
[Federal Register Volume 77, Number 137 (Tuesday, July 17, 2012)]
[Notices]
[Pages 42045-42048]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17351]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67413; File No. SR-NASDAQ-2012-084]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Rule 4751(f)(7) Concerning the Processing of the Price To Comply Order

July 11, 2012.
    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 July 2, 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 
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 modify how the processing of a Price to 
Comply

[[Page 42046]]

Order under Rule 4751(f)(7) operates based on the method of entry.
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *

4751. Definitions

    The following definitions apply to the Rule 4600 and 4750 Series 
for the trading of securities listed on Nasdaq or a national securities 
exchange other than Nasdaq.
    (a)-(e)
    (f) The term ``Order Type'' shall mean the unique processing 
prescribed for designated orders that are eligible for entry into the 
System, and shall include:
    (1)-(6) No change.
    (7) ``Price to Comply Order'' are orders that, if, at the time of 
entry, a Price to Comply Order would lock or cross the quotation of an 
external market, the order will be priced to the current low offer (for 
bids) or to the current best bid (for offers) and displayed at a price 
one minimum price increment lower than the offer (for bids) or higher 
than the bid (for offers). The displayed and undisplayed prices of a 
Price to Comply order entered through an OUCH port that crosses the 
market will [may] be adjusted once and, depending on the election of 
the member firm, either rest on the book or [multiple times depending 
upon the election of the member firm and changes to the prevailing 
NBBO] be canceled if the previously-locking price becomes available. 
The displayed and undisplayed prices of a Price to Comply order entered 
through an OUCH port that locks the market will be adjusted once and, 
depending on the election of the member firm, either rest on the book, 
be canceled, or adjusted a second time if the previously-locking price 
becomes available. The displayed and undisplayed prices of a Price to 
Comply order entered through a RASH port may be adjusted multiple 
times, depending upon changes to the prevailing NBBO.
    (8)-(14) No change.
    (g)-(i) No change.
* * * * *

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
    NASDAQ is proposing to modify how OUCH port-entered Price to Comply 
Orders \3\ will operate. Price to Comply Orders, as described in Rule 
4751(f)(7), allow member firms to quote aggressively and still comply 
with the locked and crossed markets provisions of Regulation NMS.\4\ 
NASDAQ recently amended Rule 4751(f)(7) to clarify the effect that the 
methods of order entry have on the processing of Price to Comply 
Orders.\5\ The rule change clarified that OUCH port-entered Price to 
Comply Orders are now eligible for price adjustment either once or 
multiple times, depending on the election of the member firm.\6\ The 
Exchange noted in the rule change that offering OUCH port users the 
ability to have NASDAQ reprice a Price to Comply Order multiple times 
will serve to reduce the excessive volume of orders entered into the 
System \7\ and ultimately canceled.\8\ Accordingly, a Price to Comply 
Order entered through an OUCH port that a member firm has designated 
for multiple price adjustment will be adjusted more than once in 
response to changes in the prevailing National Best Bid and Offer 
(``NBBO'') to move the displayed price closer to the original entered 
price and display the best possible price consistent with the 
provisions of Regulation NMS. Prior to the clarifying rule change, OUCH 
port-entered Price to Comply Orders that would lock or cross the market 
would be adjusted once and thereafter rest on the book. The Exchange 
has not implemented the recently-adopted changes \9\ so that it could 
subsequently modify how the OUCH port-entered Price to Comply Orders 
will operate under Rule 4751(f)(7), as described below.
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    \3\ ``Price to Comply Order'' is an order such that, if, at the 
time of entry, it would lock or cross the quotation of an external 
market, the order will be priced to the current low offer (for bids) 
or to the current best bid (for offers) and displayed at a price one 
minimum price increment lower than the offer (for bids) or higher 
than the bid (for offers).
    \4\ 17 CFR 242.610.
    \5\ See Securities Exchange Act Release No. 67024 (May 18, 
2012), 77 FR 31055 (May 24, 2012) (SR-NASDAQ-2012-060).
    \6\ Member firms must designate each OUCH protocol order port 
that it wishes to use with the multiple price adjustment 
functionality, and such ports will also be designated for automatic 
cancellation or ``kick out'' of other order types whose price was 
adjusted upon entry to prevent a violation of Rule 610(d) of 
Regulation NMS. In the absence of designation from a member firm, 
the Exchange will default the member's OUCH port(s) to single price 
adjustment.
    \7\ As defined by Rule 4751(a).
    \8\ The Exchange noted that the OUCH protocol is used by member 
firms that are able to submit a large volume of orders. Such member 
firm will often submit a Price to Comply Order at an aggressive 
price that it anticipates will be at the NBBO, but it is not 
submitted at the NBBO and is not executed after repricing because 
the market does not move to the adjusted order price. In such cases, 
the member firm will typically submit additional aggressive orders, 
which likewise are not executed. Supra note 5.
    \9\ Supra note 5.
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    The Exchange has determined to modify Rule 4751(f)(7) so that a 
Price to Comply Order entered via an OUCH port designated for multiple 
price adjustment that would lock the market can be adjusted a maximum 
of two times--once upon entry and once again to move the displayed 
price to the original entered price when it becomes permissible under 
Regulation NMS to do so, thereby displaying the best possible price 
consistent with the provisions of Regulation NMS. Under the proposed 
rule change, such Price to Comply Orders that would cross the market 
upon entry would be price adjusted once upon entry to display at a 
permissible level and thereafter cancelled when the previously locking 
level becomes available. This cancellation allows the member to 
resubmit its order at a price more aggressive than the previously 
locking price should the member still desire to do so.\10\ As such, and 
unlike as described in the recent rule change, the process applied to 
OUCH ports designated for multiple price adjustment will be similar to, 
yet different than, the process applied to RASH-entered Price to Comply 
Orders.
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    \10\ Similarly, orders other than Price to Comply Orders that 
are re-priced on entry due to Regulation NMS and submitted via OUCH 
ports designated for multiple price adjustment of Price to Comply 
Orders will be cancelled when the previously locking price level 
becomes available.
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    NASDAQ is not changing how Price to Comply Orders entered via an 
OUCH port not designated for multiple price adjustment operate. Such 
orders will continue to be adjusted once and thereafter remain on the 
book. Likewise, NASDAQ is not proposing to change how price adjusted 
orders are treated in terms of priority. Like RASH-entered Price to 
Comply Orders, each time the OUCH-entered order is price adjusted it 
will receive a new timestamp for purposes of determining its price/
display/time priority.\11\ As such, an

