
[Federal Register Volume 78, Number 229 (Wednesday, November 27, 2013)]
[Notices]
[Pages 71011-71014]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28416]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70911; File No. SR-NASDAQ-2013-143]


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)(C) To Modify the Parameters for Releasing 
Securities for Trading Upon the Termination of a Trading Halt

November 21, 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 November 14, 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

    The Exchange proposes to amend NASDAQ Rule 4120(c)(7)(C) to modify 
the parameters for releasing securities for trading upon the 
termination of a trading halt. NASDAQ will implement the proposed 
change immediately.
    The text of the proposed rule change is below.\3\ Proposed new 
language is italicized; proposed deletions are in brackets.
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    \3\ 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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* * * * *
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)-(B) No change.
    (C) If at the end of a Display Only Period or during the subsequent 
process to release the security for trading, Nasdaq detects an order 
imbalance in the security, Nasdaq will extend the Display Only Period 
as permitted under subparagraph (A). In the case of subparagraph (B), 
any order imbalance during the Pre-Launch Period or during the 
subsequent process to release the security for trading 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 are established as 
follows:
    (1) Order imbalances under subparagraph (A) shall be established 
when (i) the last available Current Reference Price[s], as defined in 
Rule 4753(a)(2)(A), disseminated [15 seconds and ]immediately prior to 
the end of the Display Only Period and any of the three preceding 
Current Reference Prices 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.
    (2) Order imbalances under subparagraph (B) shall be established 
when (i) the Current Reference Price[s], 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 and any of the three preceding Current Reference Prices 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.
    (3) Order imbalances under both subparagraphs (A) and (B) shall be 
established during the subsequent process to release a security for 
trading, which occurs at the termination of either a Display Only 
Period under subparagraph (A) or a Pre-Launch Period under subparagraph 
(B), if, upon completion of the cross calculation, (i) the calculated 
price at which the security would be released for trading and any of 
the three preceding Current Reference Prices disseminated immediately 
prior to the initiation of the cross calculation differ by more than 
the greater of 5 percent or 50 cents, or (ii) all buy or sell market 
orders would not be executed in the cross.
* * * * *

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)(C) to strengthen the 
price volatility comparison of the order imbalance tests done at the 
conclusion of the Display Only Period and Pre-Launch Period by 
increasing the number of Current Reference Prices that are compared. 
The Exchange is also proposing to extend the order imbalance tests of 
the rule to also include the process by which a company's securities 
are released for trading after a halt. Securities subject to a halt 
under Rule 4120(a) cannot be released when there is an order imbalance 
in the security. Historically, order imbalances were defined uniformly 
under Rule 4120(c)(7)(C) for all halts under Rule 4120(a) as: (i) the 
Current Reference Prices, as defined in Rule

[[Page 71012]]

4753(a)(2)(A),\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 (the ``Price Volatility Test''), or (ii) all buy or 
sell market orders will not be executed in the cross (the ``Imbalance 
Test''). During the Display Only Period, NASDAQ disseminates an Order 
Imbalance Indicator every five seconds,\5\ which includes a Current 
Reference Price along with the then-current imbalance information.\6\ 
The Order Imbalance Indicator allows market participants insight into 
the likely price at which a security will emerge from a halt.
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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.
    \5\ Rule 4753(b)(1).
    \6\ The Order Imbalance Indicator provides market participants 
with the Current Reference Price, the number of shares matched for 
execution at the Current Reference Price, the total number of shares 
that cannot be matched for execution and side of executable shares, 
and the indicative prices at which the Halt Cross would occur if it 
were to occur at that time. See Rule 4753(a)(2).
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    NASDAQ recently adopted a new process for releasing securities 
approved for listing on NASDAQ in an initial public offering 
(``IPO'').\7\ The changes were adopted to improve the IPO release 
process by increasing NASDAQ's flexibility to commence trading when 
appropriate while retaining a transparent process that has been the 
hallmark of the rule. To this end, NASDAQ eliminated the former rule 
requirement that limited the number of extensions of the Display Only 
Period to six five-minute periods, and instead adopted a ``Pre-Launch 
Period'' at the conclusion of the initial 15-minute Display Only Period 
that is not of a fixed duration. Unlike other halts under Rule 4120(a), 
NASDAQ does not apply the order imbalance tests at the conclusion of an 
IPO launch Display Only Period, but rather thereafter transitions to 
the Pre-Launch Period. Under the new rule, the Pre-Launch Period will 
continue until:
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    \7\ Securities Exchange Act Release No. 69897 (July 1, 2013), 78 
FR 40782 (July 8, 2013) (SR-NASDAQ-2013-092).
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    (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 Exchange adopted the condition that there be no order 
imbalance, as defined in Rule 4120(c)(7)(C), in a halted security prior 
to its release for trading to ensure that the security price is 
reasonably stable and trading interest is balanced at the time trading 
commences. With the changes to the IPO release process discussed above, 
NASDAQ adopted a new definition of order imbalance applicable only to 
IPO halt securities, while retaining the same definition of an order 
imbalance for all other halts under Rule 4120(a). NASDAQ defines an 
order imbalance in an IPO security as occurring when (1) the Current 
Reference Price, 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 differs 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 is designed to prevent 
circumstances where a misunderstanding by the underwriter as to the 
state of the order book risks launching trading at a time of material 
volatility in the book for the security. As a consequence, if an 
underwriter gives notice to launch the IPO security, it must also be 
free of an order imbalance prior to release for price calculation and 
trading.
    All order imbalances are calculated by the Halt Cross system, which 
automatically prevents launch of a halted security when an order 
imbalance exists. For halts under Rule 4120(a) other than IPO halts, at 
the conclusion of the Display Only Period and any extensions thereof 
permitted by the rule, the Halt Cross system determines if an order 
imbalance exists by performing the two order imbalance tests. If there 
is not an order imbalance, the system calculates the release price of 
the security based on the trading interest at the conclusion of the 
Display Only Period and releases the halted security for trading. The 
conclusion of all halts under Rule 4120(a) other than IPO halts is 
initiated by the Halt Cross system automatically, resulting in the 
release of a security immediately after the issuance of a Current 
Reference Price. IPO halts, however, do not necessarily conclude in 
synch with the dissemination of a Current Reference Price because the 
underwriter initiates the conclusion of the Pre-Launch Period without 
consideration to the dissemination of the Current Reference Price.

