
[Federal Register Volume 78, Number 55 (Thursday, March 21, 2013)]
[Notices]
[Pages 17464-17466]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06479]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69151; File No. SR-NASDAQ-2013-033]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Extend the Pre-Market Hours of the Exchange to 4:00 a.m. EST

March 15, 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 March 5, 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

    NASDAQ proposes to extend the pre-market hours of the Exchange to 
4:00 a.m. EST, from the current opening time of 7:00 a.m. EST.

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
    Background. NASDAQ's equities trading day is divided into three 
sessions: (1) The pre-market session which runs from 7:00 a.m. to 
9:29:59 a.m.; (2) the regular session which runs from 9:30 a.m. to 4:00 
p.m.; and (3) the post-market session which runs from 4:00:00:01 p.m. 
to 8:00 p.m. The vast majority of trading occurs during the regular 
session; over 91 percent of average daily trading volume in NASDAQ-
listed equities is executed during the regular session. Nonetheless, 
the pre-market and post-market sessions provide critical price 
formation and trading opportunities for a small group of equities 
market participants. For those equities and market participants, the 
presence of a transparent, liquid, and efficient market during the pre-
market or post-market session is vital to public investors, and to the 
firms themselves.
    The NYSE Arca Exchange is currently the only U.S. equities exchange 
that operates a pre-market trading session for equities beginning at 
4:00 a.m. Increasingly, the trading period between 4:00 a.m. and 7:00 
a.m. provides a significant opportunity for certain investors and 
traders. A meaningful percentage of total daily trading volume in 
NASDAQ-listed securities is reported as executed before 7:00 a.m., 
especially for individual stocks that experience material news or other 
trading events overnight. Additionally, NASDAQ understands from its 
members that an increasing number of limit orders are entered into the 
NYSE Arca system before 7:00 a.m. and execute after 7:00 a.m. While it 
is difficult to quantify the total number of orders and shares in this 
category based on available trade reporting limitations, NASDAQ 
believes

[[Page 17465]]

that significant liquidity comes to rest prior to 7:00 a.m.
    Accordingly, NASDAQ believes that opening its system at 4:00 a.m. 
will benefit investors, the national market system, NASDAQ members and 
the NASDAQ market. Opening at 4:00 a.m. will benefit investors and the 
national market system by increasing competition for order flow and 
executions, and thereby spurring product enhancements and lowering 
prices. Opening at 4:00 a.m. will benefit NASDAQ members and the NASDAQ 
market by increasing trading opportunities between 4:00 a.m. and 7:00 
a.m. without increasing ancillary trading costs (telecommunications, 
data, connectivity, etc.) and, thereby, decreasing average trading 
costs per share. Opening NASDAQ at 4:00 a.m. will also benefit NASDAQ 
members that choose not to participate in the early hours but 
nonetheless gain the opportunity to interact with liquidity entered by 
other members during the early session.
    Operations. From the members' operational perspective, NASDAQ's 
goal is to permit trading for those that choose to trade, without 
imposing burdens on those that do not. Thus, for example, NASDAQ will 
not require any NASDAQ member to participate in the extended session, 
including not requiring registered market makers to make two-sided 
markets between 4:00 a.m. and 7:00 a.m. NASDAQ will minimize members' 
preparation efforts to the greatest extent possible by allowing members 
to trade beginning at 4:00 a.m. with the same equipment, connectivity, 
order types, and data feeds they currently use from 7:00 a.m. onwards.
    Opening Process. NASDAQ will offer no opening cross at 4:00 a.m., 
just as it offers no Opening Cross at 7:00 a.m. today. Instead, at 4:00 
a.m., the NASDAQ system will ``wake up'' by loading in price/time 
priority all open trading interest carried over from the previous 
trading day. Also at 4:00 a.m., NASDAQ will open the execution system 
and accept new eligible orders, just as it currently does at 7:00 a.m. 
Members will be permitted to enter orders beginning at 4:00 a.m. Market 
makers will be permitted but not required to open their quotes 
beginning at 4:00 a.m. in the same manner they open their quotes today 
beginning at 7:00 a.m.
    Order Types. Every NASDAQ order type that is currently available 
beginning at 7:00 a.m. will be available beginning at 4:00 a.m. All 
other order types, and all order type behaviors, will otherwise remain 
unchanged. NASDAQ will not extend the expiration times of any orders. 
For example, an order that is currently available from 7:00 a.m. to 
4:00 p.m. will be modified to be available from 4:00 a.m. to 4:00 p.m. 
An order that is available from 7:00 a.m. to 9:30 a.m. will be modified 
to be available from 4:00 a.m. to 9:30 a.m. In the future, display and 
non-display characteristics will operate beginning at 4:00 a.m., as 
they do today beginning at 7:00 a.m.
    Routing Services. NASDAQ will route orders to away markets between 
4:00 a.m. and 7:00 a.m., just as it does today between 7:00 a.m. and 
9:30 a.m. All routing strategies set forth in NASDAQ Rule 4758 will 
remain otherwise unchanged, performing the same instructions they 
perform between 4:00 a.m. and 7:00 a.m. today.
    Order Processing. Order processing under NASDAQ Rule 4757 will 
operate beginning at 4:00 a.m. just as it does today beginning at 7:00 
a.m. There will be no changes to the ranking, display, execution 
algorithms, or decrementation processes or rules.
    Data Feeds. NASDAQ will report the best bid and offer on the 
Exchange to the appropriate network processor, as it currently does 
beginning 7:00 a.m. NASDAQ proprietary data feeds will be disseminated 
beginning at 4:00 a.m. using the same formats and delivery mechanisms 
with which NASDAQ currently disseminates them beginning at 7:00 a.m.
    Trade Reporting. Trades executed between 4:00 a.m. and 7:00 a.m. 
will be reported to the appropriate network processor with the ``.T'' 
modifier, just as they are reported today beginning at 7:00 a.m.
    Adjustment of Open Orders. NASDAQ will adjust open orders for the 
4:00 a.m. opening pursuant to the requirements of NASDAQ Rule 4761 just 
as it does today for the 7:00 a.m. opening.
    Fees. NASDAQ is changing no fees in connection with this proposal.
    Market Surveillance. NASDAQ's commitment to high quality regulation 
at all times will extend to 4:00 a.m. NASDAQ will offer all 
surveillance coverage currently performed by NASDAQ MarketWatch 
beginning at 3:45 a.m. In other words, surveillance coverage will begin 
15 minutes pre-open, just as it does today.
    Personnel. Quality surveillance begins with quality personnel. 
Highly trained primary and back-up regulatory personnel will be in 
place at 3:45 a.m. and the NASDAQ Call Center will open at 4:00 a.m.
    Systems. All MarketWatch surveillance systems will launch by the 
time trading starts. At 4:00 a.m. NASDAQ personnel will begin 
conducting alert reviews, clearly erroneous trade processing, and 
member firm contacts just as they do today beginning at 7:00 a.m.
    Trading Halts. Currently MarketWatch institutes trading halts from 
7 a.m. to 8 p.m. NASDAQ plans to institute a subset of trading halts 
between 4:00 a.m. and 7:00 a.m. First, NASDAQ will halt trading at the 
request of an issuer, which NASDAQ believes is also the practice of the 
NYSE across its affiliated exchanges for its listed companies. Second, 
NASDAQ will halt trading in conjunction with a trading halt imposed by 
a foreign listing market. As described below, NASDAQ does not plan to 
review issuer disclosures during the 4:00 a.m. to 7:00 a.m. period, 
obviating the need for material news halts.
    Clearly Erroneous Trade Processing. NASDAQ will process trade 
breaks beginning at 4:00 a.m. pursuant to NASDAQ Rules 4762 and 11890 
just as it does today beginning at 7:00 a.m.
    Issuer Disclosure Requirements. To avoid burdening issuers, NASDAQ 
will not extend the current issuer disclosure requirements set forth in 
NASDAQ Rule 5250 and NASDAQ IM-5250, which require overnight material 
disclosures to be forwarded to MarketWatch by 6:50 a.m. This will allow 
issuers to continue the practice of disclosing material news between 
4:00 a.m. and 7:00 a.m. to avoid triggering a halt by NASDAQ or another 
listing market. Issuers prefer to avoid triggering material news halts 
because the halt process involves interaction between NASDAQ and 
designated officials at the issuer. Our proposed policy would obviate 
the need for these officials to be available at unexpected hours. This 
also limits the need for trade halt coordination between NASDAQ and the 
NYSE Arca Exchange between 4:00 a.m. and 7:00 a.m.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\3\ in general, and with 
Section 6(b)(5) of the Act,\4\ 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

