
[Federal Register Volume 80, Number 2 (Monday, January 5, 2015)]
[Notices]
[Pages 268-269]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30809]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73950; File No. SR-NASDAQ-2014-100]


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

December 29, 2014.

I. Introduction

    On October 29, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to include a new feature, the IPO Indicator, that 
is designed to assist Exchange member firms in monitoring their orders 
during the NASDAQ Halt Cross process leading up to the launch of an 
initial public offering (``IPO''). The proposed rule change was 
published for comment in the Federal Register on November 18, 2014.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 73574 (November 12, 
2014), 79 FR 68745 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend Exchange Rule 7015(d) to include the 
IPO Indicator as a new enhancement to the NASDAQ Workstation. According 
to the Exchange, the NASDAQ Workstation provides order entry and quote 
functionality and includes several features to assist subscribers with 
managing and monitoring their trading activity.\4\ The Exchange 
proposes to include the IPO Indicator as a new feature that is designed 
to assist member firms in monitoring their orders during the NASDAQ 
Halt Cross process.\5\
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    \4\ See id. at 68745.
    \5\ See id.
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    According to the Exchange, the NASDAQ Halt Cross (``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.\6\ Prior to the Cross execution, the Exchange states that 
market participants enter quotes and orders eligible for participation 
in the Cross, and the Exchange disseminates certain information 
regarding buying and selling interest entered and the indicative 
execution price information, known as the Net Order Imbalance Indicator 
(``NOII'').\7\ The Exchange further states that 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. 
According to the Exchange, the information provided in the NOII message 
includes the Current Reference Price \8\ and the number of shares of 
Eligible Interest.\9\
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    \6\ See id.
    \7\ See id.
    \8\ See Exchange Rule 4753(a)(3)(A). The Exchange describes the 
Current Reference Price as the price at which the Cross would occur 
if it executed at the time of the NOII's dissemination. See Notice, 
supra note 3, at 68745.
    \9\ See Exchange Rule 4753(a)(5) (defining Eligible Interest as 
``any quotation or any order that has been 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'').
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    The Exchange also disseminates information about the size and buy/
sell direction of an Imbalance,\10\ which the Exchange defines 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.\11\ The Exchange states that 
the disseminated information reflects all shares eligible for 
participation in the Cross, regardless of time-in-force (including non-
displayed shares and reserve size) and is meant to 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.
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    \10\ See Exchange Rule 4753(a)(1).
    \11\ See Notice, supra note 3, at 68745. The Exchange states 
that it also disseminates a Market Order Imbalance, which the 
Exchange defines 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 a NOII, if in fact 
there are such unexecutable market order shares. See Exchange Rule 
4753(a)(2). When there is a Market Order Imbalance, the Exchange 
notes that it disseminates the imbalance and the buy/sell direction 
of the imbalance. See Notice, supra note 3, at 68745.
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    In the case of an IPO, the Exchange states that the Halt Cross 
operates as follows: First, the underwriters to the IPO make a 
determination to launch the IPO during the Pre-Launch Period \12\ when 
the underwriters believe the security is ready to trade.\13\ Second,

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once the underwriter informs the Exchange that it is ready to launch 
the IPO, the NASDAQ system calculates the Current Reference Price at 
that time (the ``Expected Price'') and displays it to the 
underwriter.\14\ If the underwriter then approves proceeding, the 
NASDAQ system conducts two validation checks: (1) The NASDAQ system 
determines whether all market orders will execute in the cross; and (2) 
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.\15\ According to the Exchange, if either of the validation 
checks fails, the security will not be released for trading and the 
Pre-Launch Period will continue until all requirements are met.\16\
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    \12\ The Exchange explains that the Pre-Launch Period is the 
second phase of a two-phase process that NASDAQ uses for launching 
IPOs. See id. at 68746. According to the Exchange, the Pre-Launch 
Period follows a 15-minute Display Only Period and is of no fixed 
duration. See id. In addition, the Exchange states that the NOII is 
disseminated every five seconds during both periods. See id.
    \13\ See id. at 68745.
    \14\ See id. at 68746.
    \15\ See Notice, supra note 3, at 68746.
    \16\ See id. Alternatively, the underwriter may, with the 
concurrence of the Exchange, determine to postpone and reschedule 
the IPO. See id.
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    The Exchange proposes to offer the IPO Indicator 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.\17\ Under the proposal, the IPO Indicator would be offered 
through the NASDAQ Workstation and would use the NOII information 
already currently available through a Workstation subscription together 
with the information about the member firm's orders on NASDAQ.\18\ 
Under the proposal, the Exchange states that member firms using the IPO 
Indicator would be able to see the Current Reference Price, the number 
of paired shares, the number of imbalance shares, 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.\19\ In addition, the Exchange states that member 
firms using the IPO Indicator would also be able to see details about 
its IPO shares presented by individual orders or order blocks, which 
would 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.\20\
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    \17\ See id.
    \18\ The Exchange states that the information provided by the 
IPO Indicator is limited to the subscribing member firm's orders. 
See id.
    \19\ See Notice, supra note 3, at 68746.
    \20\ See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\21\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\22\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, 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 Section 6(b)(8) of the Act,\23\ which requires 
that the rules of the exchange do not impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act.
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    \21\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 15 U.S.C. 78f(b)(8).
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    As described above, the Exchange proposes to adopt an IPO Indicator 
as a new feature to the NASDAQ Workstation. The Exchange believes the 
IPO Indicator would provide member firms with information consistent 
with what the Exchange currently disseminates during the IPO launch 
process, but as that information relates to a member firm's orders and 
in greater detail.\24\ The Exchange further believes that IPO Indicator 
would provide member firms and underwriters with more information 
regarding their orders submitted for participation in an IPO Halt 
Cross, which the Exchange believes would allow them to make better 
informed investment decisions.\25\
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    \24\ See Notice, supra note 3 at 68746.
    \25\ The Exchange notes, for example, that 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, 
which the Exchange believes could increase the likelihood of a fair 
and orderly launch of the IPO security. See id.
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    The Commission notes that the Exchange is not proposing to increase 
the fee for usage of the NASDAQ Workstation in connection with the 
addition of the IPO Indicator feature. In addition, under the proposal, 
the information provided by the IPO Indicator would be limited to the 
subscribing member firm's orders.\26\ Accordingly, the Commission 
believes that the proposed rule change adopting the IPO Indicator 
feature is designed to protect investors and the public interest by 
providing them with more information regarding their orders submitted 
for participation in an IPO Halt Cross. Further, the new IPO Indicator 
feature may also facilitate the fair and orderly launch of an IPO 
security.\27\
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    \26\ See Notice, supra note 3, at 68746.
    \27\ See supra note 25.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-NASDAQ-2014-100) be, and it 
hereby is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30809 Filed 1-2-15; 8:45 am]
BILLING CODE 8011-01-P


