[Federal Register Volume 80, Number 68 (Thursday, April 9, 2015)]
[Notices]
[Pages 19099-19102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-08109]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74644; File No. SR-NASDAQ-2015-031]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Regarding Rule 4758
April 3, 2015.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on March 30, 2015, 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, II,
and III 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\ 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
The Exchange proposes to amend Rule 4758 (Order Routing) to (a)
explain the treatment of a DOT or DOTI order designated to participate
in the closing only; (b) explain the treatment of a LIST order
designated to participate in the closing only; and (c) explain the
treatment of a LIST order in the after-hours market.\4\ The Exchange
also proposes to make technical changes to further explain the language
of the rule.
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\4\ For a description of market sessions and hours on the
Exchange, see Rule 4120(b)(4). DOT, DOTI, and LIST orders are
defined below.
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The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at the Exchange's principal office, and at
the Commission's Public Reference Room.
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 proposed rule change is to amend subsection
(a)(1)(A) of Rule 4758 to: (a) Explain the treatment of a DOT or DOTI
order designated to participate in the closing only; (b) explain the
treatment of a LIST order designated to participate in the closing
only; and (c) explain the treatment of a LIST order in the after-hours
market. The Exchange also proposes to make technical changes to further
explain the language of the rule.
NASDAQ offers its members optional routing functionality that
allows them to use NASDAQ's facilities to access liquidity available on
other trading venues. The functionality includes a range of defined
routing algorithms--known as strategies--that determine the
destinations and pattern of routing. The particular pattern of routing
to other venues associated with a particular strategy is referred to in
Rule 4758 as the ``System routing table.'' All routing is designed to
be conducted in a manner consistent with the requirements of Regulation
NMS.
NASDAQ currently offers a set of strategies designed to allow
market participants to route orders to the primary market on which a
security is listed. NASDAQ is proposing minor
[[Page 19100]]
changes to these strategies to improve their functioning and make clear
the language of the rule. As an example, NASDAQ currently offers the
DOT strategy (which includes several variations) as a means of
designating an order for routing to the New York Stock Exchange
(``NYSE'') or NYSE MKT (formerly NYSE Amex) for participation in their
respective opening or closing processes. DOT orders are routed directly
to NYSE or NYSE MKT, as appropriate. After attempting to execute in the
opening or closing process, if any shares remain unexecuted, DOT orders
thereafter check the NASDAQ Market Center System for available shares
and behave as SCAN or STGY orders, depending on the designation of the
entering firm.\5\ DOTI and LIST strategies are discussed below.
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\5\ STGY is a routing option under which orders check the System
for available shares and simultaneously route the remaining shares
to destinations on the applicable System routing table. If shares
remain un-executed after routing, they are posted on the NASDAQ
book. Once the order is on the book, if the order is subsequently
locked or crossed by another accessible market center, the System
routes the order to the locking or crossing market center. SCAN
behaves similarly, but once the order is on the NASDAQ book, the
System will not route the order to a locking or crossing market
center. Although both options are described in Rule 4758 as
variations of the DOT strategy, NASDAQ's system specifications refer
to the SCAN option as either ``DOTA'' or ``DOTD'' and refer to the
STGY option as ``DOTM.''
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The Proposal
First, NASDAQ is proposing to modify the language of subsection
(a)(1)(A) of Rule 4758 to make it clear that a DOT order may be
designated to participate in the opening only or in the closing only,
with different outcomes. Currently, an order entered before the open
(or close) that is designated as opening only (or closing only) will
likely be cancelled by the destination market after the open (or close)
in accordance with its terms and therefore will not return to NASDAQ,
even if not executed in full. Similarly, if NASDAQ receives a DOT order
after the security has opened (or closed) and the order has been
designated to participate in the opening only (or closing only), the
order will nevertheless be routed to NYSE or NYSE MKT (which would be
expected to reject the order based on its designation as opening only
or closing only).\6\ Specifically, the Exchange proposes in subsection
(a)(1)(A)(i) of Rule 4758 to delete the option of a DOT order being
designated to participate in the closing only at the proper time as
described below, in which case a closing only order would be expected
to be rejected by the destination market and would also be cancelled by
NASDAQ if returned by the destination market. The Exchange proposes new
language in subsection (a)(1)(A)(i) stating that if a DOT order entered
in NYSE or NYSE MKT securities has been designated to participate in
the closing only and is entered at 3:45 p.m. Eastern Time or later (or
in the case of an early closing, is entered 15 minutes prior to the
close or later), the order will be rejected.\7\ A DOT order entered in
non-NYSE or non-NYSE MKT securities, however, will be treated as a SCAN
or STGY order depending on the designation of the firm. The Exchange
believes the proposed explanation of how DOT orders will be treated
makes the rule clearer and easier to follow, and should serve to
minimize any potential confusion regarding its application.\8\ The
modifications make clear the processing logic for NYSE or NYSE MKT and
non- NYSE or non-NYSE MKT orders. The modifications also make clear the
processing logic for NYSE or NYSE MKT DOT orders designated to
participate in the closing only and entered at 3:45 p.m. Eastern Time
or later (or in the case of an early closing, entered 15 minutes prior
to the close or later), which would be rejected. Also, the
modifications make clear the processing logic for a non-NYSE or NYSE
MKT DOT order, which would continue to be treated as SCAN or STGY
orders depending on the designation of the firm.
