[Federal Register Volume 84, Number 143 (Thursday, July 25, 2019)]
[Notices]
[Pages 35900-35905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15776]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86412; File No. SR-NASDAQ-2019-057]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4121

July 19, 2019.
    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 July 16, 2019, 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 and II 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 4121 (Trading Halts Due to 
Extraordinary Market Volatility) to enhance the re-opening auction 
process for Nasdaq listed securities following trading halts due to 
extraordinary market volatility.
    The text of the proposed rule change is available on the Exchange's 
website 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
    The purpose of the proposed rule change is to amend the re-opening 
auction process for Nasdaq listed securities following trading halts 
due to extraordinary market volatility (i.e., ``market-wide circuit 
breakers'') to be similar to the process currently employed following a 
Trading Pause initiated pursuant to the Plan to Address Extraordinary 
Market Volatility (i.e., the ``Limit Up-Limit Down'' or ``LULD'' Plan). 
In 2017, the Exchange amended its auction process for re-opening a 
Nasdaq listed security following a Trading Pause initiated pursuant to 
the LULD Plan.\3\ Specifically, the Exchange modified its rules such 
that initial Auction Collars following a Trading Pause would be 
calculated using a new methodology based on the Price Band that 
triggered the Trading Pause, and instituted the process for extending 
the auction and

[[Page 35901]]

further widening the collars if necessary to accommodate buy or sell 
pressure outside of the collars then in effect. The Exchange believes 
that these changes have been effective in facilitating a fair and 
orderly market following Trading Pauses initiated pursuant to the Limit 
Up-Limit Down Plan, and has decided to implement similar functionality 
for trading halts in Nasdaq listed securities following the initiation 
of market-wide circuit breakers.\4\ The Exchange believes that the 
proposed changes would promote price formation and provide a more 
consistent re-opening process for members and investors following such 
trading halts, similar to the current implementation on NYSE Arca, Inc. 
(``Arca'') and Cboe BZX Exchange, Inc. (``BZX'').\5\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 79876 (January 25, 
2017), 82 FR 8888 (January 31, 2017) (SR-NASDAQ-2016-131).
    \4\ A market-wide circuit breaker is triggered if the price of 
the S&P 500 Index declines by a specified amount compared to the 
closing price for the immediately preceding trading day. See Rule 
4121.
    \5\ Both Arca and BZX implemented similar processes for resuming 
trading following non-LULD regulatory halts (which include trading 
halts following market-wide circuit breakers). See Securities 
Exchange Act Release Nos. 79846 (January 19, 2017), 82 FR 8548 
(January 26, 2017) (SR-NYSEArca-2016-130); and 84927 (December 21, 
2018), 83 FR 67768 (December 31, 2018) (SR-CboeBZX-2018-090).
---------------------------------------------------------------------------

    Today, trading in Nasdaq listed securities would resume on the 
Exchange in most cases through a Halt Cross,\6\ including after a Level 
1 or Level 2 market-wide circuit breaker trading halt initiated under 
Rule 4121. In particular, Rule 4121(c)(i) provides that the re-opening 
of trading following a Level 1 or Level 2 trading halt shall follow the 
procedures set forth in Rule 4120. These procedures are in Rule 
4120(c)(7), which provides, in relevant part, for a 5-minute Display 
Only Period during which market participants may enter quotes and 
orders in Nasdaq systems, at the conclusion of which trading will 
immediately resume through the Halt Cross under Rule 4753.\7\ 
Additionally, the Exchange will extend the Display Only Period for an 
additional 1-minute period if there is volatility during the Display 
Only Period (i.e., an order imbalance in the security). The volatility 
checks are governed under Rule 4120(c)(7)(C)(1) and (2), and provides 
that the Display Only Period will be extended if: (i) The expected 
cross price moves the greater of 5% or 50 cents, or (ii) all market 
orders will not be executed in the cross. The Exchange now proposes to 
amend this process such that for the resumption of trading after a 
Level 1 or Level 2 market-wide circuit breaker trading halt, the 
Exchange proposes to instead follow a process similar to that currently 
applied for releasing a security following a Trading Pause initiated 
under the LULD Plan, which is described in Rule 4120(c)(10).
---------------------------------------------------------------------------

