[Federal Register Volume 83, Number 207 (Thursday, October 25, 2018)]
[Notices]
[Pages 53923-53925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23277]



[[Page 53923]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84454; File No. SR-NASDAQ-2018-068]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1, To 
Extend the Cutoff Times for Accepting on Close Orders Entered for 
Participation in the Nasdaq Closing Cross and To Make Related Changes

October 19, 2018.

I. Introduction

    On August 15, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``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 extend the cutoff times for accepting on close 
orders entered for participation in the Nasdaq Closing Cross and to 
make related changes. The proposed rule change was published for 
comment in the Federal Register on September 5, 2018.\3\ On October 15, 
2018, the Exchange filed Amendment No. 1 to the proposed rule change, 
which amended and superseded the original filing in its entirety.\4\ 
The Commission has received no comments on the proposed rule change. 
This order approves the proposed rule change, as modified by Amendment 
No. 1.
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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. 83988 (August 29, 
2018), 83 FR 45165.
    \4\ In Amendment No. 1, the Exchange: (1) Proposed conforming 
changes to Nasdaq Rule 7018(a)(3) to reflect the proposed cutoff 
times and provided additional discussion regarding the proposed 
changes to Nasdaq Rule 7018(a); (2) proposed to implement the 
proposal in Q4 2018; and (3) made other technical changes. Because 
Amendment No. 1 does not materially alter the substance of the 
proposed rule change or raise unique or novel regulatory issues, 
Amendment No. 1 is not subject to notice and comment. Amendment No. 
1 is available at https://www.sec.gov/comments/sr-nasdaq-2018-068/srnasdaq2018068-4523622-176030.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1 5
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    \5\ For a more detailed description of the proposal, see 
Amendment No. 1, supra note 4.
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    The Exchange proposes to amend certain cutoff times for on close 
orders entered for participation in the Nasdaq Closing Cross, to reject 
Closing Cross/Extended Hours Orders \6\ that have been assigned a 
Pegging Attribute \7\ regardless of when such orders are entered, and 
to make changes to the Order Imbalance Indicator.
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    \6\ See infra note 18.
    \7\ See infra note 19.
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A. Nasdaq Closing Cross Cutoff Times

