
[Federal Register Volume 80, Number 178 (Tuesday, September 15, 2015)]
[Notices]
[Pages 55406-55407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-23096]



[[Page 55406]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75863; File No. SR-NASDAQ-2015-082]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving a Proposed Rule Change To Introduce an Additional Data 
Element to the IPO Indicator Service

September 9, 2015.

I. Introduction

    On July 15, 2015, 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 introduce an additional data element, the ``IPO 
Book Viewer,'' to its existing IPO Indicator Service. The proposed rule 
change was published for comment in the Federal Register on July 24, 
2015.\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. 75517 (July 24, 
2015), 80 FR 45568 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to adopt Exchange Rule 7015(j) to include the 
IPO Book Viewer as new data element as part of the IPO Indicator 
Service.\4\ According to the Exchange, the IPO Indicator Service 
currently assists Nasdaq participants in monitoring the orders they 
have entered for execution in the Nasdaq Halt Cross for an IPO (``IPO 
Cross'').\5\ The Exchange states that the IPO Indicator Service 
provides a market participant with information about the number of 
shares of its orders that would execute in the IPO Cross at the Current 
Reference Price.\6\ Under the proposal, the IPO Book Viewer would be 
available only to the Exchange member that is acting as the stabilizing 
agent for the IPO security.\7\ Access to the IPO Book Viewer will be 
limited through a secure entitlement process to designated individuals 
employed by the stabilizing agent.\8\
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    \4\ See Exchange Rule 7015. Nasdaq notes that the IPO Indicator 
Service is available either as a feature of the Nasdaq Workstation 
product, or through a standalone product known as the Nasdaq IPO 
Workstation. See Notice, supra note 3, at 45568 n.4.
    \5\ See id. at 45568. The Exchange states that 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. See id.
    \6\ See id. The Exchange states that prior to an IPO Cross, 
market participants enter eligible orders for participation in the 
IPO Cross, and the Exchange disseminates certain information 
regarding buying and selling interest entered and indicative 
execution price information, such information is known collectively 
as the Net Order Imbalance Indicator or ``NOII'', and includes, 
among other things, the Current Reference Price. See id. and 
Exchange Rules 4753(a)(3)(A) (defining ``Current Reference Price'') 
and 4753(a)(5) (defining ``Eligible Interest'').
    \7\ See proposed Exchange Rule 7015(j).
    \8\ See Notice, supra note 3, at 45569.
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    According to the Exchange, following the completion of the IPO 
Cross, the stabilizing agent \9\ may enter a stabilizing bid into the 
market for the purpose of supporting the price of the IPO security 
during the remainder of its first day of trading.\10\ The Exchange 
further states that the stabilizing agent stands ready during the 
course of the day to commit its capital in support of the IPO security, 
buying from investors that wish to sell the IPO security to realize 
short-term gains (or to minimize short-term losses).\11\
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    \9\ The Exchange notes that the stabilizing agent is typically 
the lead underwriter and serves the function of being the designated 
representative of the underwriting syndicate that informs the 
Exchange that the IPO security is ready to commence trading, 
pursuant to the Exchanges rules governing the IPO Cross. See Notice, 
supra note 3 at, 45568.
    \10\ See Notice, supra note 3, at 45569. The Exchange notes that 
the stabilizing agent is subject to the requirements and limitations 
under Regulation M regarding ``stabilizing'' the IPO security. See 
id. at 45568 (citing 17 CFR 242.100).
    \11\ See Notice, supra note 3, at 45569.
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    The Exchange states that on the day of an IPO, beginning with the 
start of the ``Display-Only Period,'' \12\ and ending upon the 
