[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Notices]
[Pages 20742-20744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8917]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64268; File No. SR-NASDAQ-2011-051]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify the Effective Hours of Rule 4753(c)
April 8, 2011.
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 April 7, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or the
``Exchange''), filed with the Securities and Exchange Commission
(``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.
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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 the
Substance of the Proposed Rule Change
NASDAQ is proposing to amend Rule 4753(c) to change the effective
time of the rule from 9:30 a.m. to 4 p.m., to 9:45 a.m. to 3:35 p.m.
The text of the proposed rule change is below. Proposed new
language is italicized; proposed deletions are in brackets.
* * * * *
4753. Nasdaq Halt and Imbalance Crosses
(a)-(b) No change.
(c) For a pilot period ending six months after the date of
Commission approval of SR-NASDAQ-2010-074, between 9:45[30] a.m. and
3:35[4:00] p.m. EST, the System will automatically monitor System
executions to determine whether the market is trading in an orderly
fashion and whether to conduct an Imbalance Cross in order to restore
an orderly market in a single Nasdaq Security.
(1) An Imbalance Cross shall occur if the System executes a
transaction in a Nasdaq Security at a price that is beyond the
Threshold Range away from the Triggering Price for that security. The
Triggering Price for each Nasdaq Security shall be the price of any
execution by the System in that security within the prior 30 seconds.
The Threshold Range shall be determined as follows:
------------------------------------------------------------------------
Threshold
range away
from
Execution price triggering
price
(percent)
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$1.75 and under......................................... 15
Over $1.75 and up to $25................................ 10
Over $25 and up to $50.................................. 5
Over $50................................................ 3
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(2) If the System determines pursuant to subsection (1) above to
conduct an Imbalance Cross in a Nasdaq Security, the System shall
automatically cease executing trades in that security for a 60-second
Display Only Period. During that 60-second Display Only Period, the
System shall:
(A) maintain all current quotes and orders and continue to accept
quotes and orders in that System Security; and
(B) Disseminate by electronic means an Order Imbalance Indicator
every 5 seconds.
(3) At the conclusion of the 60-second Display Only Period, the
System shall re-open the market by executing the Nasdaq Halt Cross as
set forth in subsection (b)(2)-(4) above.
(4) If the opening price established by the Nasdaq Halt Cross
pursuant to subsection (b)(2)(A)-(D) above is outside the benchmarks
established by Nasdaq by a threshold amount, the Nasdaq Halt Cross will
occur at the price within the threshold amounts that best satisfies the
conditions of subparagraphs (b)(2)(A) through (D) above. Nasdaq
management shall set and modify such benchmarks and thresholds from
time to time upon prior notice to market participants.
(d) No change.
* * * * *
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
NASDAQ is proposing to amend Rule 4753(c) to change the effective
time of the rule from 9:30 a.m. to 4 p.m., to 9:45 a.m. to 3:35 p.m. On
March 11, 2011, the Commission approved Rule 4753(c) (the ``Volatility
Guard''), a volatility-based pause in trading in individual NASDAQ-
listed securities traded on NASDAQ (``NASDAQ Securities''), as a six
month pilot applied to the NASDAQ 100 Index securities.\3\ The
Volatility Guard automatically suspends trading in individual NASDAQ
Securities that are the subject of abrupt and significant intraday
price movements between 9:30 a.m. and 4 p.m. Eastern Standard Time
(``EST''). Volatility Guard is triggered automatically when the
execution price of a pilot security moves more than a fixed amount away
from a pre-established ``triggering price'' for that security. The
triggering price for each pilot security is the price of any execution
by the system in that security within the previous 30 seconds. For each
pilot security, the system continually compares the price of each
execution in the system against the prices of all system executions in
that security over the 30 seconds. Once triggered, NASDAQ institutes a
formal trading halt during which time NASDAQ systems are prohibited
from executing orders. Members, however, may continue to enter quotes
and orders, which are queued during a 60-second Display Only Period. At
the conclusion of the Display Only Period, the queued orders are
executed at a single price, pursuant to NASDAQ's Halt Cross
mechanism.\4\
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\3\ See Securities Exchange Act Release No. 64071 (March 11,
2011), 76 FR 14699 (March 17, 2011) (SR-NASDAQ-2010-074). Amendment
1 to SR-NASDAQ-2010-074 designated the NASDAQ 100 Index as the 100
pilot securities.
\4\ The Nasdaq Halt Cross is ``the process for determining the
price at which Eligible Interest shall be executed at the open of
trading for a halted security and for executing that Eligible
Interest.'' See Nasdaq Rule 4753(a)(3).