    \6\ The Halt Cross process is set forth in Rule 4753. As 
discussed in more detail later in this filing, the Halt Cross does 
not apply to the re-opening of a Nasdaq listed security following a 
Trading Pause initiated under the LULD Plan, which instead re-opens 
pursuant to Rule 4120(c)(10).
    \7\ The Exchange would then re-open the Nasdaq listed security 
that was subject to the Level 1 or Level 2 market-wide circuit 
breaker trading halt at an execution price determined pursuant to 
the execution algorithm in Rule 4753(b)(2)(A)-(D), which sets forth 
a series of tie-breakers for selecting the execution price of the 
Halt Cross.
---------------------------------------------------------------------------

    Rule 4120(c)(10), which describes the current process for resuming 
trading after a Trading Pause, provides for an initial auction period 
and additional auction periods with widening price collars should the 
security fail to conclude each auction period. For any such security 
listed on Nasdaq, prior to terminating the pause, there is a 5-minute 
initial Display Only Period during which market participants may enter 
quotations and orders in that security in Nasdaq systems. During this 
initial period, the Exchange also establishes the auction reference 
price (hereinafter ``LULD Auction Reference Price''),\8\ as well as the 
upper and lower auction collar (hereinafter, ``LULD Auction Collar'') 
prices.\9\ The security is released at the end of the initial Display 
Only Period unless the Exchange detects an order imbalance \10\ in the 
security, in which case the initial Display Only Period is extended for 
an additional five minutes, and the LULD Auction Collar prices are 
further widened by 5% increments (or $0.15 for securities with a LULD 
Auction Reference Price of $3 or less) in the direction of the order 
imbalance.\11\ At the end of the first extended Display Only Period, 
the security is released for trading unless there is an order imbalance 
in the security, in which case the extended Display Only Period will be 
further extended every five minutes in the manner described in Rule 
4120(c)(10)(B) until the security is released for trading. The security 
is released for trading at the first point there is no order imbalance.
---------------------------------------------------------------------------

    \8\ See Rule 4120(c)(10)(A)(i).
    \9\ See Rule 4120(c)(10)(A)(ii). In contrast, price collars 
would not be established for re-opening a Nasdaq listed security 
after a Level 1 or Level 2 market-wide circuit breaker trading halt 
today. As noted above, the Exchange would instead re-open at an 
execution price determined pursuant to the execution algorithm in 
Rule 4753(b)(2)(A)-(D). See supra note 8.
    \10\ For purposes of Rule 4120(c)(10), an order imbalance is 
established if: (i) The calculated price at which the security would 
be released for trading is outside the applicable Auction Collar 
prices calculated under paragraphs (A), (B), or (C) of Rule 
4120(c)(10); or (ii) all market orders would not be executed in the 
cross. See Rule 4120(c)(10)(E).
    \11\ See Rule 4120(c)(10)(B).
---------------------------------------------------------------------------

Proposal
    The Exchange now proposes to implement this process for resuming 
trading following a market-wide circuit breaker under Rule 4121 as 
well. As noted above, the current re-opening process for a Level 1 or 
Level 2 trading halt initiated under Rule 4121 does not have a 
mechanism for calculating price collars and a process for widening the 
collars if necessary to accommodate buy or sell pressure outside of the 
collars then in effect. The Exchange therefore believes that its 
proposal will facilitate a fair and orderly market following such 
trading halts initiated pursuant to a Level 1 or Level 2 market-wide 
circuit breaker that is designed to reduce the potential for 
significant price disparity in post-auction trading. The proposed 
process for re-opening a Nasdaq listed security under Rule 4121 would 
be substantially similar to the re-opening process employed today for 
Trading Pauses under Rule 4120(c)(10), with certain differences 
discussed below, primarily related to the calculation of the halt 
auction collars.
    Accordingly, the Exchange will provide in new paragraph (d) to Rule 
4121 that a Level 1 or Level 2 trading halt initiated under this Rule 
(``MWCB Halt'') shall be terminated when Nasdaq releases the security 
for trading.\12\ For any such security listed on Nasdaq, prior to 
terminating the MWCB Halt, there will be a 15-minute ``Initial Display 
Only Period'' during which market participants may enter quotations and 
orders in that security in Nasdaq systems. The Initial Display Only 
Period will be 15 minutes in duration instead of the 5 minute initial 
display only period currently employed for Trading Pauses under Rule 
4120(c)(10) to coincide with the entire duration of a MWCB Halt.\13\ 
The Exchange believes that the proposed Initial Display Only Period 
would provide additional time to attract offsetting interest, and would 
help address order imbalances that may not be resolved within the 
current 5-minute period.
---------------------------------------------------------------------------