    Nasdaq Rule 4702(b)(11) currently provides that Market On Close 
(``MOC'') Orders \8\ may be entered, cancelled, and/or modified between 
4 a.m. ET and immediately prior to 3:50 p.m. ET. MOC Orders entered 
after 3:50 p.m. ET are rejected. Between 3:50 p.m. ET and immediately 
prior to 3:55 p.m. ET, MOC Orders can be cancelled and/or modified only 
if the participant requests that Nasdaq correct a legitimate error in 
the order (e.g., side, size, symbol, price, or duplication of an 
order). MOC orders cannot be cancelled or modified for any reason at or 
after 3:55 p.m. ET.
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    \8\ A MOC Order is an order type entered without a price that 
may be executed only during the Nasdaq Closing Cross. See Nasdaq 
Rule 4702(b)(11)(A).
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    Nasdaq Rule 4702(b)(12) currently provides that Limit On Close 
(``LOC'') Orders \9\ may be entered, cancelled, and/or modified between 
4 a.m. ET and immediately prior to 3:50 p.m. ET. LOC Orders may be 
entered between 3:50 p.m. ET and immediately prior to 3:55 p.m. ET 
provided that there is a First Reference Price.\10\ LOC Orders entered 
at or after 3:55 p.m. ET are rejected.\11\ Between 3:50 p.m. ET and 
immediately prior to 3:55 p.m. ET, LOC orders cannot be modified, and 
they can be cancelled only if the participant requests that Nasdaq 
correct a legitimate error in the order.
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    \9\ A LOC Order is an order type entered with a price that may 
be executed only in the Nasdaq Closing Cross, and only if the price 
determined by the Nasdaq Closing Cross is equal to or better than 
the price at which the LOC Order was entered. See Nasdaq Rule 
4702(b)(12)(A).
    \10\ A LOC Order entered between 3:50 p.m. ET and immediately 
prior to 3:55 p.m. ET is accepted at its limit price, unless its 
limit price is higher (lower) than the First Reference Price for a 
LOC Order to buy (sell), in which case the participant has the 
choice to have the order rejected or re-priced to the First 
Reference Price. The First Reference Price is the Current Reference 
Price in the first Order Imbalance Indicator disseminated at or 
after 3:50 p.m. ET. See Nasdaq Rule 4754(a)(9).
    \11\ Nasdaq Rule 4702(b)(12)(B) provides that a Closing Cross/
Extended Hours Order entered through OUCH, FLITE, RASH, or FIX with 
a time-in-force other than immediate-or-cancel after the time of the 
Nasdaq Closing Cross will be accepted but the Nasdaq Closing Cross 
flag will be ignored. All other Closing Cross/Extended Hours Orders 
entered at or after 3:55 p.m. ET are rejected.
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    Nasdaq Rule 4702(b)(13) currently provides that Imbalance Only 
(``IO'') Orders \12\ may be entered between 4:00 a.m. ET until the time 
of execution of the Nasdaq Closing Cross.\13\ IO Orders may be 
cancelled and/or modified between 3:50 p.m. ET and immediately prior to 
3:55 p.m. ET if the participant requests that Nasdaq correct a 
legitimate error in the order. IO Orders may not be cancelled or 
modified for any reason at or after 3:55 p.m. ET.
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    \12\ An IO Order is an order entered with a price that may be 
executed only in the Nasdaq Closing Cross and only against MOC 
Orders or LOC Orders. See Nasdaq Rule 4702(b)(13)(A).
    \13\ The Nasdaq Closing Cross begins at 4:00:00 p.m. ET and 
post-market hours trading commences when the Nasdaq Closing Cross 
concludes. See Nasdaq Rule 4754(b).
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    The Exchange now proposes to amend these cutoff times. As proposed, 
Nasdaq Rule 4702(b)(11) would provide that MOC Orders may be entered, 
cancelled, and/or modified between 4 a.m. ET and immediately prior to 
3:55 p.m. ET. MOC Orders entered at or after 3:55 p.m. ET would be 
rejected. Between 3:55 p.m. ET and immediately prior to 3:58 p.m. ET, 
MOC Orders could be cancelled and/or modified only if the participant 
requests that Nasdaq correct a legitimate error in the order. MOC 
orders could not be cancelled or modified for any reason at or after 
3:58 p.m. ET. As proposed, Nasdaq Rule 4702(b)(12) would provide that 
LOC Orders may be entered, cancelled, and/or modified between 4 a.m. ET 
and immediately prior to 3:55 p.m. ET. LOC Orders could be entered 
between 3:55 p.m. ET and immediately prior to 3:58 p.m. ET provided 
that there is a First Reference Price.\14\ LOC Orders entered at or 
after 3:58 p.m. ET would be rejected.\15\ Between 3:55 p.m. ET and 
immediately prior to 3:58 p.m. ET, LOC orders could not be modified, 
and they could be cancelled only if the participant requests that 
Nasdaq correct a legitimate error in the order. As proposed, Nasdaq 
Rule 4702(b)(13) \16\ would provide that IO Orders may be cancelled 
and/or modified between 3:55 p.m. ET and immediately prior to 3:58 p.m. 
ET if the participant requests that Nasdaq correct a legitimate error 
in the order. IO Orders could not be cancelled or modified for any 
reason at or after 3:58 p.m. ET.
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    \14\ As proposed, a LOC Order entered between 3:55 p.m. ET and 
immediately prior to 3:58 p.m. ET would be accepted at its limit 
price, unless its limit price is higher (lower) than the First 
Reference Price for a LOC Order to buy (sell), in which case the 
participant would have the choice to have the order rejected or re-
priced to the First Reference Price.
    \15\ Nasdaq Rule 4702(b)(12)(B) continues to provide that a 
Closing Cross/Extended Hours Order entered through OUCH, FLITE, 
RASH, or FIX with a time-in-force other than immediate-or-cancel 
after the time of the Nasdaq Closing Cross will be accepted but the 
Nasdaq Closing Cross flag will be ignored. As proposed, all other 
Closing Cross/Extended Hours Orders entered at or after 3:58 p.m. ET 
would be rejected.
    \16\ Unchanged from the current rule, IO Orders may be entered 
between 4:00 a.m. ET until the time of execution of the Nasdaq 
Closing Cross.

