[Federal Register Volume 76, Number 42 (Thursday, March 3, 2011)]
[Notices]
[Pages 11832-11834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4722]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63968; File No. SR-NASDAQ-2011-030]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt New Rule 4763 To Implement the Amendments to Regulation SHO
February 25, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on February 22, 2011, 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 substantially prepared by
the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange, pursuant to Section 19(b)(1) of the Act \3\ and Rule
19b-4 \4\ thereunder, proposes to adopt new Rule 4763 as a written
policy or procedure to implement the amendments to Rules 200(g) and 201
of Regulation SHO.\5\
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\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\ 17 CFR 242.200(g); 17 CFR 242.201. See Securities Exchange
Act Release No. 61595 (Feb. 26, 2010), 75 FR 11232 (Mar. 10, 2010)
(``Adopting Release'') (amending Rules 201 and 200 of Regulation SHO
to adopt a short sale price test restriction and ``short exempt''
marking requirement). See also Securities Exchange Act Release No.
63247 (Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010) (extending the
compliance date of the amendments to Rules 201 and 200 of Regulation
SHO until February 28, 2011).
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The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaq.cchwallstreet.com/NASDAQ/Filings/, 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
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
On February 26, 2010, the Commission adopted amendments to Rules
200(g) and 201 of Regulation SHO.\6\ The amendments became effective on
May 10, 2010, and compliance is required by February 28, 2011.\7\ The
amendments to Rule 201 of Regulation SHO require trading centers \8\
such as NASDAQ to establish, maintain, and enforce certain written
policies and procedures reasonably designed to comply with the rule.\9\
NASDAQ is proposing to adopt new Rule 4763 as a written policy and
procedure to implement the amendments to Rules 200(g) and 201 of
Regulation SHO.
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\6\ See supra note 5.
\7\ Id.
\8\ Rule 201(a)(9) states the term ``trading center'' will have
the same meaning as in Rule 600(b)(78). 17 CFR 242.201(a)(9). Rule
600(b)(78) of Regulation NMS defines a ``trading center'' as ``a
national securities exchange or national securities association that
operates an SRO trading facility, an alternative trading system, an
exchange market maker, an OTC market maker, or any other broker or
dealer that executes orders internally by trading as principal or
crossing orders as agent.'' 17 CFR 242.600(b)(78).
\9\ See 17 CFR 242.201(b). The amendments to Rule 200(g) of
Regulation SHO provide a ``short exempt'' marking requirement. See
17 CFR 242.200(g).
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Proposed Rule 4763(a) defines the terms ``covered security,''
``listing market,'' and ``national best bid'' as having the same
meaning as such terms have in Rule 201 of Regulation SHO.\10\
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\10\ See Rule 201(a) of Regulation SHO. The System will utilize
the national best bid from the systems information processor. Rule
201(a)(1) defines ``covered security'' to mean any ``NMS stock'' as
defined under Rule 600(b)(47) of Regulation NMS. 17 CFR
242.201(a)(1). Rule 600(b)(47) of Regulation NMS defines an ``NMS
stock'' as ``any NMS security other than an option.'' 17 CFR
242.600(b)(47). Rule 600(b)(46) of Regulation NMS defines an ``NMS
security'' as ``any security or class of securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan, or an effective
national market system plan for reporting transactions in listed
options.'' 17 CFR 242.600(b)(46).
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Under Proposed Rule 4763(b), entitled ``Short Sale Price Test,''
the System \11\ will not execute or display a short sale order with
respect to a covered security at a price that is less than or equal to
the current national best bid if the price of that security decreases
by 10% or more from the security's closing price on the listing market
as of the end of
[[Page 11833]]
regular trading hours on the prior day (``Trigger Price'').\12\ For
covered securities for which NASDAQ is the listing market, the NASDAQ
Official Closing Price (``NOCP'') for each security is established by
the NASDAQ Closing Cross pursuant to procedures set forth in Rule
4754.\13\
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\11\ See NASDAQ Rule 4751(a). The term ``Nasdaq Market Center''
or ``System'' shall mean the automated system for order execution
and trade reporting owned and operated by NASDAQ.
\12\ See Rule 201(b)(1)(i) of Regulation SHO. Such execution or
display needs to be in compliance with applicable rules concerning
minimum pricing increments. See 17 CFR 242.612.
\13\ See NASDAQ Rule 4754. The NASDAQ Closing Cross will begin
at 4 p.m. EST. The process begins at 3:50 p.m. EST, when NASDAQ
begins to electronically disseminate order imbalance indicator
messages every 5 seconds, to which participants may send orders in
response. This occurs until 4 p.m. EST when the NASDAQ Closing Cross
is executed by bringing together all of NASDAQ's order books at a
single price which maximizes the number of shares of eligible
interest that can be executed.
