
[Federal Register Volume 80, Number 127 (Thursday, July 2, 2015)]
[Notices]
[Pages 38245-38247]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16274]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75316; File No. SR-NASDAQ-2015-064]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Recent Changes to Rules 4751(h) and 4754(b)

June 26, 2015.
    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 June 19, 2015, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to modify recent changes to Rules 4751(h) and 
4754(b), which are effective but not yet implemented.
    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
    NASDAQ is proposing to modify certain recent changes made to Rules 
4751(h) and 4754(b), which are effective but not yet implemented. On 
December 16, 2014, the Exchange filed an immediately effective filing 
\3\ to amend the processing of the Closing Cross under Rule 4754(b) to 
adopt a ``Lockdown Period,'' the point at which NASDAQ would close the 
order book for participation in the Closing Cross and the continuous 
market, and which would represent the close of the Regular Market 
Session.\4\ The Exchange also amended Rule 4751(h) to harmonize the 
processing of Market Hours Day orders \5\ and Good-til-market close 
orders \6\ upon initiation of the Lockdown Period.
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    \3\ Securities Exchange Act Release No. 73943 (December 24, 
2014), 80 FR 69 (January 2, 2015) (SR-NASDAQ-2014-123).
    \4\ As defined by Rule 4120(b)(4)(D).
    \5\ See Rule 4751(h)(6).
    \6\ See Rule 4751(h)(8).
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    The Exchange had originally anticipated implementing the changes in 
mid-February 2015, after the expiration of the 30-day operative delay 
provided by Rule 19b-4(f)(6)(iii) under the Act.\7\ The Exchange 
subsequently

[[Page 38246]]

extended the period for implementation to Monday, April 13, 2015,\8\ 
and then again until successful completion of a User Acceptance Test to 
ensure the proper function of the proposed changes.\9\ Upon successful 
completion of that test, the Exchange committed to announce a new 
implementation date and provide notice of that date to the industry.
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    \7\ 17 CFR 240.19b-4(f)(6)(iii).
    \8\ Securities Exchange Act Release No. 74342 (February 20, 
2015), 80 FR 10562 (February 26, 2015) (SR-NASDAQ-2015-014).
    \9\ Securities Exchange Act Release No. 74795 (April 23, 2015), 
80 FR 23839 (April 29, 2015) (SR-NASDAQ-2015-038).
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    The Exchange originally proposed to adopt the Lockdown Period so 
that there would be a time at which no further orders would be accepted 
for participation in the regular hours market including the Closing 
Cross.\10\ The Closing Cross is the process by which NASDAQ determines 
the price at which orders will be executed at market close. Each 
trading day, NASDAQ accepts orders designated to participate in the 
Closing Cross.\11\ Beginning at 3:50 p.m. Eastern Time, NASDAQ 
disseminates an Order Imbalance Indicator \12\ 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, after 
which individual Closing Crosses are conducted for each security traded 
on NASDAQ.\13\ During the brief period between the initiation of the 
closing process and the conclusion of the last Closing Cross,\14\ 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.
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    \10\ See Rule 4754.
    \11\ See Rule 4754(a)(1) for a description of quotes and orders 
eligible for participation in the Closing Cross.
    \12\ 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.
    \13\ 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.
    \14\ This brief period is normally well under one second.
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    The Exchange proposed adopting the Lockdown Period in an effort to 
avoid a potential risk, albeit slight, that the closing price of a 
security may be significantly altered by an aberrant order in a 
security due to an error.\15\ The Exchange had balanced the benefits of 
allowing orders up to the completion of the cross in an individual 
security against the potential risk of an aberrant order affecting the 
closing price of a security, and determined that setting a time after 
which orders for participation in the cross would no longer be accepted 
was the best approach to minimize risk. As the Exchange prepared to 
implement the new process, a further review from technological and 
broader market impact perspectives was conducted. This additional in-
depth review raised concerns regarding the challenges with maintaining 
a lockdown state on the Exchange. In particular, the Exchange 
reevaluated whether market participants, including other exchanges, 
would react negatively to the brief Lockdown Period during which the 
Exchange would not accept orders. Additionally, the Lockdown Period 
introduced technological challenges that the Exchange believes were 
addressed successfully. Nonetheless even successful solutions to 
difficult challenges can create unforeseen risks. As such, the Exchange 
has determined that the risk associated with making a broad change such 
as the Lockdown Period outweighs the risk associated with isolated 
events in which an order may have an undesirable impact on a particular 
security. As a consequence, the Exchange is eliminating from Rule 
4754(b) text stating that, beginning at 4:00 p.m. Eastern Time, no 
further orders will be accepted for participation in the Closing Cross 
or the continuous market, and is replacing it with new rule text which 
makes it clear that the Exchange will accept orders for participation 
in the Closing Cross or the continuous market after 4:00 p.m. Eastern 
Time up to the conclusion of the Closing Cross in the individual 
security.
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    \15\ 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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    As a consequence of the proposed changes to Rule 4754(b), the 
Exchange is proposing to modify rule text in Rules 4751(h)(6) and (8), 
which note that the Exchange will not accept MDAY and GTMC Orders, 
respectively, after 4:00 p.m. Eastern Time. The Exchange is amending 
this language to make it clear that the System will accept such orders 
up to the conclusion of the Closing Cross in the individual security, 
which will occur sometime after 4:00 p.m. Eastern Time. A MDAY or GTMC 
order entered after completion of the Closing Cross in the security for 
which the order was designated will not be accepted.
    The Exchange will begin implementation of the proposed changes the 
week of August 17, 2015 and will complete the implementation the week 
of August 31, 2015. The Exchange will issue an Equity Trader Alert 
notifying Exchange member firms of the changes.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of section 6 of the Act,\16\ in general, and with 
section 6(b)(5) of the Act,\17\ in particular, because it is 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 is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed changes to Rules 4751(h) 
and 4754(b) further perfect the NASDAQ market and serve to protect 
investors because they are designed to minimize risk and promote 
consistency in the closing process. Although the Exchange had 
originally adopted the Lockdown Period to address a potential and 
slight risk that an aberrant trade could affect the closing price of a 
security, it has since determined that instituting such a change would 
introduce new risks to the closing process, which would outweigh the 
benefit of adopting the Lockdown Period. As such, the Exchange believes 
the proposed changes protect investors and the public interest because 
they will serve to minimize risk in the closing process while also 
promoting both consistency in how MDAY and GTMC orders are handled in 
the closing process and transparency in the process for handling orders 
at the close.

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

    NASDAQ does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.\18\ The Exchange 
believes that the proposal is irrelevant to competition because it is 
not driven by, and will have no impact on, competition. Specifically, 
the proposal is

[[Page 38247]]

representative of the Exchange's efforts to minimize risk in its market 
during the closing process, and to harmonize and simplify the 
processing of MDAY and GTMC orders during the closing process.
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    \18\ 15 U.S.C. 78f(b)(8).
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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)(iii) of the Act \19\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \20\ 17 CFR 240.19b-4(f)(6).
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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-2015-064 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-2015-064. 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-2015-
064, and should be submitted on or before July 23, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-16274 Filed 7-1-15; 8:45 am]
 BILLING CODE 8011-01-P


