
[Federal Register Volume 78, Number 130 (Monday, July 8, 2013)]
[Notices]
[Pages 40782-40785]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16228]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69897; File No. SR-NASDAQ-2013-092]


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) To Modify the Parameters for Releasing IPO 
Securities for Trading Pursuant to the IPO Halt Cross Under NASDAQ Rule 
4753

July 1, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on June 25, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange''), filed with

[[Page 40783]]

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 amend NASDAQ Rule 4120(c)(7) \3\ to modify 
the parameters for releasing IPO securities for trading pursuant to the 
IPO Halt Cross under NASDAQ Rule 4753. NASDAQ will implement the 
proposed changes in mid-to-late August 2013. Public notice of the 
implementation date will be provided by NASDAQ in an Equity Trader 
Alert at least one week prior to implementation.
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    \3\ The rule text reflects changes that are effective as of June 
14, 2013, but not yet operative. See SR-NASDAQ-2013-086 (pending 
publication in the Federal Register). 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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    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *

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) A trading halt or pause initiated under Rule 4120(a)(1), 
(4), (5), (6), (9), (10), (11), or (12)(F) shall be terminated when 
Nasdaq releases the security for trading. For any such security 
listed on Nasdaq, prior to terminating the halt or pause, there will 
be a 5-minute Display Only Period during which market participants 
may enter quotations and orders in that security in Nasdaq systems. 
In addition, in instances where a trading halt is in effect prior to 
the commencement of the Display Only Period, market participants may 
enter orders in a security that is the subject of the trading halt 
on Nasdaq and designate such orders to be held until the beginning 
of the Display Only Period. Such orders will be held in a suspended 
state until the beginning of the Display Only Period, at which time 
they will be entered into the system. At the conclusion of the 5-
minute Display Only Period, the security shall be released for 
trading unless Nasdaq extends the Display Only Period for an 
additional 1-minute period pursuant to subparagraph (C) below. At 
the conclusion of the Display Only Period, trading shall immediately 
resume pursuant to Rule 4753.
    (B) A trading halt initiated under Rule 4120(a)(7) shall be 
terminated when Nasdaq releases the security for trading. Prior to 
terminating the halt, there will be a 15-minute Display Only Period 
during which market participants may enter quotes and orders in that 
security in Nasdaq systems. In addition, beginning at 4:00 a.m., 
market participants may enter orders in a security that is the 
subject of an Initial Public Offering (``IPO'') on Nasdaq and 
designate such orders to be held until the beginning of the Display 
Only Period, at which time they will be entered into the system. 
[At]After the conclusion of the 15-minute Display Only Period (the 
time after conclusion of the Display Only Period is hereafter 
referred to as the ``Pre-Launch Period''), the security shall be 
released for trading by Nasdaq at such time as both of the following 
conditions are simultaneously met: (i) Nasdaq receives notice from 
the underwriter of the IPO that the security is ready to trade and 
(ii) there is no order imbalance in the security as defined in 
subparagraph (C) below. The underwriter, with concurrence of Nasdaq, 
may determine at any point during the IPO Halt Cross process up 
through the Pre-Launch Period to postpone and reschedule the IPO.[ 
unless Nasdaq extends the Display Only Period for up to six 
additional 5-minute Display Only Periods pursuant to subparagraph 
(C) or (D) below. At the conclusion of the Display Only Period(s), 
there shall be an additional delay of between zero and 15 seconds 
(randomly selected) and then trading shall resume pursuant to Rule 
4753.] Market participants may continue to enter orders and order 
cancellations for participation in the cross auction during the Pre-
Launch Period up to the point that the cross auction process 
commences.
    (C) If at the end of a Display Only Period, Nasdaq detects an 
order imbalance in the security, Nasdaq will extend the Display Only 
Period as permitted under subparagraph[s] (A) [and (B) above]. In 
the case of subparagraph (B), any order imbalance during the Pre-
Launch Period 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 under subparagraph (A) shall be established 
when (i) the Current Reference Prices, as defined in Rule 
4753(a)(2)(A), 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, or (ii) all buy or sell market orders will not 
be executed in the cross. Order imbalances under subparagraph (B) 
shall be established when (i) the Current Reference Prices, 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 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.
    [(D) At any time within the last five minutes prior to the end 
of a Display Only Period, Nasdaq may extend the Display Only Period 
as permitted under subparagraph (B) above at the request of an 
underwriter of an IPO.]
* * * * *