    \12\ Rule 4121(c)(i) currently points to Rule 4120 for the re-
opening process following a MWCB Halt. The new re-opening process 
will be set forth in proposed Rule 4121(d), so the Exchange will 
delete this portion from the current Rule.
    \13\ See Rule 4121(b).
---------------------------------------------------------------------------

    Proposed Rule 4121(d)(1)(A) will provide that during the Initial 
Display Only Period, the Exchange will also establish the ``Auction 
Reference Price.'' The Auction Reference Price shall mean the Nasdaq 
last sale price (either round

[[Page 35902]]

or odd lot) after 9:15 a.m. Eastern Time (``ET'') but prior to the MWCB 
Halt and, if none, the prior trading day's Nasdaq Office Closing Price 
(``NOCP''). The Exchange is not proposing to use the LULD Auction 
Reference Price, which is based on the Price Band that triggered the 
Trading Pause, as the Exchange believes that a different reference is 
necessary for a re-opening process that is unrelated to the LULD 
mechanism. The Exchange has chosen to use the last Nasdaq sale price 
prior to the MWCB Halt (or if none, the prior trading day's NOCP) in 
this circumstance as this price is reflective of the current market for 
the halted security. The Exchange's proposal is similar to the current 
implementation on Arca and BZX.\14\
---------------------------------------------------------------------------

    \14\ See Arca Rule 7.35-E(a)(8)(A) and BZX Rule 11.23(a)(9). See 
also SR-CboeBZX-2018-090 for discussion of similarities between 
Arca's and BZX's auction reference prices for non-LULD regulatory 
halts. The Exchange's proposed Auction Reference Price for MWCB 
Halts is substantially similar to Arca's and BZX's auction reference 
prices, except the Exchange will use the last Nasdaq sale price 
prior to the MWCB Halt, as described above. The Exchange believes 
that it is appropriate to use the price of a trade on the primary 
listing market, i.e., Nasdaq, to set the reference price for 
auctions in Nasdaq listed securities when such a trade has been 
executed recently.
---------------------------------------------------------------------------

    Proposed Rule 4121(d)(1)(B) will describe how the Exchange would 
calculate the upper and lower ``MWCB Auction Collar'' prices during the 
Initial Display Period. Specifically, the initial upper and lower 
collar prices would be determined as follows:
     The lower MWCB Auction Collar is derived by subtracting 
from the Auction Reference Price 10% of the Auction Reference Price, 
rounded to the nearest minimum price increment,\15\ or in the case of 
securities with an Auction Reference Price of $5 or less, $0.50.
---------------------------------------------------------------------------

    \15\ The term ``minimum price increment'' means $0.01 in the 
case of a System Security priced at $1 or more per share, and 
$0.0001 in the case of a System Security priced at less than $1 per 
share. See Rule 4107(k). Thus, for example, if adding 10% of the 
Auction Reference Price to the MWCB Auction Collar would result in a 
tenth of a penny, the Exchange would round down to the nearest penny 
when the calculation results in one to four tenths of a penny, and 
the Exchange would round up to the nearest penny when the 
calculation results in five to nine tenths of a penny.
---------------------------------------------------------------------------