completion of the IPO Cross for an IPO security, the IPO Book Viewer 
would display aggregated buying and selling interest information for 
the IPO security, reflecting all orders on the Nasdaq Book,\13\ and 
consisting of the total number of orders and the aggregate size of all 
orders, grouped in $0.05, $0.10, or $0.25 price increments.\14\ Under 
the proposal, the pricing increments could be adjusted by the 
stabilizing agent during the period that the IPO Book Viewer is 
available.\15\ Under the proposal, the placement of the price bands 
will be standardized, beginning at $0.\16\ The Exchange states that the 
aggregated information that would be provided through this data element 
would include all orders and size, including orders with a time-in-
force of immediate or cancel; orders with reserve size; and non-
displayed orders.\17\ Under the proposal, the information provided 
through the IPO Book Viewer would be updated every five seconds, along 
with updates to the NOII.\18\
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    \12\ See Exchange Rule 4120(c)(7)(A) (describing ``Display Only 
Period'').
    \13\ See Exchange Rule 4701(a)(1) (defining ``Nasdaq Book'').
    \14\ See Notice, supra note 3, at 45569.
    \15\ See Notice, supra note 3, at 45569. For example, the 
Exchange states that if the IPO Book Viewer was configured to show 
$0.05 increments and the Nasdaq Book had 100 Orders to buy with a 
size of 200 shares each at each price from $39.99 to $39.95; and 100 
Orders to buy with a size of 100 shares each at each price from 
$39.94 to $39.90, the IPO Book Viewer would show 500 Orders with an 
aggregate size of 100,000 shares for the $39.99 to $39.95 price 
band; and 500 Orders with an aggregate size of 50,000 shares for the 
$39.94 to $39.90 price band. See id. However, the Exchange notes 
that the stabilizing agent could not view multiple increments at the 
same time (e.g., the viewer could view all $0.05 increments or all 
$0.25 increments, but could not view a $0.05 increment for prices 
near the NOII and wider increments for prices further away). See id. 
at, 45569 n.8.
    \16\ See Notice, supra note 3, at 45569. For example, the 
Exchange states that a stabilizing agent selecting $0.05 increments 
would always see orders priced from $20.00 to $20.04 and from $20.05 
to $20.09, but could not modify the starting point of the price band 
to see orders priced from $20.01 to $20.05. See Notice, supra note 
3, at 45569.
    \17\ The Exchange notes that the IPO Book Viewer would not 
provide any information regarding IOC or non-displayed orders or 
reserve size other than in the aggregated format described above, 
and will not provide any information regarding the identity of 
market participants posting orders. See id.
    \18\ See id.
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    In addition, under the proposal, the stabilizing agent receiving 
the IPO Book Viewer would be required to maintain and enforce written 
policies and procedures reasonably designed to achieve the following 
purposes: (i) Restrict electronic access to aggregated information only 
to associated persons of the stabilizing agent who need to know the 
information in connection with establishing the opening price of an IPO 
security and stabilizing the IPO security; (ii) except as may be 
required for purposes of maintaining books and records for regulatory 
purposes, prevent the retention of aggregated information following the 
completion of the IPO Cross for the IPO security; and (iii) prevent 
persons with access to aggregated information from engaging in 
transactions in the IPO security other than transactions in the IPO 
Cross; transactions on behalf of a customer; or stabilizing.\19\ Under 
the proposal, however, nothing contained in the proposed rule would be 
construed to prohibit the member acting as the stabilizing agent from 
(i) engaging in stabilizing consistent with that role, or (ii) using 
the information provided from the IPO Book Viewer to respond to 
inquiries from any person, including, without limitation, other 
members, customers, or associated persons of the stabilizing agent, 
regarding the expectations of the member acting as the stabilizing 
agent with regard to the possibility of executing stated quantities

