[Federal Register Volume 86, Number 66 (Thursday, April 8, 2021)]
[Notices]
[Pages 18330-18333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07197]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91461; File No. SR-NASDAQ-2021-004]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 2, To 
Disseminate Abbreviated Order Imbalance Information for the Nasdaq 
Opening Cross, Amend Certain Cutoff Times for On-Open Orders Entered 
for Participation in the Nasdaq Opening Cross, and Extend the Time 
Period for Accepting Certain Limit-On-Open Orders

April 2, 2021.

I. Introduction

    On February 3, 2021, 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 disseminate abbreviated order imbalance 
information for the Nasdaq opening cross, amend certain cutoff times 
for on-open orders entered for participation in the Nasdaq opening 
cross, and extend the time period for accepting certain limit-on-open 
orders. The proposed rule change was published for comment in the 
Federal Register on February 17, 2021.\3\ On April 1, 2021, the 
Exchange filed Amendment No. 2 to the proposed rule change.\4\ The 
Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change, as modified by Amendment 
No. 2.
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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. 91096 (February 10, 
2021), 86 FR 9972 (``Notice'').
    \4\ On April 1, 2021, the Exchange also filed and withdrew 
Amendment No. 1 to the proposed rule change. In Amendment No. 2, the 
Exchange specified April 26, 2021 as the implementation date for the 
proposed rule change and amended a footnote to reflect that the 
proposal would not affect the handling of market-on-open orders or 
market hours orders with market pegging that are entered after 9:28 
a.m. Because Amendment No. 2 does not materially alter the substance 
of the proposed rule change and makes conforming and technical 
changes, it is not subject to notice and comment. Amendment No. 2 is 
available on the Commission's website at: https://www.sec.gov/rules/sro/nasdaq.htm.
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II. Description of the Proposal

    The Nasdaq opening cross is the process for determining the price 
at which orders would be executed at the open and for executing those 
orders, and it establishes the Nasdaq official opening price for a 
security.\5\ Under the current process, market-on-open (``MOO'') orders 
\6\ and limit-on-open (``LOO'') orders \7\ may be entered, cancelled, 
or modified between 4:00 a.m.\8\ and immediately prior to 9:28 a.m.\9\ 
Opening imbalance only (``OIO'') orders may be entered between 4:00 
a.m. until the time of execution of the Nasdaq opening cross, and may 
be

[[Page 18331]]