     The upper MWCB Auction Collar is derived by adding to the 
Auction Reference Price 10% of the Auction Reference Price, rounded to 
the nearest minimum price increment, or in the case of securities with 
an Auction Reference Price of $5 or less, $0.50.
    In contrast, the initial price collar thresholds currently used for 
the LULD mechanism are applied only in the direction of the trading 
that invoked the Trading Pause.\16\ In this case, because there would 
not be a security-specific pricing direction reason for the MWCB Halt, 
the Exchange believes that it is appropriate to apply the initial 
thresholds on both sides of the Auction Reference Price. For example, 
if the Nasdaq last sale price (either round or odd lot) after 9:15 a.m. 
ET but prior to the MWCB Halt for a security is $100.00, then the lower 
and upper initial MWCB Auction Collar prices would be $90 and $110--
i.e., 10% below and above the Nasdaq last sale price. This mirrors the 
application of the initial halt auction collars on both Arca and BZX 
today, except the Exchange's proposed MWCB Auction Collar threshold 
amounts will be 10% of the Auction Reference Price (or $0.50 for 
securities priced $5 or less).\17\ The Exchange believes that the wider 
parameters proposed for MWCB Auction Collars are set at appropriate 
levels that would allow the Exchange to re-open trading in securities 
more quickly while still reducing the potential to re-open at a price 
that is significantly away from the last traded price of the security. 
Furthermore, the Exchange has traditionally been a listing venue for 
equity stocks, while Arca and BZX have traditionally listed more ETFs. 
ETFs track entire sectors, indices or other groups of assets, which can 
mute the effect of price volatility of the ETF. The Exchange therefore 
believes that the wider price bands proposed herein strikes an 
appropriate balance between allowing the Exchange to return to normal 
continuous trading in a measured, timely manner while accommodating the 
potential higher volatility of individual stocks.
---------------------------------------------------------------------------

    \16\ See Rule 4120(c)(10)(A)(ii).
    \17\ Both Arca and BZX employ auction collar thresholds 
identical to the parameters currently used for LULD auction collars 
(i.e., 5% of the auction reference price, or $0.15 for securities 
with an auction reference price of $3 or less). See Arca Rule 7.35-
E(e)(7)(B)(ii) and BZX Rule 11.23(d)(2)(C)(i)(B).
---------------------------------------------------------------------------

    Proposed Rules 4121(d)(2) and (d)(3) will specify the circumstances 
when the Exchange would extend the Display Only Period for a MWCB Halt 
re-opening process, and how the Exchange would adjust the MWCB Auction 
Collars for each extension. In particular, at the conclusion of the 
Initial Display Only Period, the security will be released for trading 
unless, at the end of the Initial Display Only Period, Nasdaq detects 
an order imbalance in the security.\18\ In that case, Nasdaq will 
extend the Display Only Period for an additional 5-minute period 
(``Extended Display Only Period''), and the MWCB Auction Collar prices 
will be adjusted as follows:
---------------------------------------------------------------------------

    \18\ As discussed below, an order imbalance under the proposed 
re-opening process for MWCB Halts will be established in the same 
manner as an order imbalance under the current LULD re-opening 
process as set forth in Rule 4120(c)(10)(E).
---------------------------------------------------------------------------

     If the Display Only Period is extended because the 
calculated price at which the security would be released for trading is 
below the lower MWCB Auction Collar price or all sell market orders 
would not be executed in the cross, then the new lower MWCB Auction 
Collar price is derived by subtracting 10% of the Auction Reference 
Price, which was rounded to the nearest minimum price increment, or in 
the case of securities with an Auction Reference Price of $5 or less, 
$0.50, from the previous lower MWCB Auction Collar price, and the upper 
MWCB Auction Collar price will not be changed.
     If the Display Only Period is extended because the 
calculated price at which the security would be released for trading is 
above the upper MWCB Auction Collar price or all buy market orders 
would not be executed in the cross, then the new upper MWCB Auction 
Collar price is derived by adding 10% of the Auction Reference Price, 
which was rounded to the nearest minimum price increment, or in the 
case of securities with an Auction Reference Price of $5 or less, 
$0.50, to the previous upper MWCB Auction Collar price, and the lower 
MWCB Auction Collar price will not be changed.
    At the conclusion of the Extended Display Only Period, the security 
will be released for trading unless, at the end of the Extended Display 
Only Period, Nasdaq detects an order imbalance in the security. In that 
case, Nasdaq will further extend the Display Only Period, continuing to 
adjust the MWCB Auction Collar prices every five minutes in the manner 
described in Rule 4121(d)(2) until the security is released for 
trading; provided, however, that Nasdaq will not adjust the MWCB 
Auction Collar prices past 50% of the Auction Reference Price for any 
security during any Extended Display Only Period. During any additional 
Extended Display Only Period after the first Extended Display Only 
Period, Nasdaq shall release the security for trading at the first 
point there is no order imbalance.
    As proposed, the process for initiating extensions of the Display 
Only Period for a MWCB Halt auction will be identical to the process 
currently used for extending Trading Pauses, with only two differences 
that relate to the calculation of the auction collars. First, for each 
extension period, the MWCB Auction Collars would be widened in the 
direction of the imbalance using the wider parameters described above 
for the initial MWCB Auction Collar (i.e.,

