
[Federal Register Volume 80, Number 12 (Tuesday, January 20, 2015)]
[Notices]
[Pages 2762-2763]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00700]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74041; File No. SR-NASDAQ-2014-110]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving a Proposed Rule Change To Adopt NASDAQ Rule 7015(i) To Offer 
the New IPO Workstation

January 13, 2015.

I. Introduction

    On November 14, 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 offer stand-alone access to the Exchange's IPO 
Indicator service. The proposed rule change was published for comment 
in the Federal Register on December 2, 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. 73683 (November 25, 
2014), 79 FR 71490 (``Notice'').
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II. Description of the Proposal

    The Commission recently approved a proposed rule change from the 
Exchange to offer the IPO Indicator as an enhancement to the NASDAQ 
Workstation at no additional cost.\4\ The Exchange now proposes to 
adopt Exchange Rule 7015(i) to offer stand-alone access to the IPO 
Indicator service (``IPO Workstation'') at no cost at this time.\5\ 
That is, a subscription to the full NASDAQ Workstation will not be 
required to access the IPO Indicator for those subscribing to the IPO 
Workstation.\6\
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    \4\ See Securities Exchange Act Release No. 73950 (December 29, 
2014), 80 FR 268 (January 5, 2015).
    \5\ See Notice, supra note 3 at 71491.
    \6\ See id. at 71492.
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    The IPO Indicator, according to the Exchange, is 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'').\7\ 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.\8\ 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'').\9\ 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 \10\ and the 
number of shares of Eligible Interest.\11\
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    \7\ See id. at 71491.
    \8\ See id.
    \9\ See id.
    \10\ 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 71491.
    \11\ 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,\12\ 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.\13\ 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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    \12\ See Exchange Rule 4753(a)(1).
    \13\ See Notice, supra note 3, at 71491. 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 71491.
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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 \14\ when 
the underwriters believe the security is ready to trade.\15\ Second, 
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.\16\ 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.\17\ According to the Exchange, if either of the validation 
checks fails, the security will not be released for trading and the 
Pre-Launch

[[Page 2763]]

Period will continue until all requirements are met.\18\
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    \14\ 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. 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.
    \15\ See id.
    \16\ See id.
    \17\ See Notice, supra note 3, at 71491.
    \18\ 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.\19\ Under the proposal, the IPO Indicator will now be offered as 
a stand-alone service and would use the NOII information of an IPO 
security together with information about the member firm's orders on 
NASDAQ in the IPO security.\20\ The Exchange notes that, similar to 
accessing the IPO Indicator from the NASDAQ Workstation as the Exchange 
currently offers,\21\ subscribing member firms will be able to access 
the IPO Indicator from the main IPO Workstation screen.\22\ 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 subscribing 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.\23\ In addition, the Exchange states that 
subscribing 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.\24\
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    \19\ See id.
    \20\ The Exchange states that the information provided by the 
IPO Indicator is limited to the subscribing member firm's orders. 
See id.
    \21\ See supra note 4 and accompanying text.
    \22\ See Notice, supra note 3, at 71491.
    \23\ See id.
    \24\ 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.\25\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\26\ 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,\27\ 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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    \25\ 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).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78f(b)(8).
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    As described above, the Exchange proposes to adopt Exchange Rule 
7015(i) to offer stand-alone access to the IPO Indicator. The 
Commission notes that it recently approved a proposed rule change that 
allows the Exchange to provide the IPO Indicator through the NASDAQ 
Workstation.\28\ Offering the IPO indicator through the IPO Workstation 
will provide all member firms that are interested in subscribing to the 
IPO indicator a means to access it, at no cost at this time, in lieu of 
paying for a full NASDAQ Workstation subscription.\29\ Accordingly, the 
Commission believes that the proposed rule change adopting the IPO 
Workstation is designed to protect investors and the public interest by 
providing member firms with more information regarding their orders 
submitted for participation in an IPO Halt Cross.
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    \28\ See supra note 4 and accompanying text.
    \29\ See Notice, supra note 3 at 71492. The Exchange notes that 
not all member firms subscribe to the NASDAQ Workstation and 
prospective users of the IPO indicator may not desire to pay for a 
full NASDAQ Workstation subscription for the sole purpose of 
assessing the IPO indicator.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-NASDAQ-2014-110) be, and it 
hereby is, approved.
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    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00700 Filed 1-16-15; 8:45 am]
BILLING CODE 8011-01-P


