel orders. As a result, the
orders in the order book may not be reflected in the last disseminated
Order Imbalance Indicator.
Under both launch processes, at the conclusion of the applicable
period the Halt Cross system performs the order imbalance tests using
an Order Imbalance Indicator that, as noted, may not be reflective of
the most recent orders entered during the period after its
dissemination. It is possible that a market participant may enter an
order that is materially different in price from the last available
Current Reference Price disseminated and of an adequate size to
significantly distort the security's price during the cross price
calculation. Under such a scenario, the halted security could be
released at a price significantly different from market expectations
based on the indicative price of the Order Imbalance Indicator
disseminated just prior to the launch. Moreover, an order entered or
canceled during the period between the last dissemination of the Order
Imbalance Indicator and the closing of the order book may cause an
order imbalance in the number of buy and sell interest resulting in a
certain number of shares remaining unmatched at the conclusion of the
cross.
NASDAQ is proposing to extend the order imbalance tests to the
process for releasing a security for trading applicable to halts
concluded pursuant to both Rules 4120(c)(7)(A) and (B). Specifically,
the requirement would apply to both the process following the
conclusion of the Display Only Period for halts under Rule 4120(a)
other than IPOs, and to the process following the conclusion of the
Pre-Launch Period for IPO halt securities. NASDAQ has amended the
definition of an order imbalance under Rule 4120(c)(7)(C) to reflect
the addition of the order imbalance tests to this period. Under the new
definition of order imbalance, the Halt Cross system will compare the
calculated price at which the security would be released to each of the
three preceding Current Reference Prices disseminated immediately prior
to initiation of the cross calculation. An order imbalance under this
calculation would be present if the prices differ by more than the
greater of 5 percent or 50 cents. The Halt Cross system will also apply
the Imbalance Test to determine whether all orders were executed in the
cross.
Under the amended rule, should a security be subject to an order
imbalance during the subsequent process to release the security for
trading by failing either the new Price Volatility Test or Imbalance
Test, it would return to either a Display Only Period for a one minute
extension period, in the case of Rule 4120(a) halts other than IPOs, or
in the case of an IPO halt, return to the Pre-Launch Period. Once in
the returned state, the security would repeat the process for release
until such time that the security may be priced.\10\ Accordingly,
NASDAQ believes extension of the order imbalance tests to the release
process will ensure that the price at which a security is released for
trading is reflective of the general interest in the security,
unaltered by aberrant order activity. NASDAQ notes that the proposed
modification to the rule is not designed to substantively modify how
order imbalances are handled in the release of securities halted under
Rule 4120(a). It is instead designed to apply the same principles to
the brief price calculation process just prior to the release of a
security for regular trading.
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\10\ In the case of a Pre-Launch Period, all conditions to
conclude the period must be met, including a new indication that the
underwriter is ready to launch. Consistent with Rule 4120(c)(7)(B),
during this time the underwriter, with the concurrence of NASDAQ,
may also determine to postpone and reschedule the IPO.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\11\ in general, and with
Section 6(b)(5) of the Act,\12\ in particular, in that it is designed
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 transaction 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,
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers. The proposed rule change promotes this
goal by strengthening tests that must be passed for a security to be
released from a halt, and extending the protections of all such tests
to include the brief period after a security is released for pricing
and the pricing process concludes. Although unlikely, it is possible,
particularly with regard to the IPO release process, for a disruptive
order to skew the release price far from what was anticipated by market
participants based on the indicative prices published by the Exchange
prior to the calculation. The proposed change is designed to protect
market participants from receiving what would appear from their
perspective to be erroneous pricing of securities for resumption of
trading. Accordingly, NASDAQ believes that enhancing and strengthening
the process is in the interest of protecting investors as it will serve
to avoid confusion among market participants. NASDAQ notes that the
criteria it applies in releasing halted securities pursuant to the rule
are applied consistently to every release, and therefore do not permit
NASDAQ to discriminate in any manner.
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\11\ 15 U.S.C. 78f.
\12\ 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, as amended. The
Exchange believes that the proposal is irrelevant to competition
because it is not driven by, and will have no impact 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.
[[Page 71014]]
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)(ii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
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, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)
thereunder.\15\
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 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.
\15\ 17 CFR 240.19b-4(f)(6)(ii).
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A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(ii),\17\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange stated that
this proposal establishes rules that enhance an existing test, which is
designed to ensure that securities in a halted state are released in an
orderly manner and that there are no order imbalances in a security
emerging from a halt. In addition, the Exchange stated that the
proposal is designed to protect market participants from seemingly
erroneous pricing of securities for resumption of trading. Thus, the
Exchange believes that it is in the interest of protecting investors to
provide the amended process, which will eliminate the possibility of
such a disruption, at the earliest time possible. For these reasons,
the Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission designates the proposed rule change to be
operative upon filing.\18\
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\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(ii).
\18\ For purposes only of waiving the 30-day operative delay,
the Commission has also 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. If the Commission takes such action, the
Commission shall institute proceedings under Section 19(b)(2)(B) \19\
of the Act to determine whether the proposed rule should be approved or
disapproved.
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\19\ 15 U.S.C. 78s(b)(2)(B).
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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-2013-143 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-2013-143. 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-2013-143 and should
be submitted on or before December 18, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28416 Filed 11-26-13; 8:45 am]
BILLING CODE 8011-01-P