[[Page 35903]]

by an additional 10% or $0.50 for securities with an Auction Reference 
Price of $5 or less) as opposed to the parameters currently used to 
widen LULD Auction Collars (i.e., by an additional 5% or $0.15 for 
securities with a reference price of $3 or less). Second, the Exchange 
would not adjust the MWCB Auction Collars past 50% of the Auction 
Reference Price for any security during any Extended Display Only 
Period, whereas under the current LULD mechanism, the price collars 
would continue to be adjusted for each extension period.\19\ For 
example, a security with an Auction Reference Price of $3 would have 
initial lower and upper MWCB Auction Collar prices of $2.50 and $3.50. 
If all buy market orders would not be executed in the cross at the end 
of the Initial Display Only Period, the Exchange would extend the 
Display Only Period and widen the upper MWCB Auction Collar price to 
$4.00. The lower MWCB Auction Collar price would remain at $2.50. If 
there continues to be any buy side imbalance at the end of the first 
Extended Display Only Period, the Exchange would further adjust the 
upper collar price to $4.50 (while keeping the lower collar at $2.50) 
for the second extension period. To the extent there are subsequent 
Extended Display Only Periods to accommodate buy side trading interest, 
the Exchange would not adjust the upper MWCB Auction Collar past $4.50 
(i.e., 50% of the Auction Reference Price), and would continue to use 
this price threshold for the duration of the MWCB Halt, until the 
security is released for trading.
---------------------------------------------------------------------------

    \19\ Thus as proposed, if the upper or lower MWCB Auction Collar 
is already adjusted by 50% of the Auction Reference Price for any 
extension period, that price threshold will be used for the duration 
of the MWCB Halt, until the security is released for trading.
---------------------------------------------------------------------------

    As mentioned above, unlike the current implementation of auction 
collars under LULD as well as similar MWCB auction collars on Arca and 
BZX, the Exchange will not adjust the MWCB Auction Collars past 50% of 
the Auction Reference Price. The Exchange recognizes that the proposed 
50% limit for adjusting the MWCB Auction Collars may prevent the 
transition to continuous trading, particularly in instances of extreme 
price volatility that could result in increased Extended Display Only 
Periods. On the other hand, however, if there was no limit on adjusting 
the price collars, there is potential for extreme volatility resulting 
in trades at prices far away from a security's fundamental value, 
ultimately harming investors that are party to the trade. The Exchange 
considered using the same logic as currently implemented under the LULD 
mechanism (i.e., where there is no limit on adjusting the price 
collars) and ultimately determined not to align its proposal in this 
manner. The Exchange believes that it may be more appropriate to 
continue adjusting price collars in the context of LULD where trading 
is halted due to a period of extraordinary volatility in a single 
security (as opposed to all securities under a MWCB Halt) because there 
may be instances of a discrete event (such as the announcement of 
material news) that ultimately impacts the value of the individual 
security. A MWCB Halt, however, will be triggered during a period of 
significant volatility across markets that may not correlate to the 
fundamental value of a single security. As such, the Exchange believes 
that by proposing to adjust the MWCB Auction Collars up to 50% of the 
Auction Reference Price, an appropriate balance can be achieved in 
favor of preventing extraordinary volatility that could result in 
significant price disparity in post-auction trading.
    Proposed Rule 4121(d)(4) will specify that an order imbalance would 
be established for purposes of the process under Rule 4121 as follows: 
\20\
---------------------------------------------------------------------------

    \20\ This is the same manner in which an order imbalance is 
established under the current re-opening process for Trading Pauses. 
See Rule 4120(c)(10)(E).
---------------------------------------------------------------------------