Enhanced Volatility Test

    The Exchange proposes to strengthen the Price Volatility Test 
applied to all halts under Rule 4120(a) by increasing the number of 
prices to which the last disseminated Current Reference Price is 
compared. The current rule text provides that NASDAQ compares the 
Current Reference Price available immediately prior to the conclusion 
of either the Display Only Period \8\ or Pre-Launch Period,\9\ as 
applicable, to the Current Reference Price issued 15 seconds prior to 
the conclusion of these periods. This calculation results in a single 
comparison of prices, notwithstanding that there are two additional 
Current Reference Prices disseminated between the Current Reference 
Prices compared by the test. For example, in the case of a Display Only 
Period that concludes pursuant to Rule 4120(c)(7)(A) at 10:00:00 with 
the last disseminated Current Reference Price occurring at 10:00:00, 
the Halt Cross system will compare the last disseminated Current 
Reference Price to the Current Reference Price issued at 09:59:45. 
Because Current Reference Prices are disseminated every five seconds, 
two additional Current Reference Prices were disseminated at 09:59:50 
and 09:59:55, between the two Current Reference Prices used by the 
Price Volatility Test. Either of the two intermediate Current Reference 
Prices may reflect volatile pricing that would not be considered by the 
current Price Volatility Test.
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    \8\ For halts concluded pursuant to Rule 4120(c)(7)(A).
    \9\ For halts concluded pursuant to Rule 4120(c)(7)(B).
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    NASDAQ is proposing to amend Rule 4120(c)(7)(C) to reflect that the 
Price Volatility Test will compare the last available Current Reference 
Price to each of the three preceding Current Reference Prices. As a 
consequence, the Price Volatility Test will more robustly detect price 
volatility at the conclusion of a Display Only Period or Pre-Launch 
Period by conducting three price comparisons of the most recent Current 
Reference Prices as compared to the single comparison done now. The 
order imbalance tests are designed to ensure that the security price is 
reasonably stable at the time trading commences. NASDAQ believes that 
testing against the three prior Current Reference Prices increases the 
likelihood that instability will be detected and, as a consequence, 
trading in the security will be afforded additional time to stabilize, 
resulting in a launch that is more reflective of all the trading 
interest in the security.

[[Page 71013]]