cancelled or modified between 4:00 a.m. and immediately prior to 9:28 
a.m.\10\ At 9:28 a.m., the Exchange begins to disseminate an order 
imbalance indicator (also known as the net order imbalance indicator or 
``NOII'') every second until market open.\11\ The NOII is a message 
disseminated by electronic means containing information about MOO, LOO, 
OIO, and early market hours orders,\12\ and information about the price 
at which those orders would execute at the time of dissemination.\13\
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    \5\ See Nasdaq Equity 4, Rule (``Rule'') 4752(a)(5) and Notice, 
supra note 3, at 9972-73.
    \6\ A MOO order is an order type entered without a price that 
may be executed only during the Nasdaq opening cross. See Rule 
4702(b)(8)(A); see also Notice, supra note 3, at 9973 n.8.
    \7\ A LOO order is an order type entered with a price that may 
be executed only in the Nasdaq opening cross, and only if the price 
determined by the Nasdaq opening cross is equal to or better than 
the price at which the LOO order was entered. See Rule 
4702(b)(9)(A); see also Notice, supra note 3, at 9973 n.9.
    \8\ All times referenced are in Eastern Time.
    \9\ See Rule 4702(b)(8)(A) and (b)(9)(A); see also Notice, supra 
note 3, at 9973 n.8-9.
    \10\ An OIO order is an order type entered with a price that may 
be executed only in the Nasdaq opening cross and only against MOO, 
LOO, or early market hours orders. If the entered price of an OIO 
order to buy (sell) is higher than (lower than) the highest bid 
(lowest offer) on the Nasdaq book, the price of the OIO order will 
be modified repeatedly to equal the highest bid (lowest offer) on 
the Nasdaq book; provided, however, that the price of the order will 
not be moved beyond its stated limit price. See Rule 4702(b)(10)(A); 
see also Notice, supra note 3, at 9973 n.10.
    \11\ See Rule 4752(d)(1); see also Notice, supra note 3, at 
9973.
    \12\ Market hours orders means any order that may be entered 
into the system and designated with a time-in-force of MIOC, MDAY, 
and MGTC; market hours orders are designated as ``early market hours 
orders'' if they are entered into the system prior to 9:28 a.m. See 
Rule 4752(a)(7).
    \13\ Specifically, the NOII contains: (1) The current reference 
price; (2) the number of shares represented by MOO, LOO, OIO, and 
early market hours orders that are paired at the current reference 
price; (3) the size of any imbalance; (4) the buy/sell direction of 
any imbalance; and (5) the indicative prices at which the Nasdaq 
opening cross would occur if it were to occur at that time and the 
percent by which the indicative prices are outside the then current 
Nasdaq market center best bid or best offer, whichever is closer. 
See Rule 4752(a) (also providing the definitions for current 
reference price, imbalance, and indicative prices); see also Notice, 
supra note 3 at 9973.
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Early Opening Order Imbalance Indicator and Cutoff Times for On-Open 
Orders
    The Exchange proposes to amend Rule 4752 to establish an early 
opening order imbalance indicator (``EOII'') that would be disseminated 
by electronic means every 10 seconds beginning at 9:25 a.m. until the 
NOII begins to disseminate at 9:28 a.m.\14\ As proposed, the EOII would 
contain the same information as the NOII, except it would exclude 
information about indicative prices.\15\ Specifically, the EOII would 
contain: (1) The current reference price; (2) the number of shares 
represented by MOO, LOO, OIO, and early market hours orders that are 
paired at the current reference price; (3) the size of any imbalance; 
and (4) the buy/sell direction of any imbalance.\16\ The Exchange 
believes that an early release of a subset of the NOII information 
would offer participants additional time and flexibility to react to 
imbalance information in advance of 9:28 a.m. and aid them in making 
informed decisions about whether and how to participate in the opening 
cross.\17\ The Exchange also believes that the EOII would enhance price 
discovery and liquidity by attracting more participants to its opening 
cross.\18\ In addition, the Exchange believes that disseminating the 
EOII every 10 seconds would provide participants more time to digest 
the information and enter MOO, LOO, and OIO orders in between 
dissemination periods.\19\
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    \14\ See proposed Rule 4752(a)(1) and (d)(1); see also Notice, 
supra note 3, at 9973. The Exchange also proposes to renumber 
certain provisions of Rule 4752 to incorporate newly proposed 
defined terms into the rule, and to make a non-substantive change in 
current Rule 4752(a)(2)(E)(i) to delete the word ``both.''
    \15\ See proposed Rule 4752(a)(1).
    \16\ See id.; see also Notice, supra note 3, at 9973.
    \17\ See Notice, supra note 3, at 9973.
    \18\ Id.
    \19\ See id. at 9974.
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    As stated above, the EOII would differ from the NOII in that the 
EOII would not include information about indicative prices.\20\ The 
Exchange believes that the exclusion of the near and far clearing 
prices (which are part of the indicative price information) from the 
EOII would enhance stability in the opening cross process because it 
would reduce the possibility of large indicative price movements during 
the early moments of the price formation process.\21\ By contrast, the 
Exchange proposes to include in the EOII the current reference price 
because it reflects the Nasdaq best bid and best offer at the time of 