     The calculated price at which the security would be 
released for trading is above (below) the upper (lower) MWCB Auction 
Collar price calculated under paragraphs (1), (2), or (3) of Rule 
4121(d); or
     all market orders would not be executed in the cross.
    Proposed Rule 4121(d)(5) will describe how the MWCB Auction Collars 
will function in the event of more than one trading halt initiated 
under Rule 4121 in the same day. In the event of a Level 2 Market 
Decline while a security is in a Level 1 MWCB Halt and has not been 
released for trading, Nasdaq will recalculate the lower and upper MWCB 
Auction Collar prices in the particular security in accordance with 
paragraph (1)(B) of Rule 4121.\21\ In this instance, the Exchange will 
start the calculation of the new upper and lower MWCB Auction Collar 
prices using 10% of the Auction Reference Price, rounded to the nearest 
minimum price increment, or $0.50 for securities with an Auction 
Reference Price of $5 or less. The Exchange believes that the proposed 
language would bring greater transparency to market participants in how 
the Exchange would handle the calculation of MWCB Auction Collars.
---------------------------------------------------------------------------

    \21\ As currently provided in Rule 4121(b)(i), the Exchange 
would halt trading based on a Level 1 or Level 2 Market Decline only 
once per day. Thus for example, if a Level 1 Market Decline were to 
occur and trading were halted, following the re-opening of trading, 
the Exchange would not halt the market again unless a Level 2 Market 
Decline were to occur.
---------------------------------------------------------------------------

    The Exchange also proposes to add new paragraph (e) to Rule 4121 to 
describe how the Exchange will handle the publication of MWCB Halt 
Information. Specifically, at the beginning of the Initial Display Only 
Period and continuing through the resumption of trading, Nasdaq will 
disseminate by electronic means an Order Imbalance Indicator \22\ every 
second. The Exchange also proposes to make a related change by adding 
new Rule 4753(a)(3)(G), which will provide that for purposes of a MWCB 
Halt initiated pursuant to Rule 4121, the Order Imbalance Indicator 
will include Auction Reference Prices and MWCB Auction Collars, as 
defined in Rule 4121(d).
---------------------------------------------------------------------------

    \22\ As described in Rule 4753(a)(3), an ``Order Imbalance 
Indicator'' is a message disseminated by electronic means containing 
information about Eligible Interest and the price at which such 
interest would execute at the time of dissemination.
    ``Eligible Interest'' is defined 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. See Rule 4753(a)(5).
---------------------------------------------------------------------------

    The Exchange also proposes a number of formatting clean-ups in Rule 
4121. In light of the above changes, Rule 4121(d) will be renumbered as 
Rule 4121(f). Finally, subparagraphs (i)-(iv) in Rule 4121(a) and 
subparagraphs (i)-(ii) in Rule 4121(b) will be renumbered as 
subparagraphs (1)-(4) and subparagraphs (1)-(2), respectively, for 
greater consistency with the Rulebook.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\23\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\24\ in particular, in that it is designed 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with the Act because it would amend the halt auction process following 
a MWCB Halt to be more closely aligned with the process currently 
implemented for halt auctions following a Trading Pause under the LULD 
Plan. The Exchange amended its re-opening process following a Trading 
Pause to better

[[Page 35904]]

