
[Federal Register Volume 77, Number 66 (Thursday, April 5, 2012)]
[Notices]
[Pages 20658-20660]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8150]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66699; File No. SR-NASDAQ-2012-041]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Related to Non-Display of Primary Pegged Orders With an Offset Amount

March 30, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 20659]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 23, 2012, 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 
Exchange has designated the proposed rule change as constituting a rule 
change under Rule 19b-4(f)(6) under the Act,\3\ which renders the 
proposal effective upon filing with the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to provide that Primary Pegged Orders with an 
offset amount will never be displayed. The text of the proposed 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.

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 proposes to amend Rule 4751(f)(4) to provide that Primary 
Pegged Orders with an offset amount will be non-displayed, a change 
that will improve system and inter-market price stability. Pegged 
Orders are orders that, once entered, adjust in price automatically, in 
response to changes in the inside bids or offers of the Nasdaq Market 
Center or the national market system, depending upon the type of Pegged 
Order. A Primary Pegged Order specifies that its price will equal the 
inside quote on the same side of the market; a Market Pegged Order will 
equal the inside quote on the opposite side of the market. A Midpoint 
Peg Order will equal the midpoint of the national best bid and offer 
(``NBBO''), excluding the effect that the Midpoint Peg Order itself has 
on the inside bid or inside offer. As the bids and offers change, so 
move the Pegged Orders. A Pegged Order may have a limit price beyond 
which the order shall not be executed. Primary Peg and Market Peg 
Orders may establish their pricing relative to the appropriate bids or 
offers by selecting one or more offset amounts that will adjust the 
price of the order by the offset amount selected.
    Under the Exchange's current rule, Midpoint Pegged Orders are not 
displayed, while Primary and Market Pegged Orders may be displayed or 
not displayed, at the option of the person placing the order. The 
display of Primary Pegs with an offset amount can potentially result in 
excessive messaging when multiple venues display Pegged non-marketable 
Orders. In these scenarios, it is possible for the Primary Pegged 
Orders on each venue to react to and change in relation to each other, 
resulting in excessive messaging and ``quote flickering''. A rule 
change to eliminate display of Primary Pegged Orders with an offset 
amount will prevent this feedback loop, adding to system stability and 
improving market quality.
    Market participants retain the ability to display orders through 
other order options available under the Exchange rules, including by 
using Primary Pegged Orders without an offset amount or Market Pegged 
Orders. Because Primary Pegged Orders without an offset amount are 
priced at the inside quote, they do not present the same messaging 
problem. Rapid updates to displayed Primary Pegged Orders may still 
occur, but are more likely to be the result of rapid trading. Market 
Pegged Orders, in contrast to Primary Pegs with an offset amount, are 
typically priced to execute and rarely post, and thus also do not 
present the excessive messaging problem.
    The Commission approved the non-display of Pegged Orders when it 
approved the application of BATS Exchange, Inc. (``BATS''), for 
registration as a national securities exchange and found BATS' proposed 
rules consistent with Section 6 of the Act.\4\ BATS Rule 11.9(c)(8) 
provides that Pegged Orders ``are not displayed on the Exchange.'' \5\
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    \4\ See Securities Exchange Act Release No. 58375 (August 18, 
2008) 73 FR 49498 (August 21, 2008) (File No. 10-182); see also 
Securities Exchange Act Release No. 57322 (February 13, 2008), 73 FR 
9370 (February 20, 2008) (File No. 10-182).
    \5\ BATS Rule 11.9(c)(8).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\6\ in general, and furthers the objectives of Section 6(b)(5),\7\ 
in particular, in that it 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. Non-display of Primary Pegged 
Orders with an offset amount will minimize excess messaging that 
distracts from, rather than improves transparency and stability. Market 
participants can elect to display orders by using other available order 
types. The Exchange believes that the proposed change to Rule 
4751(f)(4) meets the requirements of Section 6(b)(5) of the Act \8\ in 
that it will improve the stability, quality and transparency of the 
national market system.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ 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, as amended. Specifically, the 
Exchange believes that providing for non-display of Primary Pegged 
Orders will not burden competition since at least one other exchange 
currently offers the same attribute for pegged orders.

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

    The proposed rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) \10\ thereunder 
in that the proposed rule change: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any

[[Page 20660]]

significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest. NASDAQ believes that 
the proposed rule change does not significantly affect the protection 
of investors or the public interest because it adopts a provision that 
is already in effect on another market; will operate to minimize 
excessive messaging and therefore maximize system and inter-market 
stability; and is an order type that participants may elect to use but 
are not mandated to use.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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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. 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2012-041 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-2012-041. 
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 a.m. and 3 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-2012-041 and 
should be submitted on or before April 26, 2012.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8150 Filed 4-4-12; 8:45 am]
BILLING CODE 8011-01-P