dissemination and it is used to calculate any imbalance direction and 
imbalance size.\22\ According to the Exchange, providing the current 
reference price in the EOII would increase transparency and allow 
participants to provide additional orders to improve the price 
discovery process in the opening cross.\23\
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    \20\ See supra note 15 and accompanying text.
    \21\ The Exchange also states that, because participants may 
freely enter new orders that contribute to price discovery before 
9:28 a.m., indicative prices may change more substantially before 
9:28 a.m. than after. See Notice, supra note 3, at 9973-74.
    \22\ See id. at 9974 n.19.
    \23\ See id.
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    In connection with the establishment of the EOII that would begin 
disseminating at 9:25 a.m., the Exchange proposes to amend Rule 4702(b) 
to prohibit participants from cancelling or modifying MOO, LOO, and OIO 
orders beginning at 9:25 a.m.\24\ The Exchange does not propose to 
similarly change the cutoff times for entering MOO, LOO, and OIO orders 
for participation in the opening cross. Thus, under the proposal, MOO 
orders may continue to be entered until immediately prior to 9:28 a.m.; 
\25\ LOO orders may be entered until immediately prior to 9:28 a.m. or, 
in certain circumstances as described below, until 9:29:30 a.m.; \26\ 
and OIO orders may continue to be entered until the time of execution 
of the opening cross.\27\ But any such orders, once entered, may not be 
cancelled or modified at or after 9:25 a.m.\28\
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    \24\ See proposed Rule 4702(b)(8), (b)(9), and (b)(10); see also 
Notice, supra note 3, at 9974. Relatedly, the Exchange proposes to 
amend current Rule 4752(a)(7) to provide that requests to cancel or 
modify market hours orders would be suspended beginning at 9:25 a.m. 
(rather than 9:28 a.m. as the rule currently provides) until after 
completion of the Nasdaq opening cross, at which time such requests 
will be processed to the extent that such orders remain available 
within the system. The Exchange also proposes to amend current Rule 
4752(a)(7) to utilize certain defined terms and abbreviated terms.
    \25\ See proposed Rule 4702(b)(8)(A).
    \26\ See proposed Rule 4702(b)(9)(A).
    \27\ See proposed Rule 4702(b)(10)(A).
    \28\ See proposed Rule 4702(b)(8), (b)(9), and (b)(10); see also 
Notice, supra note 3, at 9974.
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LOO Order Type Changes
    The Exchange proposes to amend Rule 4702(b)(9)(A) to permit the 
entry of LOO orders between 9:28 a.m. and 9:29:30 a.m. (``late LOO 
orders''), provided that the security has a first opening reference 
price or a second opening reference price.\29\ The Exchange believes 
that allowing the entry of eligible LOO orders after 9:28 a.m. would 
enhance the price discovery process for and liquidity of a given 
security in the opening cross.\30\ As proposed, any LOO order entered 
after 9:29:30 a.m. that is designated as immediate-or-cancel (``IOC'') 
would be rejected.\31\
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    \29\ The Exchange also proposes to make conforming changes in 
Rule 4702(b)(9)(B). Specifically, Rule 4702(b)(9)(B) currently 
specifies the handling of opening cross/market hours orders (i.e., 
orders with a time-in-force that continues after the time of the 
Nasdaq opening cross and are flagged to participate in the opening 
cross) entered between 9:28 a.m. and the time of the Nasdaq opening 
cross. The Exchange proposes to amend this time interval such that 
it refers to opening cross/market hours orders entered between 
9:29:30 a.m. and the time of the Nasdaq opening cross. Relatedly, 
the Exchange proposes to specify in Rule 4702(b)(9)(B) that certain 
LOO orders entered at or after 9:28 a.m. would not be rejected. 
Moreover, the Exchange states that market hours orders entered 
between 9:28 a.m. and 9:29:30 a.m. would be treated as late LOO 
orders, as applicable. See Notice, supra note 3, at 9974 n.21 and 
Amendment No. 2, supra note 4. In addition, the Exchange proposes to 
make a conforming change in current Rule 4752(a)(7) to provide that 
orders entered at or after 9:29:30 a.m. (rather than 9:28 a.m. as 
the rule currently provides) with a time-in-force other than IOC 
would be designated as ``late market hours orders.''
    \30\ See Notice, supra note 3, at 9974.
    \31\ See proposed Rule 4702(b)(9)(A). Relatedly, the Exchange 
proposes to amend Rule 4702(b)(9)(B) to provide that LOO orders that 
are opening cross/market hours orders and entered between 9:29:30 
a.m. (as proposed) and the time of the Nasdaq opening cross are 
subject to the handling described in that rule only if the orders 
have a time-in-force other than IOC. The Exchange states that this 
is a clarifying, non-substantive change because opening cross/market 
hours orders, by definition, have a time-in-force other than IOC. 
See Notice, supra note 3, at 9974 n.24. The Exchange also proposes 
to remove language from Rule 4702(b)(9)(B) regarding how it handles 
routable orders with a time-in-force other than IOC that are flagged 
to participate in the Nasdaq opening cross and entered at or after 
9:28 a.m. because the Exchange believes that language is duplicative 
of other language in the same rule. See id. at 9975. Moreover, the 
Exchange proposes to make a conforming change in current Rule 
4752(a)(7) to provide that orders entered at or after 9:29:30 a.m. 
(as proposed) would be designated as ``late market hours orders'' if 
they have a time-in-force other than IOC.

