
[Federal Register Volume 79, Number 179 (Tuesday, September 16, 2014)]
[Notices]
[Pages 55519-55521]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22003]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73069; File No. SR-NASDAQ-2014-088]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend NASDAQ Rule 4753 To Expand the Information Made Available Through 
the Order Imbalance Indicator in Connection With the NASDAQ Halt Cross

September 10, 2014.
    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 August 28, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a 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 the 
Substance of the Proposed Rule Change

    NASDAQ proposes a rule change to amend NASDAQ Rule 4753 to expand 
the information made available through the Order Imbalance Indicator in 
connection with the NASDAQ Halt Cross (the ``Halt Cross'' or the 
``Cross''). NASDAQ proposes to make the change operative on or about 
October 1, 2014, on a date that is at least 30 days after the date of 
the filing.
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at NASDAQ's principal office, 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, NASDAQ 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 those 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 parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ recently amended the language of Rule 4753 to correct 
imprecise language with respect to imbalance information disseminated 
through the Order Imbalance Indicator (also known as the ``Net Order 
Imbalance Indicator'' or ``NOII'') prior to the execution of the Halt 
Cross.\3\ In this new proposed rule change, NASDAQ is proposing to 
expand the information made available through the NOII to enhance the 
ability of market participants to understand the interplay of supply 
and demand of buy and sell orders leading up to the completion of the 
Cross.
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    \3\ Securities Exchange Act Release No. 72736 (August 1, 2014), 
79 FR 45860 (August 6, 2014) (SR-NASDAQ-2014-075).
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    The NASDAQ Halt Cross is designed to provide for an orderly, 
single-priced opening of securities subject to an intraday halt, 
including securities that are the subject of an initial public offering 
(``IPO''). Prior to the Cross execution, market participants enter 
quotes and orders eligible for participation in the Cross, and NASDAQ 
disseminates certain information--the NOII--regarding buying and 
selling interest entered and the indicative execution price.
    At the time when the security is released for trading, the Halt 
Cross will occur at the price that maximizes the number of shares of 
trading interest eligible for participation in the Cross \4\ to be 
executed. If there is more than one such price, the Cross will occur at 
the price that minimizes any Imbalance, which is defined in the rule as 
``the number of shares of Eligible Interest that may not be matched 
with other order shares at a particular price at any given time.'' \5\ 
The NOII is disseminated every five seconds during a designated period 
prior to the completion of the Halt Cross, in order to provide market

[[Page 55520]]