[[Page 17466]]

the public interest. The proposed rule change promotes this goal by 
offering additional trading opportunities to NASDAQ members that desire 
them, without imposing burdens on NASDAQ members that do not. The 
proposal will facilitate a well-regulated, orderly, and efficient 
market during a period of time that is currently underserved.
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    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 78f(b)(5).
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    NASDAQ notes that the proposed trading period has been available 
for years on the NYSE Arca Exchange. NASDAQ believes that the 
availability of trading between 4:00 a.m. and 7:00 a.m. has been 
beneficial to market participants including investors and issuers on 
other markets. The Exchange believes that offering a competing trading 
session will further benefit investors by promoting competition and 
order interaction, while imposing no added costs on investors or other 
market participants that choose not avail themselves of these benefits.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ 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. To the contrary, 
NASDAQ believes that offering a competing early trading session is pro-
competitive in that it will increase competition for order flow, for 
execution services and for listings. The fact that the early trading 
session is itself an identical response to the competition provided by 
another market is proof of its pro-competitive nature. NASDAQ fully 
expects that other listing venues will respond by further extending 
their trading sessions as well.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \5\ and Rule 19b-4(f)(6) thereunder.\6\ 
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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6)(iii) thereunder.\8\
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    \5\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \6\ 17 CFR 240.19b-4(f)(6).
    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6)(iii). 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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    The Exchange has asked the Commission to waive the 30-day operative 
delay.\9\ The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The proposed rule change does not appear to raise any novel 
regulatory issues for the Commission to consider.\10\ In addition, 
according to NASDAQ, the introduction of competition during the hours 
of 4:00 a.m. and 7:00 a.m. will benefit investors by offering 
alternative execution venues and spurring improvements in pricing and 
functionality. Accordingly, the Commission designates the proposal 
operative upon filing.\11\
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    \9\ 17 CFR 240.19b-4(f)(6)(iii).
    \10\ See Securities and Exchange Act Release No. 51014 (January 
10, 2005), 70 FR 2918 (January 18, 2005) (SR-PCX-2004-83).
    \11\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 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 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-2013-033 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-2013-033. 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 available publicly. All 
submissions should refer to File Number SR-NASDAQ-2013-033 and should 
be submitted on or before April 11, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06479 Filed 3-20-13; 8:45 am]
BILLING CODE 8011-01-P