[[Page 42047]]

OUCH-entered Price to Comply Order that is repriced upon entry will 
initially be prioritized among non-displayed orders at the locking 
price based on its time of entry. Upon the second repricing of an OUCH-
entered Price to Comply Order that is entered at a locking price, the 
order will be prioritized among displayed orders at the previously 
locking price based on its time of repricing and thus is treated as a 
new displayed order in terms of priority. There is no guarantee that 
the OUCH-entered Price to Comply Order will receive priority amongst 
displayed orders when it becomes actionable after repricing, as other 
displayed orders may be entered before the Price to Comply Order is 
repriced. This priority treatment is identical to the treatment 
provided to RASH-entered Price to Comply Orders that are price 
adjusted. The Exchange will provide public notice five business days 
prior to the implementation date of the changes proposed herein, 
together with the changes proposed in the recent rule filing \12\ not 
modified by this proposal, and such implementation date will be no 
later than thirty calendar days from the date of filing this proposal 
with the Commission.
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    \11\ As described in Rule 4757(a)(1).
    \12\ Supra note 5.
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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,\13\ in general, and with 
Section 6(b)(5) of the Act \14\ 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. NASDAQ 
believes this proposal is consistent with the Exchange Act and, 
specifically, Rules 610 and 611 of Regulation NMS in that it is 
designed to prevent orders from locking and crossing the market or 
trading through protected quotes, while also promoting a more efficient 
market. In this regard, NASDAQ believes that the proposed rule change 
will promote the efficient use of the Exchange by reducing the number 
of orders entered into the market and ultimately canceled. The proposed 
rule change will accomplish this by providing the member firms that 
tend to enter the greatest number of such orders via OUCH ports an 
option to have the Exchange reprice two times a single order that would 
lock the market upon entry. NASDAQ also believes that permitting a high 
volume user the option to continue to have the Exchange reprice its 
Price to Comply Order only upon order entry, when appropriate, will 
ensure member firms with internal systems that act in reliance of this 
function will continue to operate without disruption.
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    \13\ 15 U.S.C. 78f.
    \14\ 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.

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 19(b)(3)(A)(ii) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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. The Exchange has 
provided the Commission written notice of its 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.

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-2012-084 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-2012-084. 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 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 publicly available. All 
submissions should refer to File Number SR-NASDAQ-2012-084 and should 
be submitted on or August 7, 2012.


[[Page 42048]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17351 Filed 7-16-12; 8:45 am]
BILLING CODE 8011-01-P