Extension of the Order Imbalance Tests

    NASDAQ is also proposing to extend the order imbalance tests to the 
release process, which occurs after the conclusion of a Display Only 
Period or Pre-Launch Period, as applicable, and before the release of 
the security. During this release process period, the Halt Cross system 
closes the order book, and then calculates the price at which the 
security will be opened. As noted above, the release price of an IPO is 
calculated at the conclusion of the Pre-Launch Period, which is not 
systematically determined by the expiration of a set time period, but 
rather is initiated by the underwriter to the IPO. The time between the 
dissemination of the last Current Reference Price and the close of the 
Pre-Launch Period may be as long as nearly five seconds, during which 
market participants may continue to enter and cancel orders. NASDAQ 
notes that, for a halt concluded pursuant to Rule 4120(c)(7)(A), there 
is a very brief time after the dissemination of the Current Reference 
Price and the closing of the order book during which market 
participants may continue to enter and cancel orders. As a result, the 
orders in the order book may not be reflected in the last disseminated 
Order Imbalance Indicator.
    Under both launch processes, at the conclusion of the applicable 
period the Halt Cross system performs the order imbalance tests using 
an Order Imbalance Indicator that, as noted, may not be reflective of 
the most recent orders entered during the period after its 
dissemination. It is possible that a market participant may enter an 
order that is materially different in price from the last available 
Current Reference Price disseminated and of an adequate size to 
significantly distort the security's price during the cross price 
calculation. Under such a scenario, the halted security could be 
released at a price significantly different from market expectations 
based on the indicative price of the Order Imbalance Indicator 
disseminated just prior to the launch. Moreover, an order entered or 
canceled during the period between the last dissemination of the Order 
Imbalance Indicator and the closing of the order book may cause an 
order imbalance in the number of buy and sell interest resulting in a 
certain number of shares remaining unmatched at the conclusion of the 
cross.
    NASDAQ is proposing to extend the order imbalance tests to the 
process for releasing a security for trading applicable to halts 
concluded pursuant to both Rules 4120(c)(7)(A) and (B). Specifically, 
the requirement would apply to both the process following the 
conclusion of the Display Only Period for halts under Rule 4120(a) 
other than IPOs, and to the process following the conclusion of the 
Pre-Launch Period for IPO halt securities. NASDAQ has amended the 
definition of an order imbalance under Rule 4120(c)(7)(C) to reflect 
the addition of the order imbalance tests to this period. Under the new 
definition of order imbalance, the Halt Cross system will compare the 
calculated price at which the security would be released to each of the 
three preceding Current Reference Prices disseminated immediately prior 
to initiation of the cross calculation. An order imbalance under this 
calculation would be present if the prices differ by more than the 
greater of 5 percent or 50 cents. The Halt Cross system will also apply 
the Imbalance Test to determine whether all orders were executed in the 
cross.
    Under the amended rule, should a security be subject to an order 
imbalance during the subsequent process to release the security for 
trading by failing either the new Price Volatility Test or Imbalance 
Test, it would return to either a Display Only Period for a one minute 
extension period, in the case of Rule 4120(a) halts other than IPOs, or 
in the case of an IPO halt, return to the Pre-Launch Period. Once in 
the returned state, the security would repeat the process for release 
until such time that the security may be priced.\10\ Accordingly, 
NASDAQ believes extension of the order imbalance tests to the release 
process will ensure that the price at which a security is released for 
trading is reflective of the general interest in the security, 
unaltered by aberrant order activity. NASDAQ notes that the proposed 
modification to the rule is not designed to substantively modify how 
order imbalances are handled in the release of securities halted under 
Rule 4120(a). It is instead designed to apply the same principles to 
the brief price calculation process just prior to the release of a 
security for regular trading.
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    \10\ In the case of a Pre-Launch Period, all conditions to 
conclude the period must be met, including a new indication that the 
underwriter is ready to launch. Consistent with Rule 4120(c)(7)(B), 
during this time the underwriter, with the concurrence of NASDAQ, 
may also determine to postpone and reschedule the IPO.
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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,\11\ in general, and with 
Section 6(b)(5) of the Act,\12\ 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 strengthening tests that must be passed for a security to be 
released from a halt, and extending the protections of all such tests 
to include the brief period after a security is released for pricing 
and the pricing process concludes. Although unlikely, it is possible, 
particularly with regard to the IPO release process, for a disruptive 
order to skew the release price far from what was anticipated by market 
participants based on the indicative prices published by the Exchange 
prior to the calculation. The proposed change is designed to protect 
market participants from receiving what would appear from their 
perspective to be erroneous pricing of securities for resumption of 
trading. Accordingly, NASDAQ believes that enhancing and strengthening 
the process is in the interest of protecting investors as it will serve 
to avoid confusion among market participants. NASDAQ notes that the 
criteria it applies in releasing halted securities pursuant to the rule 
are applied consistently to every release, and therefore do not permit 
NASDAQ to discriminate in any manner.
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    \11\ 15 U.S.C. 78f.
    \12\ 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, and will have no 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.

[[Page 71014]]

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)(ii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
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 for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) 
thereunder.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
    \15\ 17 CFR 240.19b-4(f)(6)(ii).
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    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(ii),\17\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange stated that 
this proposal establishes rules that enhance an existing test, which is 
designed to ensure that securities in a halted state are released in an 
orderly manner and that there are no order imbalances in a security 
emerging from a halt. In addition, the Exchange stated that the 
proposal is designed to protect market participants from seemingly 
erroneous pricing of securities for resumption of trading. Thus, the 
Exchange believes that it is in the interest of protecting investors to 
provide the amended process, which will eliminate the possibility of 
such a disruption, at the earliest time possible. For these reasons, 
the Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\18\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(ii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 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: (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 under Section 19(b)(2)(B) \19\ 
of the Act to determine whether the proposed rule should be approved or 
disapproved.
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    \19\ 15 U.S.C. 78s(b)(2)(B).
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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-2013-143 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-2013-143. 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-2013-143 and should 
be submitted on or before December 18, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28416 Filed 11-26-13; 8:45 am]
BILLING CODE 8011-01-P


