
[Federal Register Volume 79, Number 222 (Tuesday, November 18, 2014)]
[Notices]
[Pages 68745-68747]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-27189]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73574; File No. SR-NASDAQ-2014-100]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of a Proposed Rule Change To Amend NASDAQ Rule 7015(d) 
To Include the IPO Indicator as a New Enhancement to the NASDAQ 
Workstation

November 12, 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 October 29, 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 proposal to amend NASDAQ Rule 7015(d) 
to include the IPO Indicator as a new enhancement to a NASDAQ 
Workstation subscription.
    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 is amending Rule 7015(d) to include the IPO Indicator as a 
new enhancement to the NASDAQ Workstation. In addition to providing 
order entry and quote functionality, the NASDAQ Workstation also 
includes several features designed to assist subscribers with managing 
and monitoring their trading activity.\3\ NASDAQ is proposing to 
include a new feature designed to assist member firms in monitoring 
their orders in the NASDAQ Halt Cross process leading up to the launch 
of an initial public offering (``IPO'').
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    \3\ For example, a Workstation subscription includes tools to 
assist member firms in complying with Regulation NMS short sale 
restrictions and compliance with the Limit Up/Limit Down process. 
See http://www.nasdaqtrader.com/Trader.aspx?id=Workstation.
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Halt Cross Process
    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 IPO. Prior to the Cross 
execution, market participants enter quotes and orders eligible for 
participation in the Cross, and NASDAQ disseminates certain information 
regarding buying and selling interest entered and the indicative 
execution price information, known as the Net Order Imbalance Indicator 
or NOII. The NOII is disseminated every five seconds during a 
designated period prior to the completion of the Halt Cross, in order 
to provide market participants with information regarding the possible 
price and volume of the Cross. The information provided in the NOII 
message includes the Current Reference Price,\4\ 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,\5\ which 
is 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, that would be paired at 
that price.
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    \4\ See Rule 4753(a)(3)(A).
    \5\ See Rule 4753(a)(5).
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    NASDAQ also disseminates a Market Order Imbalance, which is 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 NOII, if in fact there are such unexecutable 
market order shares. When there is a Market Order Imbalance, NASDAQ 
disseminates the imbalance and the buy/sell direction of the imbalance. 
For example, 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.
    In addition to disseminating information about Market Order 
Imbalances, NASDAQ also disseminates information about the size and 
buy/sell direction of an Imbalance. An Imbalance is defined as the 
number of shares of Eligible Interest with a limit price equal to the 
Current Reference Price that may not be matched with other order shares 
at a particular price at any given time.\6\ As noted above, Eligible 
Interest is 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 reflects all shares eligible for participation in 
the Cross, regardless of time-in-force, and includes non-displayed 
shares and reserve size. As such, the Imbalance information indicates 
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.
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    \6\ See Rule 4753(a)(1).
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    Generally, a Halt in a security is terminated when NASDAQ 
determines to release a security, at which time the Display Only Period 
begins, culminating in the Halt Cross whereby the security is released 
for regular hours trading at the price that maximizes the number of 
shares of trading interest eligible for participation in the Cross to 
be executed.\7\ In the case of an IPO, underwriters to an IPO make a 
determination to launch an IPO during the Pre-Launch Period \8\ when 
they believe the security is ready to trade. When the underwriter 
informs

[[Page 68746]]