account for buy or sell pressure by changing the manner in which 
initial LULD Auction Collars are established, and widening the collars 
as appropriate to accommodate trading interest submitted to participate 
in the auction. The Exchange believes that these changes have been 
generally successful in facilitating a fair and orderly process for re-
opening securities following a Trading Pause. The Exchange has 
therefore decided to use a similar process for halt auctions following 
a MWCB Halt. The Exchange believes that its proposal would benefit 
investors by facilitating price discovery and promoting more 
consistency in how the Exchange conducts the re-opening process 
following a Trading Pause or a MWCB Halt.
    While the proposed re-opening process following MWCB Halts would 
largely follow the re-opening process in place today for Trading 
Pauses, there would be several notable differences. These differences 
are primarily designed to ensure that suitable MWCB Auction Collars are 
utilized for the re-opening process following MWCB Halts. For instance, 
while an Auction Reference Price based on the Price Band that triggered 
the Trading Pause continues to be appropriate in the context of the re-
opening process following Trading Pauses, the Exchange believes that a 
different reference is necessary for the re-opening process for MWCB 
Halts. The Exchange has chosen to use the Nasdaq last sale price and, 
if none, the prior trading day's NOCP as the MWCB Auction Reference 
Price in these circumstances as this price is reflective of the current 
market for the halted security. Similarly, the Exchange believes that 
it is appropriate to calculate both upper and lower MWCB Auction 
Collars that are a specified percentage or dollar amount from this 
reference price because MWCB Halts do not involve security specific buy 
or sell pressure. These differences are similar to the application of 
MWCB Auction Collars on Arca and BZX today, except for the parameters 
used to calculate the price collars.\25\ The Exchange believes that the 
wider parameters of 10% increments (or $0.50 for securities priced at 
$5 or less) proposed above for MWCB Auction Collars when compared to 
the parameters of 5% increments (or $0.15 for securities priced at $3 
or less) currently used to calculate the LULD Auction Collars are set 
at appropriate levels that would allow the Exchange to re-open trading 
in securities more quickly while still reducing the potential for re-
opening at a price that is significantly away from the last traded 
price of the security. Furthermore, the Exchange believes that it is 
appropriate to stop widening the MWCB Auction Collar prices past 50% of 
the Auction Reference Price to ensure that upon the resumption of 
trading after an MWCB Halt, the security is priced at a reasonable 
level from the Auction Reference Price.\26\
---------------------------------------------------------------------------

    \25\ See supra notes 14 and 17 above, with accompanying text.
    \26\ As noted above, this is different from the current 
implementation of the price collars under the LULD mechanism where 
the price collars continue to be adjusted for each extension period. 
This also differs from the current implementation of non-LULD price 
collars on Arca and BZX, which both mirror the LULD process in this 
respect.
---------------------------------------------------------------------------

    Otherwise, the proposed re-opening process for MWCB Halts is 
consistent with the current LULD re-opening process. Similar to the 
current LULD re-opening process, the Exchange also believes that the 
proposed process is consistent with the protection of investors and the 
public interest because they are designed to facilitate price discovery 
by ensuring that all market order interest could be satisfied in the 
auction process following MWCB Halts. Furthermore, the Exchange 
believes that the standardized procedures to extend MWCB Halt auctions 
an additional five minutes are appropriate because this would provide 
additional time to attract offsetting liquidity. If at the end of such 
extension, market orders still cannot be cannot be satisfied within the 
applicable collars, or if the re-opening price would be outside of the 
applicable collars, the Exchange would extend the halt auction process 
an additional five minutes. The Exchange believes that extending the 
auction in these circumstances would protect investors and the public 
interest by reducing the potential for significant price disparity in 
post-auction trading. With each such extension, the Exchange believes 
that it is appropriate to widen the price collar threshold on the side 
of the market on which there is buying or selling pressure as market 
conditions may prevent an order imbalance from being resolved within 
the prior auction collars.
    The Exchange also believes it is appropriate to add language 
clarifying how the MWCB Auction Collars will function in the event of 
more than one trading halt initiated under Rule 4121 in the same day. 
The proposed changes would increase transparency in how the Exchange 
would handle the calculation of MWCB Auction Collars, and is therefore 
consistent with the public interest and the protection of investors. 
The Exchange likewise believes that specifying how it will handle the 
publication of MWCB Halt information will bring greater transparency 
around the operation of the Exchange's auction process.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is 
designed to provide for a measured and transparent process for re-
opening Nasdaq listed securities after a MWCB Halt that is similar to 
the current re-opening process following a Trading Pause initiated 
under the LULD Plan and the process already implemented on Arca and BZX 
for non-LULD regulatory halts.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2019-057 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.


[[Page 35905]]


All submissions should refer to File Number SR-NASDAQ-2019-057. 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 website (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 website 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly.
    All submissions should refer to File Number SR-NASDAQ-2019-057 and 
should be submitted on or before August 15, 2019.
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15776 Filed 7-24-19; 8:45 am]
BILLING CODE 8011-01-P