[[Page 55407]]

of an IPO security at stated prices in the IPO Cross.\20\ The proposal 
would also require that the aggregated information provided through the 
IPO Book Viewer would be available solely for display on the screen of 
a computer for which an entitlement has been provided by the Exchange 
and under no circumstances may a member redirect aggregated information 
to another computer or reconfigure it for use in a non-displayed 
format, including, without limitation, in any trading algorithm.\21\ 
Finally, the Exchange proposes that if a member became aware of any 
violation of the restrictions contained in the proposed rule, it must 
report the violation promptly to the Exchange.\22\
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    \19\ See proposed Exchange Rule 7015(j)(1)(A)(i)-(iii). See also 
Notice, supra note 3, at 45570.
    \20\ See proposed Exchange Rule 7015(j)(1)(D). See also Notice, 
supra note 3, at 45570.
    \21\ See proposed Exchange Rule 7015(j)(1)(B). See also Notice, 
supra note 3, at 45570.
    \22\ See proposed Exchange Rule 7015(j)(1)(C). See also Notice, 
supra note 3, at 45570. The Exchange also proposes to define the 
terms ``IPO security,'' ``stabilizing,'' ``stabilizing agent,'' 
``IPO Indicator Service,'' and ``IPO Book Viewer.'' See proposed 
Exchange Rule 7015(j)(2).
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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.\23\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\24\ 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,\25\ 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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    \23\ 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).
    \24\ 15 U.S.C. 78f(b)(5).
    \25\ 15 U.S.C. 78f(b)(8).
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    As described above, the proposed rule change would provide the 
Exchange member acting as stabilizing agent for an IPO security with 
access to the IPO Book Viewer, which would display aggregated buying 
and selling interest information for the IPO security, grouped in 
$0.05, $0.10, or $0.25 price increments. The Exchange believes that the 
IPO Book Viewer would, among other things, allow the stabilizing agent 
to respond in a more informed way to questions from its customers and 
other market participants regarding expectations that an order to buy 
or sell with a stated price and size may be executable in the IPO Cross 
and would assist the stabilizing agent in making decisions about the 
appropriate level of capital to commit to support the IPO security once 
trading commences.\26\ The Exchange proposes to provide access to the 
IPO Book Viewer only to the Exchange member acting as stabilizing agent 
for the IPO security because of the unique role played by the 
stabilizing agent on the day of an IPO.\27\
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    \26\ See Notice, supra note 3, at 45569.
    \27\ See id. (noting that the stabilizing agent stands ready 
during the course of the day to commit its capital in support of the 
IPO security and thereby serves to dampen volatility in the IPO 
security and promote the maintenance of a fair and orderly market. 
Nasdaq believes that providing additional information about the pre-
opening interest in the stock to the stabilizing agent will help it 
to optimize the opening of the stock and manage its own risk, which 
will assist it in promoting a fair and orderly market for the IPO 
security).
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    The Commission notes that the Exchange has proposed a number of 
safeguards to help ensure that the aggregated information is not 
misused, including that the stabilizing agent maintain and enforce 
written policies and procedures restricting electronic access to the 
information only to certain persons, preventing the retention of the 
information, and preventing those with access to the information from 
trading in the IPO security, except in limited circumstances.\28\ In 
addition, the Commission notes that the information provided through 
the IPO Book Viewer would be available solely for display on the screen 
of a computer for which an entitlement has been provided by the 
Exchange, access to the IPO Book Viewer will terminate immediately upon 
the completion of IPO Cross, and an Exchange member must report 
promptly to the Exchange any violation of the restrictions contained in 
proposed Exchange Rule 7015(j). The Commission also notes that the 
proposed rule change is similar to an existing rule on another 
exchange,\29\ but is generally more restrictive with respect to the use 
of information about orders.\30\ Accordingly, the Commission believes 
that the proposed rule change to add the IPO Book Viewer to the IPO 
Indicator Service is designed to protect investors and the public 
interest by providing the Exchange member acting as stabilizing agent 
with additional information that could, among things, assist the 
stabilizing agent in responding to questions from customers and market 
participants regarding expectations that a particular order may execute 
in the IPO Cross.
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    \28\ See supra note 19 and accompanying text.
    \29\ See NYSE Rule 104. See also Securities Exchange Act Release 
No. 71175 (December 23, 2013), 78 FR 79534 (December 30, 2013) (SR-
NYSE-2013-21 and SR-NYSEMKT-2013-25).
    \30\ For example, NYSE Rule 104 permits Designated Market Makers 
to access disaggregated information about the price and size of any 
individual order and to disclose disaggregated information about the 
price and size of any individual order to floor brokers in response 
to an inquiry in the normal course of business. See id. at 79538. In 
contrast, the Exchange's proposal would only permit the stabilizing 
agent to access aggregated order information and share such 
aggregated information with others in response to inquiries. See 
proposed Exchange Rule 7015(j).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change (SR-NASDAQ-2015-082) be, and it 
hereby is, approved.
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    \31\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-23096 Filed 9-14-15; 8:45 am]
BILLING CODE 8011-01-P