participants with information regarding the possible price and volume 
of the Cross. The information includes the Current Reference Price, 
which is the price at which the Cross would occur if it executed at the 
time of the NOII's dissemination, and the number of shares of Eligible 
Interest that would be paired at that price.
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    \4\ ``Eligible Interest'' is defined as any quotation or any 
order that may be entered into the system and designated with a 
time-in-force of SIOC, SDAY, SGTC, MIOC, MDAY, MGTC, SHEX, or GTMC. 
These respective times-in-force are defined in Rule 4751. NASDAQ is 
proposing to simplify this rule language by replacing the list of 
times-in-force with a more general reference to ``a time-in-force 
that would allow the order to be in force at the time of the Halt 
Cross.'' The change is not substantive in effect.
    \5\ Additional provisions of Rule 4753, not pertinent to this 
proposed rule change, are used to determine the price in the event 
that there is more than one price that minimizes any Imbalance.
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    NASDAQ currently disseminates a Market Order Imbalance--defined as 
``the number of shares of Eligible Interest entered through market 
orders that would not be matched with other order shares at the time of 
the dissemination of an Order Imbalance Indicator''--if in fact there 
are such unexecutable market order shares. Thus, if all market orders 
would be executed, the field for the Market Order Imbalance is blank. 
When the field is populated (i.e., when there is a Market Order 
Imbalance), NASDAQ also disseminates the buy/sell direction of the 
Market Order Imbalance. Thus, if a buy-direction Market Order Imbalance 
is disseminated, potential sellers in the Cross would know that buy 
liquidity is available at a market price, potentially encouraging them 
to enter additional sell orders to allow the Cross to proceed.
    NASDAQ is proposing also to disseminate information about the size 
and buy/sell direction of an ``Imbalance.'' As noted above, Imbalance 
is defined as ``the number of shares of Eligible Interest that may not 
be matched with other order shares at a particular price at any given 
time.'' As noted above, ``Eligible Interest'' will be defined as ``any 
quotation or any order that may be entered into the system and 
designated with a time-in-force that would allow the order to be in 
force at the time of the Halt Cross.'' Thus, the provided information 
would reflect all shares eligible for participation in the Cross, 
regardless of time-in-force, and would include non-displayed shares and 
reserve size.\6\
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    \6\ Currently, a Market Order Imbalance reflects all shares 
eligible for participation as noted. The proposed change will result 
in all shares eligible for participation to be reflected for an 
Imbalance that is not a Market Order Imbalance. The Exchange notes 
that, under the current process, non-displayed market orders are 
potentially disclosed, in aggregate and not individually, through 
the NOII feed in IPO crosses when there is a Market Order Imbalance. 
Under the proposal, non-displayed IOC limit orders and hidden/
reserve day limit orders (collectively, ``non-displayed limit 
orders'') could also be disclosed, in the aggregate, in the event of 
an Imbalance once the Reference Price is established. The Exchange 
notes that this is currently the case for non-displayed limit orders 
entered for participation in the Opening Cross. As a consequence, 
the Exchange believes that potential aggregate disclosure of non-
displayed limit orders in the IPO Cross is consistent with its 
current practice and the understanding of market participants.
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    While the current dissemination of the Market Order Imbalance 
signals to market participants that market orders would not execute in 
the Cross and therefore the Cross cannot occur until additional 
liquidity is entered on the other side of the market, the new 
information would indicate the degree to which available liquidity on 
one or the other side of the market would not be executed if the Cross 
were to occur at that time. Because either the Imbalance or the Market 
Order Imbalance would be disseminated every five seconds with each NOII 
message,\7\ the modification would provide more continuity with respect 
to the information about supply and demand made available to market 
participants in the time leading up to the Cross. Specifically, 
allowing market participants to see an Imbalance on one side of the 
market or the other would signal the extent to which orders on the 
other side might be executable in the Cross if entered thereafter. 
NASDAQ believes that providing this information will enhance the price 
discovery process of the Cross and increase the likelihood of order 
interaction.
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    \7\ In practical terms, if there is a Market Order Imbalance 
only, the Exchange will disseminate the Market Order Imbalance 
indicator. Likewise, in the event of an Imbalance only, the Exchange 
will disseminate the Imbalance indicator. In the event of both a 
Market Order Imbalance and an Imbalance, the Exchange will 
disseminate the Market Order Imbalance indicator only. The Exchange 
notes that under this last scenario, there is no Reference Price 
calculated because of the Market Order Imbalance. A Reference Price 
is required to calculate the Imbalance indicator, and therefore it 
cannot be disseminated when there is a Market Order Imbalance.
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    Finally, NASDAQ is proposing to add language in the rule to make it 
clear that the NOII will not include the Current Reference Price if 
there is a Market Order Imbalance. This is true as a matter of logic: 
If there is a Market Order Imbalance, not all market orders can be 
executed in the Cross and therefore there is no price at which the 
Cross could occur. However, NASDAQ believes that it may promote market 
participants' understanding of the rule to include this statement 
explicitly in the rule language.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(5),\9\ in particular, in that it is designed to promote 
just and equitable principles of trade, remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system and, in general, to protect investors and the public interest. 
The proposal is consistent with these purposes because it will expand 
the information made available through the NOII to enhance the ability 
of market participants to understand the interplay of supply and demand 
of buy and sell orders leading up to the completion of the Cross. 
Specifically, by providing information regarding orders that would not 
be executed in the Cross if it occurred at the time of dissemination of 
the NOII, the proposed change may encourage entry of additional orders, 
thereby enhancing price discovery and increasing the likelihood of 
order interaction. The change will thereby perfect the mechanisms of a 
free and open market. Moreover, the change will protect investors and 
the public interest by providing additional transparency regarding the 
Cross, helping investors to understand the degree of supply and demand 
for the security that is the subject of the Cross.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the proposed 
change serves merely to increase the information provided by NASDAQ 
regarding supply and demand, thereby assisting market participants in 
making informed investment decisions regarding participation in the 
Cross. The change does not restrict the ability of market participants 
to participate in the Cross in any respect, and therefore does impose 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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 if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section

[[Page 55521]]

19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-2014-088 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2014-088. 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 offices 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-2014-
088, and should be submitted on or before October 7, 2014.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-22003 Filed 9-15-14; 8:45 am]
BILLING CODE 8011-01-P