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)(B) and (C) and to 
delete Rule 4120(c)(7)(D) to modify the process by which a company's 
securities approved for listing on NASDAQ in an initial public offering 
(``IPO'') are released for trading pursuant to NASDAQ's IPO Halt Cross 
under NASDAQ Rule 4753. Rule 4120(c)(7)(B) governs the orderly launch 
of trading of IPO securities approved for listing on NASDAQ in an 
initial public offering. Rule 4120(c)(7)(B), provides a fifteen-minute 
``Display Only Period'' prior to terminating the halt imposed on an IPO 
security before it opens for trading for the first time on NASDAQ 
pursuant to the IPO Halt Cross. Under Rule 4120(c)(7)(B), at the 
conclusion of the fifteen-minute Display Only Period NASDAQ may extend 
the period for up to six additional five-minute Display Only Periods, 
pursuant to the basis described under Rule 4120(c)(7)(C). Rule 
4120(c)(7)(C) allows an extension when NASDAQ detects an order 
imbalance in the security. Rule 4120(c)(7)(D) permits NASDAQ to extend 
any of these Display-Only Periods for an additional five-minute Display 
Only Period (up to the maximum of six additional periods) at the 
request of an underwriter of the IPO.
    NASDAQ believes that the existing rule has worked well in matching 
investor interest in an auction to establish the price at which the 
security is released for trading on NASDAQ. The rule also recognizes 
the critical role played by the underwriter, with its unique knowledge 
of the issuer and the market, in establishing the appropriate

[[Page 40784]]

time to release the security for trading. While issuers and 
underwriters have provided positive feedback on the current process 
that NASDAQ believes has worked successfully in hundreds of IPOs, we 
have periodically heard suggestions regarding potential changes to the 
IPO Halt Cross. For example, certain market participants have 
questioned whether the six extension limit to the Display Only Period--
limiting the launch process to a total of 30 minutes--creates an 
unnecessary deadline within which the IPO must be launched or otherwise 
rescheduled. NASDAQ has had one situation where all six extensions have 
been used and several where four or five extensions have occurred and 
it is possible that underwriters in the future would want to extend 
beyond six Display Only Periods if permitted by the rule.
    Others have questioned whether there should be more flexibility 
with respect to the Display Only Periods, which under the current rule 
can only be extended in fixed five-minute increments. The current rule 
would prevent trading from commencing if conditions improve within the 
five-minute period. NASDAQ agrees that the rule should be modified to 
permit the launch of trading whenever conditions are appropriate.
    NASDAQ believes that its proposed changes to Rule 4120(c)(7) will 
increase its flexibility to commence trading when appropriate while 
retaining a transparent process that has been the hallmark of the rule. 
In particular, NASDAQ proposes to delete the requirement in Rule 
4120(c)(7)(B) that limits the number of extensions of the Display Only 
Period to six five-minute periods. Instead, IPOs coming out of the 
initial 15-minute Display Only Period would enter what is defined as 
the ``Pre-Launch Period'' that will not be of a fixed duration. The 
Pre-Launch Period will continue until:
    (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 underwriter's involvement in timing the commencement of trading 
is consistent with current practice. In administering the IPO cross 
process since 2006, NASDAQ has found that underwriters possess valuable 
information about the pending IPO given their unique position in the 
market, including the status of IPO orders on the underwriter's book. 
NASDAQ believes that it is in the best interest of the markets to give 
underwriters input into the timing of the IPO Halt Cross to help to 
ensure the fair and orderly launch of trading in the IPO security. The 
condition that there be no order imbalance in the security is designed 
to ensure that the security price is reasonably stable at the time 
trading commences. Under Rule 4120(c)(7)(C), an order imbalance occurs 
when (1) the Current Reference Prices \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, or (2) all buy or sell 
market orders will not be executed in the cross. This protection, as 
modified below to extend to the Pre-Launch Period, would also prevent 
circumstances where a misunderstanding by the underwriter as to the 
state of the order book risked launching trading at a time of material 
volatility in the book for the security. As is currently the case, this 
measurement would be calculated by the IPO Halt Cross system, which 
would automatically prevent launch of the IPO when an order imbalance 
existed. The proposed language allowing an underwriter to postpone and 
reschedule the IPO with the concurrence of NASDAQ is designed to allow 
flexibility if unforeseen market events make it inadvisable to proceed 
with the IPO.
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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.
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    NASDAQ also proposes to modify the language of Rule 4120(c)(7)(C) 
to extend the protections in the event of an order imbalance to the 
Pre-Launch Period. The proposed modification is not designed to 
substantively modify how order imbalances are handled in the IPO Halt 
Cross. It is instead designed to apply the same principles to the Pre-
Launch Period which, unlike in the existing Display Only Period, has no 
fixed duration. Therefore, the existing language with respect to 
element (1) of the definition of order imbalance--measuring two points 
in time 15 seconds before and immediately before the end of the 
period--would not work during the Pre-Launch Period. The proposed 
language would use a rolling measurement point during the Pre-Launch 
Period and compare the Current Reference Price at that point in time 
against the Current Reference Price 15 seconds earlier. The system 
would prevent launch of the IPO in the event of an order imbalance at 
any point in the Pre-Launch Period until the end of the order 
imbalance, whereupon the IPO would launch once the requirements of Rule 
4120(c)(7)(B) are satisfied.\5\
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    \5\ Order imbalances in crosses other than IPO Halt Crosses 
would continue to be handled in the same manner as is currently the 
case under Rule 4120(c)(7)(A).
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    NASDAQ proposes to delete several elements of the existing Rule 
4120(c)(7). The existing language in Rule 4120(c)(7)(B) that provides 
for a randomization period of between zero and 15 seconds at the 
conclusion of the Display Only Period would be eliminated. The 
randomization period was designed to reduce the risk that market 
participants might try to game the system around the end of a Display 
Only Period, the timing of which is fixed in the rule. Because the 
proposed changes would eliminate fixed Display Only Periods and make it 
harder for someone with malicious intent to time activity to influence 
the IPO Halt Cross, NASDAQ believes that the current randomization 
language is duplicative and unnecessary. NASDAQ also proposes to delete 
Rule 4120(c)(7)(D) that memorializes the ability of underwriters to 
request an extension of the Display Only Period. The underwriter's role 
in the process has been moved to the proposed language of Rule 
4120(c)(7)(B), as discussed above.
    NASDAQ's proposed changes would not alter pricing and cross 
information publicly available to market participants seeking to 
participate in the IPO Halt Cross. NASDAQ would continue to disseminate 
throughout the Display Only Period and the Pre-Launch Period updated 
electronic messages in five second intervals containing information on 
the eligible interest and the price at which such interest would 
execute at time of dissemination.\6\ Market participants will continue 
to be able to submit and cancel orders during the Pre-Launch Period as 
they are currently able to do during Display Only Periods and any 
extensions. Messages to submit or cancel orders will not be eligible to 
participate in the cross auction once the cross auction process 
commences, as is currently the case.
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    \6\ The information disseminated in accordance with Rule 
4753(a)(2) includes the Current Reference Price, the shares paired 
at the Current Reference Price, any order imbalance (shares that are 
not paired), the buy/sell direction of any imbalance and the 
indicative price at which the cross would occur at that point in 
time.
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    The changes to NASDAQ's IPO process are consistent with how we 
understand IPOs are handled at other exchanges. For example, we 
understand

