
[Federal Register Volume 80, Number 1 (Friday, January 2, 2015)]
[Notices]
[Pages 69-71]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30702]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73943; File No. SR-NASDAQ-2014-123]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Rules 4751(h) and 4754(b) Relating to the Closing Process

December 24, 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 December 16, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 make changes to Rules 4751(h) and 4754(b) 
relating to the closing process.
    The text of the proposed 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.

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 is proposing to adopt changes related to the close of 
Regular Market Session \3\ on NASDAQ, which are designed to bring 
consistency and stability to the processing of securities in the NASDAQ 
Closing Cross.\4\ Each trading day, NASDAQ accepts orders designated to 
participate in the Closing Cross.\5\ The Closing Cross is the process 
by which NASDAQ determines the price at which orders will be executed 
at market close. Beginning at 3:50 p.m. Eastern Time, NASDAQ 
disseminates an Order Imbalance Indicator \6\ every five seconds until 
market close, which allows market participants to see the nature of 
interest in a security and make investment decisions accordingly. The 
NASDAQ closing process is initiated at 4:00 p.m. Eastern Time.\7\ 
During the brief period between the initiation of the closing process 
and the conclusion of the last Closing Cross,\8\ the continuous order 
book is open to accept orders and cancellations in a security until the 
Closing Cross for that security is complete. These orders can affect 
the ultimate closing price of the security. Although accepting orders 
and cancellations through the completion of a security's Closing Cross 
allows the greatest interest to participate in the Closing Cross, the 
Exchange has observed that in cases where there is aberrant volatility 
in a security due to an error,\9\ accepting such order activity may 
also significantly alter the closing price. In normal trading, NASDAQ 
has observed that allowing order entry and cancellation in a security 
up to the completion of a security's Closing Cross provides little 
additional price discovery to offset the greater risk in allowing such 
order activity. Accordingly, NASDAQ is proposing to close the order 
book for participation in the Closing Cross once the closing process is 
initiated at 4:00 p.m. Eastern Time (the ``Lockdown Period''). As a 
consequence of closing the order book, orders entered for participation 
in the continuous market after the Lockdown Period has begun, but prior 
to completion of the Closing Cross, will not be accepted by the System.
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    \3\ As defined by Rule 4120(b)(4)(D).
    \4\ See Rule 4754.
    \5\ See Rule 4754(a)(1) for a description of quotes and orders 
eligible for participation in the Closing Cross.
    \6\ The Order Imbalance Indicator provides information about 
orders eligible to participate in the Closing Cross and the price at 
which those orders would execute at the time of dissemination.
    \7\ Once the closing process is initiated, the System will 
execute crosses in each individual security traded on NASDAQ one by 
one. The order in which each security is processed is random and 
differs day by day.
    \8\ This brief period is normally well under one second.
    \9\ For example, a member firm that enters an order that is 
erroneous in price and/or size may cause significant order 
imbalances, which may cause the closing price of the security to be 
significantly different from what is anticipated.
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    Under the proposed process, at 4:00 p.m. Eastern Time, when the 
closing process is initiated, the Lockdown Period is triggered at which 
point the order book will no longer accept new orders for execution, 
and will cease to process order cancellation requests for resting 
orders. New orders received for participation in the Closing Cross 
after initiation of the Lockdown Period will be cancelled back to the 
member firm, and cancellations of resting orders will be processed 
after the Closing Cross is complete.\10\ NASDAQ notes that the 
processing and calculation of the Closing Cross will remain 
unchanged.\11\ Moreover, in proposing the Lockdown Period, NASDAQ is 
not altering how orders are processed prior to the Closing Cross, and 
after it is completed. Rather, NASDAQ is merely providing a precise 
time at which orders will not participate in the Closing Cross, in lieu 
of the uncertain, albeit brief, time under the current process. In 
addition to amending Rule 4754(b) to reflect the changes discussed 
above, NASDAQ is making a clarifying change to the rule text to make it 
clear that the Closing Cross begins at 4:00:00 p.m.. [sic]
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    \10\ A member firm that sends a cancellation request during the 
Lockdown Period will receive an execution message for that order if 
it is executed in the Closing Cross.
    \11\ The closing process will still be initiated at 4:00 p.m. 
Eastern Time, and the order in which securities enter into their 
individual Closing Crosses will continue to be random.
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    In a related change, the Exchange is also proposing to harmonize 
the processing of Market Hours Day (``MDAY'') orders \12\ in the 
Closing Cross. MDAY is a time-in-force characteristic of orders, which 
allows the order to be executed during the Regular Market Session. 
Under NASDAQ rules, MDAY-designated orders are available from 4:00 a.m. 
to 4:00 p.m. Eastern Time.\13\ Currently, an order designated as MDAY 
entered after completion of the Closing Cross in a particular security 
may be rejected, cancelled, or modified to an order with a time-in-
force of Immediate or Cancel,

[[Page 70]]