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\6\ In the event that an opening or closing only order was
returned to NASDAQ after the time of the open or close on the
destination market, NASDAQ would cancel the order.
\7\ NYSE and NYSE MKT rules do not permit the entry of on close
orders after 3:45 p.m. Eastern Time unless they are offsetting an
imbalance. Since the Exchange is a pass through for these purposes
and does not read imbalances, the System is set to reject at the
3:45 p.m. Eastern Time cut-off or later (or in the case of an early
closing, to reject 15 minutes prior to the close or later), so that
the Exchange is in synch with the rules of NYSE and NYSE MKT. As
discussed, the Exchange adds language to ensure that the noted
orders are rejected if there is an early market close. This is
similar for DOT, DOTI, and LIST.
\8\ For additional explanation and clarity in subsection
(a)(1)(A)(i), the Exchange proposes to add the phrase ``if
applicable'' following ``after attempting to execute in the opening
or closing process.''
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Second, NASDAQ is proposing similar changes to the DOTI routing
strategy in subsection (a)(1)(A) of Rule 4758 to make it clear that a
DOTI order may be designated to participate in the opening only but not
in the closing only under certain circumstances. Currently, DOTI is a
routing option for orders that the entering firm wishes to direct to
the NYSE or NYSE MKT without them returning to the NASDAQ Market
Center. DOTI orders check the System for available shares and then are
sent to destinations on the System routing table before being sent to
NYSE or NYSE MKT, as appropriate. Alternatively, the member entering
the order may opt to have it check the System and then be sent directly
to NYSE or NYSE MKT, without routing to destinations on the System
routing table.\9\ DOTI orders do not return to the NASDAQ Market Center
book after routing. Specifically, the Exchange proposes in subsection
(a)(1)(A)(ii)a. of Rule 4758 to delete the current option of a DOTI
order being designated to participate in the closing only at the proper
time as described below, in which case a closing only order would be
expected to be rejected by the destination market and would also be
cancelled by NASDAQ if returned by the destination market. The Exchange
proposes new language in subsection (a)(1)(A)(ii)a. stating that if a
DOTI order entered in NYSE or NYSE MKT securities has been designated
to participate in the closing only and is entered at 3:45 p.m. Eastern
Time or later (or in the case of an early closing, is entered 15
minutes prior to the close or later) it will be rejected.\10\ The
Exchange believes the proposed explanation of how DOTI orders will be
treated makes the rule clearer and easier to follow, and should serve
to minimize any potential confusion regarding its application. As is
the case with DOT, the modifications make clear the processing logic
for NYSE or NYSE MKT DOTI orders designated to participate in the
closing only and entered at 3:45 p.m. Eastern Time or later (or in the
case of an early closing, entered 15 minutes prior to the close or
later), which would be rejected.
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\9\ This option is referred to in system specifications as
``DOTZ''.
\10\ See also supra note 6.
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Third, NASDAQ is proposing similar changes to the LIST routing
strategy in subsection (a)(1)(A) of Rule 4758 to make it clear how a
LIST order designated to participate in the closing only will be
handled. Currently, LIST is a routing option designed to allow orders
to participate in the opening and/or closing process of the primary
listing market for a security, and to follow additional routing logic
as described below. A LIST order received before the security has
opened on its primary listing market will be routed to the primary
listing market for participation in that market's opening process.
After the security has opened on its primary listing market, unexecuted
shares will be returned to the NASDAQ system; the order would be
returned only to the extent that the order has not been designated
opening only and has not
[[Page 19101]]
been fully executed, rejected, or cancelled by the destination market.
Thereafter, the order will check the System for available shares and
simultaneously route the remaining shares to destinations on the System
routing table. Any remaining shares will be posted on the book. As with
DOT and DOTI, if a LIST order is received by NASDAQ before the
destination market is able to receive orders for its opening process,
the order will be held until such time as the destination market can
receive it. The Exchange specifically proposes new language in
subsection (a)(1)(A)(x) to state that for NYSE and NYSE MKT securities,
LIST orders that have been designated to participate in the closing
only and are entered at the 3:45 p.m. Eastern Time cut-off or later (or
in the case of an early closing, are entered 15 minutes prior to the
close or later), will be rejected. This is the same as DOT and DOTI.