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[[Page 18332]]

    The Exchange proposes to define the first opening reference price 
as the previous day's Nasdaq official closing price of the security for 
Nasdaq-listed securities or the consolidated closing price for non-
Nasdaq-listed securities.\32\ For new exchange-traded products that do 
not have a Nasdaq official closing price or a consolidated closing 
price, the first opening reference price would be the offering 
price.\33\ The Exchange states that it proposes to use the Nasdaq 
official closing price as the first opening reference price because the 
Nasdaq official closing price is a well-defined benchmark for the 
security's market price that serves as the most relevant price of a 
security at or before regular trading hours.\34\ The Exchange proposes 
to define the second opening reference price as the current reference 
price in the NOII disseminated at 9:28 a.m.\35\ The Exchange states 
that it proposes to use the current reference price in the NOII 
disseminated at 9:28 a.m. as the second opening reference price because 
it is consistent with the Exchange's functionality with respect to the 
closing cross and late limit-on-close (``LOC'') orders, and is intended 
to promote price stability of the opening cross.\36\
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    \32\ See proposed Rule 4752(a)(8).
    \33\ See id.
    \34\ See Notice, supra note 3, at 9974.
    \35\ See proposed Rule 4752(a)(9).
    \36\ See Notice, supra note 3, at 9974.
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    In addition, the Exchange proposes to accept a LOO order entered 
between 9:28 a.m. and 9:29:30 a.m. at its limit price, unless its limit 
price is higher (lower) than the higher (lower) of the first opening 
reference price and the second opening reference price for a LOO order 
to buy (sell), in which case the LOO order would be handled consistent 
with the participant's instruction that the LOO order is to be: (1) 
Rejected; or (2) re-priced to the higher (lower) of the first opening 
reference price and the second opening reference price, provided that 
if either the first opening reference price or the second opening 
reference price is not at a permissible minimum increment, the first 
opening reference price or the second opening reference price, as 
applicable, would be rounded (i) to the nearest permitted minimum 
increment (with midpoint prices being rounded up) if there is no 
imbalance, (ii) up if there is a buy imbalance, or (iii) down if there 
is a sell imbalance.\37\ The default configuration for participants 
that do not specify otherwise would be to have such LOO order re-priced 
rather than rejected.\38\ The Exchange states that this repricing 
mechanism is designed to reduce order imbalances and volatility for 
securities that participate in the opening cross, and believes that 
allowing such LOO orders to be priced at the more aggressive of the two 
reference prices would provide flexibility to market participants by 
allowing them to consider information in both the EOII and NOII within 
the context of the previous day's Nasdaq official closing price or 
consolidated closing price to facilitate informed decisions about 
whether and how to participate in the opening cross.\39\
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    \37\ See proposed Rule 4702(b)(9)(A). The Exchange proposes to 
use natural rounding when there is no imbalance. When there is an 
imbalance, the Exchange would round such that more offsetting 
interest can participate. Thus, when there is a buy imbalance, the 
Exchange would round the first opening reference price or second 
opening reference price up to allow more sell interest to 
participate, and when there is a sell imbalance, the Exchange would 
round the first opening reference price or second opening reference 
price down to allow more buy interest to participate. See Notice, 
supra note 3, at 9974 n.22.
    \38\ See proposed Rule 4702(b)(9)(A).
    \39\ See Notice, supra note 3, at 9974.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\40\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\41\ 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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    \40\ 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).
    \41\ 15 U.S.C. 78f(b)(5).
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    As described above, the Exchange proposes to disseminate the EOII 
beginning at 9:25 a.m., which would provide market participants with 
certain information relating to the Nasdaq opening cross earlier than 
the current NOII.\42\ The Commission believes that the EOII would 
provide earlier transparency regarding the current reference price, the 
number of paired shares at that price, the size of any imbalance, and 
the direction of any imbalance for the Nasdaq opening cross, which 
would provide market participants with additional time before the 
opening cross to consider this information and flexibility in 
determining whether and how to participate in the opening cross.\43\ 
The Commission also believes that the proposed 10-second interval 
between EOII disseminations would provide market participants with time 
to consider any EOII updates, while avoiding excessive message traffic. 
Accordingly, the Commission believes that the dissemination of the EOII 
could lead to increased participation and liquidity and promote price 
discovery in the Nasdaq opening cross.\44\
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    \42\ As described above, the EOII would contain the same 
information as the NOII, except it would exclude information about 
indicative prices in order to reduce the possibility of large 
indicative price movements during the early moments of the price 
formation process.
    \43\ As described above, participants may enter MOO, LOO, and 
OIO orders after the Exchange begins disseminating the EOII at 9:25 
a.m. Specifically, MOO orders may continue to be entered until 
immediately prior to 9:28 a.m., LOO orders may be entered until 
immediately prior to 9:28 a.m. (or, in certain circumstances, until 
9:29:30 a.m.), and OIO orders may continue to be entered until the 
time of execution of the opening cross.
    \44\ The Exchange also provides a similar early order imbalance 
indicator for the Nasdaq closing cross, which is also disseminated 
with a 10-second interval. See Rule 4754(a)(10) and (b)(1).
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    As described above, in connection with the proposal to begin 
disseminating the EOII at 9:25 a.m., the Exchange also proposes to 
prohibit participants from cancelling or modifying MOO, LOO, and OIO 
orders beginning at 9:25 a.m. The Commission believes that this 
proposed change would allow the Exchange to begin disseminating the 
EOII at a time when on-open interest is relatively settled, and could 
reduce the possibility of large price movements in the opening cross 
process that may otherwise result from cancellations or modifications 
of MOO, LOO, and OIO orders in response to the EOII. Moreover, because 
the Exchange is