depending on the means of entry. Member firms may enter MDAY-designated 
orders through OUCH, FLITE, RASH, INET FIX, QIX or SUMO FIX ports.\14\ 
These various means of connecting to the Exchange for order entry 
provide member firms with differing functionality. The Exchange notes 
that a MDAY-designated order entered after the conclusion of the 
Regular Market Session through an OUCH, FLITE or RASH port will be 
modified to an order with a time-in-force of Immediate or Cancel. A 
MDAY-designated order entered after the conclusion of Regular Market 
Session through an INET FIX port will be modified to a System Hours Day 
order.\15\ Lastly, a MDAY-designated order entered after the conclusion 
of the Regular Market Session through a QIX or SUMO FIX port will be 
rejected. The Exchange notes that the vast majority of such orders are 
[sic] entered near the end of the Regular Market Session by member 
firms seeking to execute prior to the conclusion of the session. In an 
effort to simplify the treatment of order handling on the Exchange, 
NASDAQ is proposing to harmonize how MDAY orders entered after the 
closing cross is initiated are handled. Specifically, NASDAQ is 
proposing to no longer accept orders with a time-in-force of MDAY that 
are entered after initiation of the Lockdown Period. The Exchange notes 
that not accepting orders after the Closing Cross is initiated will 
simplify market participant processing and avoid confusion concerning 
how such orders are handled upon conclusion of the Regular Market 
Session. Lastly, with the proposed implementation of the Lockdown 
Period, such simplification will also aid NASDAQ in operating the 
Closing Cross by reducing the logical steps necessary to process MDAY-
designated orders. As a consequence, NASDAQ is adding language to the 
rule to reflect that such orders will not be accepted after 4:00 p.m.
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    \12\ See Rule 4751(h)(6).
    \13\ Id.
    \14\ See http://www.nasdaqtrader.com/Trader.aspx?id=TradingSpecs 
for a description of the various order entry port specifications.
    \15\ A System Hours Day order remains available for potential 
display and/or execution from 4:00 a.m. until 8:00 p.m. Eastern Time 
on the day it was submitted unless cancelled by the entering party. 
See Rule 4751(h)(2).
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    Similarly, NASDAQ is proposing to modify the processing of Good-
til-market close orders (``GTMC'').\16\ GTMC is a time-in-force 
characteristic of orders, which allows the order to be executed from 
4:00 a.m. to 8:00 p.m. Eastern Time. GTMC orders entered after the 
Closing Cross are converted to a time-in-force of System Hours 
Immediate or Cancel. In lieu of converting such orders, NASDAQ is 
proposing to no longer accept GTMC orders after initiation of the 
Lockdown Period at 4:00 p.m. Eastern Time. As a consequence, NASDAQ is 
amending language in the rule concerning acceptance of GTMC orders up 
to 8:00 p.m. Eastern Time to reflect that such orders will not be 
accepted after 4:00 p.m., and is deleting text concerning conversion of 
the order. NASDAQ is also making a technical change to the rule text to 
harmonize the terminology used under the other time-in-force 
designations under Rule 4751(h). Specifically, NASDAQ is replacing the 
word ``and'' with ``until.''
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    \16\ See Rule 4751(h)(8).
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    The Exchange plans on implementing the proposed changes in mid-
February 2015, and will provide at least 30 days prior notice of the 
implementation date and testing opportunities for member firms via an 
Equity Trader Alert.
2. Statutory Basis
    The Exchange believes that the proposed rule changes [sic] are 
consistent with Section 6 of the Act, in general, and further the 
objectives of Section 6(b)(5) of the Act, in particular, in that they 
are designed to prevent fraudulent and manipulative acts and practices, 
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 transactions 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 are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers. Specifically, the proposed changes 
promote just and equitable principles of trade and perfect the 
mechanisms of a free and open market and the national market system by 
providing greater clarity concerning the System's operation during the 
closing process and how orders with certain time-in-force 
characteristics are processed at the market close. In addition, the 
proposed changes will contribute to the protection of investors and the 
public interest by making the Exchange's rules easier to understand. 
The proposed change to implement the Lockdown Period is designed to 
promote a stable closing process and avoid the impact of erroneous 
order activity on the market close process. Closing the order book to 
new orders and cancellations during the very brief period between the 
initiation of the closing process at 4:00 p.m. Eastern Time and the 
completion of the last Closing Cross will ensure that the System is 
able to cross all securities without impact from erroneous order 
activity in a single security. Accordingly, the proposed change 
promotes a fair and orderly market during the closing process, and 
thereby further perfects the mechanism of a free and open market. The 
proposed changes to the processing of MDAY-designated orders further 
these objectives because they simplify processing of orders, thereby 
avoiding any market participant confusion on how such orders are 
treated when entered after the Regular Market Session has ended. 
Uniformly rejecting such orders, which are designed to execute during 
Regular Market Session, is consistent with a market participant's 
intent to execute during Regular Market Session and will remove 
complication in the handling of such orders. To the extent a member 
firm would like to participate in post-market hours trading, it may 
enter a new order eligible to participate in post-market trading. 
Likewise, the proposed changes to the processing of GTMC-designated 
orders further these objectives because the changes simplify processing 
of such orders when entered after the Closing Cross process has begun. 
Rather than converting GTMC-designated orders to an order with a 
different time-in-force if entered after the market close, NASDAQ will 
no longer accept them once the Closing Cross has been initiated, which 
is consistent with a market participant's intent to execute during the 
period from 4:00 a.m. and 4:00 p.m. As noted above, to the extent a 
member firm would like to participate in post-market hours trading, it 
may enter a new order eligible to participate in post-market trading. 
Moreover, simplifying the processing of both MDAY- and GTMC-designated 
orders will remove complication in the handling of such orders, thereby 
further improving the operation of the market.

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

    The Exchange does not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Specifically, the changes are designed to promote consistency and 
stability in the closing process and in the handling of orders after 
the Regular Market Session has ended. Such changes do not place a 
burden on competition between market participants as the changes are 
applied consistently to all participants. Moreover, the proposed 
changes do not

[[Page 71]]

impose a burden on competition among exchanges as they are done for 
regulatory purposes and are therefore irrelevant to competition.

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

    No written comments were either solicited or 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 \17\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\ 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 to 
determine whether the proposed rule should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \18\ 17 CFR 240.19b-4(f)(6). 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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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-2014-123 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.

All submissions should refer to File Number SR-NASDAQ-2014-123. 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-2014-123 and should 
be submitted on or before January 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30702 Filed 12-31-14; 8:45 am]
BILLING CODE 8011-01-P