Currently, the provision in subsection (a)(1)(A)(x) governing a LIST
order that has been designated to participate in the closing only and
is entered after the security has closed states that the order will
nevertheless be routed to the primary listing market. The Exchange
proposes to add language stating ``unless the primary market for the
security is NYSE or NYSE MKT.'' \11\ Accordingly, if a LIST order has
been designated to participate in the closing only and is entered after
the security has closed and the primary market for the security is
other than NYSE or NYSE MKT, the order will nevertheless be routed to
the primary listing market. Currently, subsection (a)(1)(A)(x) states
that LIST Orders received after market close that have not been
designated as closing only will check the System for available shares
and simultaneously route the remaining shares to destinations on the
System routing table. The Exchange proposes to add language regarding
such LIST orders, stating ``and are eligible, based on the orders'
time-in force,\12\ to participate in the after-hours market.''
Accordingly, LIST Orders received after market close that have not been
designated as closing only and are eligible, based on the orders' time-
in force, to participate in the after-hours market will check the
System for available shares and simultaneously route the remaining
shares to destinations on the System routing table. Any remaining
shares will be posted to the NASDAQ book. This additional language
explains the processing logic if a LIST order is received after market
close and is not designated to participate in the closing only.
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\11\ Based on its designation as closing only, this type of
eligible LIST order will nevertheless be routed to the primary
listing market; based on its designation as closing only, such an
order would be expected to be rejected by the destination market,
and would also be cancelled by NASDAQ if returned by the destination
market. Rule 4758(a)(1)(A)(x). If the primary market for the
security is NYSE or NYSE MKT, the order will be rejected because the
cutoff is at 3:45 p.m. Eastern Time or later (or in the case of an
early closing, is at 15 minutes prior to the close or later). See
also supra note 6.
\12\ For example, orders with a time in force that is valid for
extended hours trading.
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By way of housekeeping, the Exchange also proposes additional
explanatory language in respect of LIST orders. First, where currently
Rule 4758(a)(1)(A)(x) states that two minutes before market close, all
LIST orders on the book ``will route'' to the security's primary
listing market for participation in its closing process, the Exchange
proposes to say ``will begin routing'' in recognition of the fact that
the sheer volume of orders will not allow all orders to route at
exactly the same time. Second, where currently Rule 4758(a)(1)(A)(x)
states that after the security has closed on the primary listing
market, a LIST order that has not been designated as ``a closing only
order'' and that has not been fully executed, rejected, or cancelled by
the market to which it was routed will be returned to the NASDAQ
System, the Exchange proposes to state ``a closing only or MDAY order''
in recognition of the time in force of a MDAY order.\13\
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\13\ ``Market Hours Day'' or ``MDAY'' shall mean for orders so
designated, that if after entry into the System, the order is not
fully executed, the order (or unexecuted portion thereof) shall
remain available for potential display and/or execution until 4:00
p.m. Eastern Time, unless canceled by the entering party, after
which it shall be returned to the entering party. MDAY Orders shall
be available for entry from 4:00 a.m. until 4:00 p.m. Eastern Time
and for potential execution from 9:30 a.m. until 4:00 p.m. Eastern
Time. Rule 4751(h)(6).
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The Exchange believes that these proposed explanatory changes are
non-controversial and are consistent with the Act.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder, including the
requirements of Section 6(b) of the Act.\14\ In particular, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \15\ requirements that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts and practices, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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NASDAQ believes that the changes will make clear to market
participants that they may not designate DOT and DOTI orders to
participate in the closing only of a primary listing venue under
certain circumstances. In addition, NASDAQ proposes to clearly explain
to market participants how orders designated to participate in the
closing only and are entered at 3:45 p.m. Eastern Time or later (or in
the case of an early closing, are entered 15 minutes prior to the close
or later) will be handled. Collectively, the changes discussed in the
proposal facilitate transactions in securities and perfect the
mechanism of a free and open market and a national market system by
providing NASDAQ members with greater explanation regarding the routing
of their orders. The Exchange believes the changes make clear the
language to Rule 4758 and make it easier to follow, and should serve to
minimize any potential confusion regarding its application. The
majority of the changes are explanatory, and some are technical in
nature.
As noted, the Exchange believes that the changes proposed are
explanatory and non-controversial in nature.
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. The Exchange does not
believe that the proposed rule change will have any 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.
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 from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section
[[Page 19102]]
19(b)(3)(A)(ii) of the Act \16\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(a)(ii).
\17\ 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: (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 to determine whether the
proposed rule should be approved or disapproved.
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-2015-031 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2015-031. 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 will also 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-2015-031 and should
be submitted on or before April 30, 2015.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Brent J. Fields,
Secretary.
[FR Doc. 2015-08109 Filed 4-8-15; 8:45 am]
BILLING CODE 8011-01-P