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[[Page 53924]]

    The Exchange also proposes to make conforming changes throughout 
its rules to reflect the proposed cutoff times.\17\
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    \17\ Specifically, the Exchange proposes to make conforming 
changes to Nasdaq Rule 4754(b)(7)(B) and Nasdaq Rules 7018(a)(1), 
(2), and (3) to reflect the proposed cutoff times.
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B. Closing Cross/Extended Hours Order With Pegging Attribute

    Nasdaq Rule 4702(b)(12)(B) currently provides that a Closing Cross/
Extended Hours Order \18\ that is entered between 3:50 p.m. ET and the 
time of the Nasdaq Closing Cross will be rejected if it has been 
assigned a Pegging Attribute.\19\ The Exchange proposes to delete the 
reference in this rule to the time period between 3:50 p.m. ET and the 
time of the Nasdaq Closing Cross. Therefore, as proposed, a Closing 
Cross/Extended Hours Order would be rejected if it has been assigned a 
Pegging Attribute regardless of when the order is entered.
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    \18\ A Closing Cross/Extended Hours Order is an order that is 
flagged to participate in the Nasdaq Closing Cross and that has a 
time-in-force that continues after the time of the Nasdaq Closing 
Cross. See Nasdaq Rule 4702(b)(12)(B). A Closing Cross/Extended 
Hours Order participates in the Nasdaq Closing Cross like a LOC 
Order, and it operates thereafter in accordance with its order type 
and order attributes (if not executed in full in the Nasdaq Closing 
Cross). See id.
    \19\ Pegging is an order attribute that allows an order to have 
its price automatically set with reference to the national best bid 
or offer and is available only during Market Hours. See Nasdaq Rule 
4703(d).
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C. Order Imbalance Indicator