NASDAQ that it is ready to launch the IPO, the NASDAQ system will 
calculate the Current Reference Price at that time (the ``Expected 
Price'') and display it to the underwriter. If the underwriter then 
approves proceeding, the NASDAQ system will conduct two validation 
checks. Specifically, the NASDAQ system will determine whether all 
market orders will be executed in the cross, and whether the Expected 
Price and the price calculated by the Cross differ by an amount in 
excess of the price band selected by the underwriter.\9\ If either of 
the validation checks fails, the security will not be released for 
trading and the Pre-Launch Period will continue seamlessly until all 
requirements are met. Alternatively, the underwriter may, with the 
concurrence of NASDAQ, determine to postpone and reschedule the IPO.
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    \7\ See Rule 4753(b) for a description of the processing of the 
Halt Cross.
    \8\ The Pre-Launch Period is the second phase of a two-phase 
process that NASDAQ uses for launching IPOs. The Pre-Launch Period 
follows a 15-minute Display Only Period and is of no fixed duration. 
During both periods, the NOII is disseminated every five seconds.
    \9\ See Rules 4120(c)(8)(A)(ii) and 4120(c)(8)(B).
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New IPO Indicator
    NASDAQ is proposing the new IPO Indicator to provide member firms 
with more information about interest in an IPO security. Specifically, 
NASDAQ is proposing to provide information about the number and price 
at which shares of a member firm's orders entered for execution in an 
IPO Halt Cross (``IPO shares'') would execute in an IPO if it were to 
price at the present time. The IPO Indicator will be offered through 
the NASDAQ Workstation and will use the NOII information already 
currently available through a Workstation subscription together with 
the information about the member firm's orders on NASDAQ.\10\ Member 
firms will access the IPO Indicator from the main Workstation screen, 
which will allow the subscriber to select an IPO security by ticker and 
see the Current Reference Price,\11\ the number of paired shares, and 
the number of imbalance shares during the Display Only and Pre-Launch 
Periods. The screen will also provide the total number of IPO shares 
the member firm has entered for execution in the IPO Halt Cross, the 
nature of such shares (buy or sell), and the number of IPO shares that 
would be executed in the Halt Cross at that time for each of those 
categories. Member firms will also be able to access further detail on 
its IPO shares presented by individual order or order block, which will 
include the number of IPO shares in a particular order or order block, 
the number and percentage of IPO shares of the order or order block 
that would be executed in the Halt Cross if it occurred at any given 
time in the process, based on the NOII disseminated every five seconds, 
and the price at which the order or order block was submitted. As such, 
the IPO Indicator will provide member firms with information consistent 
with what NASDAQ currently disseminates during the IPO launch process, 
but as it relates to a member firm's orders and in greater detail.
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    \10\ The information provided by the IPO Indicator is limited to 
the subscribing member firm's orders.
    \11\ The Exchange notes that, in situations where there is a 
Market Order Imbalance, the NOII does not provide a Current 
Reference Price, since not all market orders could be executed in 
the cross and therefore there is no price at which the IPO cross 
could occur.
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    NASDAQ notes that the IPO Indicator will provide member firms with 
more information on their orders for participation in an IPO Halt 
Cross, which will, in turn, allow them to make better informed 
investment decisions. Although, NASDAQ believes the functionality 
provided by the IPO Indicator will be useful to all member firms 
seeking to participate in the IPO Halt Cross process, underwriters to 
an IPO may find the functionality particularly useful as they will have 
current and ongoing information on the nature of their order book in 
the IPO shares relative to the orders that would be executed at any 
given time, thus allowing them to make better informed decisions on the 
timing of the IPO's launch. In this regard, the IPO Indicator may help 
an underwriter to make a determination to launch an IPO at a time when 
the IPO security would likely pass the validation checks, thus 
increasing the likelihood of a fair and orderly launch of the IPO when 
the underwriter informs NASDAQ that it is prepared to launch the IPO 
security.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility or system which NASDAQ operates or controls and 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 requirements because it 
will expand the information made available to market participants about 
their orders and the interplay of supply and demand of buy and sell 
orders leading up to the completion of an IPO Halt Cross. The 
information provided by the proposed IPO Indicator is particularly 
useful to underwriters of IPOs, who ultimately make the decision to 
launch an IPO or to postpone it. In this regard, the IPO Indicator will 
provide underwriters with a near real time assessment of the number and 
price at which their IPO shares will execute at any given time, 
consequently allowing them to make better informed decisions with 
regard to the timing of an IPO's launch. The change will thereby 
perfect the mechanisms of a free and open market by helping ensure the 
security price is reasonably stable at the time the underwriter 
determines to launch the IPO. Moreover, the change will protect 
investors and the public interest by providing additional transparency 
regarding the IPO Halt Cross, helping market participants to understand 
the degree of supply and demand for the security that is the subject of 
the IPO Halt Cross and the nature of the execution of IPO orders that 
they would receive at any given time in the IPO launch process.
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    \12\ 15 U.S.C. 78f (b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange is not proposing to increase the fee assessed for the 
Workstation under Rule 7015(d). The Exchange notes that it enhances the 
Workstation from time to time, offering new functionality it believes 
useful to subscribers, but does not necessarily adjust the charge for 
subscription with each enhancement. The Exchange believes that keeping 
the current fee is reasonable because the proposed enhancement to the 
Workstation will not result in an increase in the cost of a 
subscription. The Exchange believes that not increasing the Workstation 
fee is an equitable allocation as the fee remains unchanged for all 
subscribers.

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 the nature of the execution they would receive in an IPO at 
any given time in the process, thereby assisting market participants in 
making informed investment decisions regarding their participation in 
the IPO Halt Cross. Moreover, the proposed change may enhance 
competition among exchanges by making the NASDAQ IPO process more 
appealing to market participants, thereby prompting other exchanges to 
improve

[[Page 68747]]

their processes and the information provided during the launch of an 
IPO. Lastly, the change does not restrict the ability of market 
participants to participate in the IPO Halt Cross in any respect, and 
therefore does [sic] impose any burden on competition among market 
participants.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2014-100 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2014-100. 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-
100, and should be submitted on or before December 9, 2014.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27189 Filed 11-17-14; 8:45 am]
BILLING CODE 8011-01-P