[[Page 18333]]

not proposing a similar 9:25 a.m. cutoff time for the entry of MOO, 
LOO, and OIO orders, market participants may consider the information 
in the EOII and NOII, as applicable, in entering these orders.\45\
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    \45\ The Exchange also has a cutoff time for cancellations or 
modifications of on-close interest that aligns with the time that 
the Exchange begins disseminating the early order imbalance 
indicator for the Nasdaq closing cross. See Rules 4702(b)(11)-(13) 
and 4754(b)(1).
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    In addition, as described above, the Exchange proposes to permit 
the entry of LOO orders between 9:28 a.m. and 9:29:30 a.m. if there is 
either a first opening reference price or a second opening reference 
price, with such orders priced no more aggressively than the first 
opening reference price and the second opening reference price. The 
Commission believes that these proposed changes would allow 
participants to retain control over the entry of LOO orders until a 
later time, and would allow participants to consider the information 
contained in the EOII and the NOII, as well as the previous day's 
closing price, in deciding whether to enter late LOO orders. The 
Commission also believes that the proposed re-pricing of late LOO 
orders such that they are priced no more aggressively than the first 
opening reference price and the second opening reference price could 
promote price stability in the opening cross process. Accordingly, the 
Commission believes that the proposed changes relating to late LOO 
orders could encourage additional participation and reduce imbalances 
in the Nasdaq opening cross, while promoting price stability in the 
opening process.\46\
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    \46\ The Exchange also has a similar late LOC order type for the 
Nasdaq closing cross. See Rule 4702(b)(12).
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    Finally, the Commission believes that the Exchange's proposed 
technical and conforming changes to Rules 4702 and 4752 would allow 
those rules to consistently reflect the proposed 9:29:30 a.m. cutoff 
time for entering late LOO orders and the proposed 9:25 a.m. cutoff 
time for cancellations and modifications of MOO, LOO, and OIO orders, 
and would add clarity with respect to how the Exchange conducts its 
opening process and handles orders in connection with that process.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\47\ that the proposed rule change (SR-NASDAQ-2021-004), as 
modified by Amendment No. 2, be, and hereby is, approved.
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    \47\ 15 U.S.C. 78s(b)(2).
    \48\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07197 Filed 4-7-21; 8:45 am]
BILLING CODE 8011-01-P