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Under Proposed Rule 4763(c), Determination of Trigger Price, NASDAQ
will continuously compare each execution by the System with the NOCP
\14\ and alert the single plan processor \15\ when a Trigger Price has
been reached.\16\ The single plan processor will then disseminate a
notice to market participants in accordance with procedures established
by the single plan processor.\17\ When the single plan processor
disseminates such notice, NASDAQ will systematically apply the short
sale price test restriction for short sale orders in the covered
security in the manner described in Proposed Rule 4763(b).
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\14\ Under Proposed Rule 4763(c)(2), if a covered security did
not trade on NASDAQ on the prior trading day (due to a trading halt,
trading suspension, or otherwise), NASDAQ's determination of the
Trigger Price shall be based on the last sale price on the Exchange
for that security on the most recent day on which the security
traded. See also Division of Trading and Markets: Responses to
Frequently Asked Questions Concerning Rule 201 of Regulation SHO,
Q&A No. 3.1
\15\ See 17 CFR 242.201(a)(6).
\16\ See Rule 201(b)(3) of Regulation SHO. See Division of
Trading and Markets: Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO, Q&A No. 1.1 (explaining
calculation of the Trigger Price).
\17\ See NASDAQ UTP Vendor Alert 2010-9 (July 15, 2010),
available at http://www.nasdaqtrader.com/TraderNews.aspx?id=uva2010-009.
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Under Proposed Rule 4763(d), Duration of Short Sale Price Test,
once triggered, the short sale price test restriction shall remain in
effect until the next trading day when a national best bid for the
covered security is calculated and disseminated on a current and
continuing basis by a plan processor pursuant to an effective national
market system,\18\ as provided for in Regulation SHO Rule 201(b)(1)(ii)
(the ``Short Sale Period''). There are two exceptions in the proposed
rule.\19\ First, if the Exchange determines pursuant to Proposed Rule
4763(d)(1) that the short sale price test restriction for a covered
security was triggered because of a clearly erroneous execution,\20\
NASDAQ may lift the short sale price test restriction before the Short
Sale Period ends for covered securities for which the Exchange is the
listing market.\21\ Second, if NASDAQ determines pursuant to Proposed
Rule 4763(d)(2) that the prior day's closing price for a covered
security is incorrect in the System and resulted in an incorrect
determination of the Trigger Price, the Exchange may correct the prior
day's NOCP and lift the short sale price test restriction before the
Short Sale Period ends.
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\18\ See 17 CFR 242.201(b)(1)(ii). See also Division of Trading
and Markets: Responses to Frequently Asked Questions Concerning Rule
201 of Regulation SHO, Q&A No. 2.1.
\19\ If the price of a covered security declines intra-day by at
least 10% on a day on which the security is already subject to the
short sale price test restriction of Rule 201, the restriction will
be re-triggered and, therefore, will continue in effect for the
remainder of that day and the following day. See Adopting Release,
75 FR at 11253, n. 290. In addition, Rule 201 does not place any
limit on the frequency or number of times the circuit breaker can be
re-triggered with respect to a particular stock. See Division of
Trading and Markets: Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO, Q&A No. 2.2.
\20\ See NASDAQ Rule 4762 which cross-references NASDAQ Rule
11890 for the standard of determining when a trade is ``clearly
erroneous.'' The terms of a transaction executed on NASDAQ are
``clearly erroneous'' when there is an obvious error in any term,
such as price, number of shares or other unit of trading, or
identification of the security. A transaction made in clearly
erroneous error and cancelled by both parties or determined by
NASDAQ to be clearly erroneous will be removed from the consolidated
tape.
\21\ See 17 CFR 242.201(a)(3).
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Under Proposed Rule 4763(e), Re-pricing of Orders during Short Sale
Period, during a Short Sale Period, short sale orders that are limited
to the current national best bid or lower and short sale market orders
will be re-priced by the System one minimum allowable price increment
above the current national best bid (``Permitted Price''). To reflect
declines in the national best bid, the Exchange will continue to re-
price a short sale order at the lowest Permitted Price down to the
order's original limit price, or if a market order, until the order is
filled. Non-displayed orders between the NASDAQ bid and offer at the
time of receipt will also be re-priced upward to a Permitted Price to
correspond with a rise in the national best bid. During the Short Sale
Period, immediate or cancel (``IOC'') orders requiring that all or part
of the order be executed immediately will be executed to the extent
possible at a Permitted Price and higher and then cancelled, and will
not be re-priced. Inter-market sweep orders not marked ``short exempt''
will be handled in the same manner as IOC orders.