[[Page 40785]]

that the New York Stock Exchange (``NYSE'') operates a similar process 
that includes substantial input from underwriters and does not contain 
fixed time limits within which to launch the IPO.\7\ During this 
indefinite period the NYSE disseminates similar information concerning 
the state of the auction as that disseminated by NASDAQ.\8\ Similarly, 
BATS Exchange permits extension to its IPO Auction Quote-Only period 
upon the request of an underwriter and for other reasons similar to 
those contained in Rule 4120(c)(7)(B) and (C), with no limit on the 
number or length of extensions.\9\ We believe these changes to NASDAQ's 
IPO Halt Cross will assist market participants and underwriters who 
participate in IPOs on several exchanges.
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    \7\ NYSE Rule 123D. See NYSE, Inside the IPO Process, available 
at https://usequities.nyx.com/page/inside-nyse-ipo-process.
    \8\ NYSE Rule 15(a).
    \9\ BATS Exchange Chapter XI, Rule 11.23(d)(2)(B)(ii).
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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,\10\ in general, and with 
Section 6(b)(5) of the Act,\11\ 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 establishing in NASDAQ's rules an IPO process that protects 
investors and the public interest by ensuring an orderly opening of 
trading in IPOs on NASDAQ and eliminates unnecessary fixed time limits 
that could impact the success of IPOs. NASDAQ also believes that the 
proposal is consistent with rules of other exchanges and will avoid 
confusion among participants in the process. NASDAQ notes that the 
criteria it applies in launching IPOs are applied consistently to every 
IPO, and therefore do not permit NASDAQ to discriminate in any manner.
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    \10\ 15 U.S.C. 78f.
    \11\ 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, nor impactful to, 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 19(b)(3)(A)(ii) of the Act \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \13\ 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, as amended, 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-2013-092 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-2013-092. 
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-2013-092 and should be submitted on or before July 29, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16228 Filed 7-5-13; 8:45 am]
BILLING CODE 8011-01-P