    Currently, Nasdaq Rule 4754(b)(1) provides that, beginning at 3:50 
p.m., Nasdaq disseminates by electronic means an Order Imbalance 
Indicator \20\ every five seconds until market close. The Exchange 
proposes to begin disseminating the Order Imbalance Indicator for the 
Nasdaq Closing Cross at 3:55 p.m. ET and to disseminate the Order 
Imbalance Indicator every second.\21\ The Exchange also proposes to 
disseminate the Order Imbalance Indicators for the Nasdaq Opening 
Cross,\22\ the Nasdaq Halt Cross,\23\ and the LULD Closing Cross \24\ 
every second instead of every five seconds.
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    \20\ The Order Imbalance Indicator for the Nasdaq Closing Cross 
is a message disseminated by electronic means containing information 
about MOC, LOC, IO, and Close Eligible Interest and the price at 
which those orders would execute at the time of dissemination. See 
Nasdaq Rule 4754(a)(7).
    \21\ Because the Exchange proposes to begin disseminating the 
Order Imbalance Indicator for the Nasdaq Closing Cross at 3:55 p.m. 
ET, the Exchange also proposes to amend the definition of First 
Reference Price to mean the Current Reference Price in the first 
Order Imbalance Indicator disseminated at or after 3:55 p.m. ET. See 
proposed Nasdaq Rule 4754(a)(9).
    \22\ See proposed Nasdaq Rule 4752(d)(1).
    \23\ See proposed Nasdaq Rule 4753(b)(1).
    \24\ See proposed Nasdaq Rule 4754(b)(6)(B).
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    The Exchange proposes to implement the proposed changes in Q4 2018, 
and will announce the implementation date in an Equity Trader Alert 
issued to participants prior to implementing the changes.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, 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 foster cooperation and coordination 
with persons engaged in 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.
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    \25\ In approving this proposed rule change, 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).
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    As discussed above, the Exchange proposes to extend the cutoff 
times for entering MOC and LOC Orders, for modifying and cancelling 
MOC, LOC, and IO Orders, for modifying MOC and IO Orders to correct 
legitimate errors, and for cancelling MOC, LOC, and IO Orders to 
correct legitimate errors.\27\ The Commission believes that extending 
these cutoff times would allow Exchange participants to retain 
flexibility with respect to entering, modifying, and cancelling their 
on close orders until a later time, while still providing time for 
Exchange participants to react to and resolve imbalances in the Nasdaq 
Closing Cross.\28\ As a result, the Commission believes that the 
proposal could encourage participation in the Nasdaq Closing Cross by 
market participants who are unwilling to give up flexibility and 
control over their on close orders starting at 3:50 p.m. ET.\29\
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    \27\ See supra Section II.A.
    \28\ The Commission also notes that the proposal would continue 
to provide a brief period of additional time after 3:55 p.m. ET for 
Exchange participants to submit LOC Orders provided that there is a 
First Reference Price, and to correct legitimate errors in their on 
close orders.
    \29\ The Commission notes that Cboe BZX Exchange Inc. (``BZX'') 
has a 3:55 p.m. cutoff time for entering market-on-close and limit-
on-close orders, and that BZX accepts late-limit-on-close orders 
between 3:55 p.m. and 4:00 p.m. See BZX Rule 11.23(c)(1)(A). The 
Commission also notes that NYSE Arca, Inc. (``NYSE Arca'') initiates 
its closing auction imbalance freeze for market-on-close and limit-
on-close orders one minute before the scheduled time for the closing 
auction. See NYSE Arca Rule 7.35-E(d)(2).
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    As discussed above, the Exchange also proposes to amend its rules 
to provide that a Closing Cross/Extended Hours Order would be rejected 
if it has been assigned a Pegging Attribute (i.e., regardless of the 
time the order is entered).\30\ The Commission notes that Pegging 
Attributes are available only during Market Hours \31\ and Closing 
Cross/Extended Hours Orders only operate outside of Market Hours.\32\ 
The Commission believes that the proposal would reflect the current 
operation of the Pegging Attribute and Closing Cross/Extended Hours 
Orders.
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    \30\ See supra Section II.B.
    \31\ See supra note 19 and Nasdaq Rule 4703(d).
    \32\ See supra note 18 and Nasdaq Rule 4702(b)(12)(B).
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    In addition, as discussed above, the Exchange proposes to 
disseminate the Order Imbalance Indicator for the Nasdaq Closing Cross 
beginning at 3:55 p.m. ET instead of 3:50 p.m. ET, and to disseminate 
the Order Imbalance Indicators for the Nasdaq Opening Cross, Nasdaq 
Halt Cross, Nasdaq Closing Cross, and LULD Closing Cross every second 
instead of every five seconds.\33\ The Commission notes that because 
Exchange participants would have more flexibility to enter, modify, and 
cancel on close orders before 3:55 p.m. ET than after,\34\ the proposal 
would permit the Exchange to start disseminating the Order Imbalance 
Indicator for the Nasdaq Closing Cross when on close interest is 
relatively locked in.\35\ The Commission also believes that 
disseminating the Order Imbalance Indicators every second would provide 
a timelier and more frequent view of the market before a cross.\36\
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    \33\ See supra Section II.C.
    \34\ See supra Section II.A.
    \35\ The Commission notes that, currently, the Exchange also 
begins disseminating the Order Imbalance Indicator for the Nasdaq 
Closing Cross when on close interest is relatively locked in (i.e., 
at 3:50 p.m. ET).
    \36\ The Commission notes that NYSE Arca updates its auction 
imbalance information at least every second, unless there is no 
change to the information. See NYSE Arca Rule 7.35-E(a)(4)(A).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-NASDAQ-

[[Page 53925]]

2018-068), as modified by Amendment No. 1, be, and hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23277 Filed 10-24-18; 8:45 am]
 BILLING CODE 8011-01-P