Also during the Short Sale Period, Limit-on-Open and Market-on-Open
Orders defined in NASDAQ Rule 4752(a)(3) and (a)(4) and Limit-on-Close
and Market-on-Close Orders defined in NASDAQ Rule 4754(a)(4) and (a)(5)
shall be re-priced as described above unless the spread between the
national best bid and offer is $0.01.\22\ In that case, such orders
shall be converted to Mid-Point Peg Orders defined in NASDAQ Rule
4751(f)(4). Once converted, such orders will be priced at the midpoint
of the national best bid and offer and may execute in sub-pennies if
necessary to obtain a midpoint price.\23\ Converting and re-pricing on-
open and on-close orders will facilitate that such orders are permitted
to execute in the critical opening and closing crosses. As noted in the
Adopting Release, the ``short sale price test restrictions of Rule 201
will accommodate matching systems that execute trades at an
independently-derived price because such systems are designed so that
matches occur above the current national best bid.'' \24\
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\22\ In the event of a locked market, the short sale on-open or
on-close orders will be re-priced one minimum allowable price
increment above the current national best bid.
\23\ Re-pricing of orders, including conversion to midpoint
orders in the case of on-open and on-close orders, occurs
simultaneously with the execution of the opening and closing
crosses. NASDAQ's system takes a snapshot of the orders on the book
and the current national best bid, validates for compliance with
Rule 201 of Regulation SHO, and simultaneously executes all orders
that are available for execution at the crossing price.
\24\ See Adopting Release, 75 FR 11232, at fn. 242-244 and
accompanying text.
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Pursuant to Proposed Rule 4763(f), Execution of Permissible Orders
during the Short Sale Period, during the Short Sale Period, the System
will execute and display a short sale order without regard to whether
the order is at a Permitted Price or higher if, at the time of initial
display of the short sale order, the order was at a price above the
then current national best bid. This determination is consistent with
Rule 201(b)(1)(iii)(A) of Regulation SHO. Short sale orders that are
entered into the System prior to the Short Sale Period but are not
displayed will be re-priced as described in Proposed Rule 4763(e) as
set forth above.
Finally, under Proposed Rule 4763(g), Short Exempt Orders, during
the Short Sale Period, the System will execute and display orders
marked ``short exempt'' without regard to whether the
[[Page 11834]]
order is at a Permitted Price or higher.\25\ The System will accept
orders marked ``short exempt'' at any time when the System is open for
order entry regardless of whether the short sale price test has been
triggered in the covered security. NASDAQ member firms marking orders
``short exempt'' in reliance on Rule 201(c) or 201(d) are responsible
for ensuring that any such orders meet the criteria of these provisions
and are accurately marked as ``short exempt.'' \26\
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\25\ See 17 CFR 242.201(b)(1)(iii)(B).
\26\ See Rules 200(g)(2), 201(c) and 201(d) of Regulation SHO.
See also Division of Trading and Markets: Responses to Frequently
Asked Questions Concerning Rule 201 of Regulation SHO, Q&A Nos. 4.2,
5.4 and 5.5.
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2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\27\ which requires, among other things, the rules of an
exchange to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. The proposed
rule change also is designed to support the principles of Section
11A(a)(1) of the Act \28\ in that it seeks to assure fair competition
among brokers and dealers and among exchange markets. The Exchange
believes that the proposed rule meets these requirements in that it
implements rules adopted by the Commission in Regulation SHO under the
Act.
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\27\ 15 U.S.C. 78f(b)(5).
\28\ 15 U.S.C. 78k-1(a)(1).
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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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \29\ and Rule 19b-4(f)(6) \30\
thereunder.
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \31\ normally
may not become operative prior to 30 days after the date of filing.\32\
However, Rule 19b-4(f)(6)(iii) \33\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. NASDAQ has requested that the
Commission waive the 30-day operative delay so that it may implement
the change no later than February 28, 2011 to coincide with the
compliance date for the amendments to Rules 200(g) and 201 of
Regulation SHO. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposed rule change, among other things,
implements the amendments to Rules 200(g) and 201 of Regulation SHO
which have a February 28, 2011 compliance date.\34\ For this reason,
the Commission designates the proposed rule change to be operative upon
filing with the Commission.\35\
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\31\ Id.
\32\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to
the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing
of the proposed rule change, or such shorter time as designated by
the Commission. The Exchange has satisfied this requirement.
\33\ Id.
\34\ See supra note 5.
\35\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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 e-mail to [email protected]. Please include
File Number SR-NASDAQ-2011-030 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2011-030. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE., Washington,
DC 20549, on official business days between the hours of 10 a.m. and 3
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; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NASDAQ-2011-
030 and should be submitted on or before March 24, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
Cathy H. Ahn,
Deputy Secretary.
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\36\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-4722 Filed 3-2-11; 8:45 am]
BILLING CODE 8011-01-P