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NASDAQ is preparing to implement the Volatility Guard in the second
quarter of 2011, and through these preparations NASDAQ identified a
possible concern with the effective time
[[Page 20743]]
of the Volatility Guard. As currently proposed, the Volatility Guard
could interfere with the effective hours of NASDAQ's opening and
closing crosses should a Volatility Guard halt occur during a cross
process. The NASDAQ opening and closing crosses are price discovery
facilities that cross orders at a single price. The crosses enable
market participants to execute on-open and on-close interest.\5\ NASDAQ
is proposing to change the effective time of the pilot to 9:45 a.m.
until 3:35 p.m. EST to avoid potential interference with the crosses,
and the orderly opening and closing of the market.
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\5\ The crosses generate opening and closing prices that are
widely used by industry professionals including Russell Investments,
Standard & Poor's and Dow Jones.
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NASDAQ notes that the proposed effective time is identical to the
effective time of the single-stock trading pause pilot adopted by
multiple U.S. markets, including NASDAQ, (the ``Circuit Breaker
Pilot'').\6\ In approving the Circuit Breaker Pilot, the Commission
noted that limiting the effective time of the pilot to 9:45 a.m. until
3:35 p.m. EST would ensure that existing procedures designed to
facilitate orderly openings and closings would not be interfered with.
As a consequence, NASDAQ believes that adopting the identical effective
time as the Circuit Breaker Pilot will reasonably ensure that the
orderly opening and closing of the markets is not interfered with by
the Volatility Guard.
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\6\ On June 10, 2010, the Commission approved the Circuit
Breaker Pilot, which instituted new circuit breaker rules that pause
trading for five minutes in a security included in the S&P 500 Index
if its price moves ten percent or more over a five-minute period.
See Securities Exchange Act Release Nos. 62251 (June 10, 2010), 75
FR 34183 (June 16, 2010) (SR-FINRA-2010-025); 62252 (June 10, 2010),
75 FR 34186 (June 16, 2010) (SR-NASDAQ-2010-061, et al.). On
September 10, 2010, the Circuit Breaker Pilot was expanded to
include securities in the Russell 1000 Index and certain exchange-
traded products. See Securities Exchange Act Release Nos. 62883
(September 10, 2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-
2010-033); 62884 (September 10, 2010), 75 FR 56618 (September 16,
2010) (SR-NASDAQ-2010-079, et al.). The Circuit Breaker Pilot is
scheduled to expire on April 11, 2011, however, the Exchanges are
filing proposals with the Commission to extend the pilot to August
11, 2011. See e.g., Securities Exchange Act Release No. 63505
(December 9, 2010), 75 FR 78302 (December 15, 2010) (SR-NASDAQ-2010-
162).
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NASDAQ also believes that, as a complement to the Circuit Breaker
Pilot, it is important that Volatility Guard's effective time mirror
that of the Circuit Breaker Pilot. The Circuit Breaker Pilot applies to
the securities of the S&P 500 Index, Russell 1000 Index and certain
exchange-traded products. As such, there is certain overlap between the
securities covered by the Circuit Breaker Pilot and Volatility
Guard.\7\ Such a consistent approach to the effective time will lessen
the potential for investor confusion surrounding the timing and
operation of the two processes. Accordingly, NASDAQ believes
harmonizing the intra-day effective time of the Volatility Guard with
that of the Circuit Breaker Pilot will better serve the goal of working
seamlessly with the cross-market pause and will avoid potential
interference with the orderly opening and closing of the markets.
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\7\ See Securities Exchange Act Release No. 62468 (July 7,
2010), 75 FR 41258 (July 15, 2010) (SR-NASDAQ-2010-074) (discussing
how Volatility Guard operates in relation to the Circuit Breaker
Pilot).
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2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\8\ in general and with Sections
6(b)(5) of the Act,\9\ in particular in that it is 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 regulating, clearing, settling, processing
information with respect to, and 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. NASDAQ believes that the
proposed rule meets these requirements in that it promotes transparency
and uniformity among the Circuit Breaker Pilot and the Volatility
Guard. Further, the proposed changes will ensure that the opening and
closing processes of the markets are not interfered with by the
Volatility Guard.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(5).
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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
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments Regarding the
Proposed Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) \10\ of the Act and Rule 19b-4(f)(6)
thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under 19b-4(f)(6) normally may not
become operative prior to 30 days after the date of filing.\12\
However, Rule 19b-4(f)(6)(iii) \13\ 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. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest. This proposed rule
change will reduce the effective time of the Volatility Guard as the
current effective time of the Volatility Guard could interfere with the
NASDAQ opening and closing processes. This proposed rule change will
also make the effective time of the Volatility Guard consistent with
the Circuit Breaker Pilot. Waiving the operative delay will ensure that
the proposed change in the effective time of the Volatility Guard is
both effective and operative by the date on which NASDAQ implements the
Volatility Guard. For this reason, the Commission designates the
proposed rule change to be operative upon filing with the
Commission.\14\
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\12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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 Commission notes that the Exchange has met this requirement.
\13\ Id.
\14\ For the purposes only of waiving the 30-day operative
delay, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such 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.
[[Page 20744]]
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-2011-051 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-2011-051. 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 such 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
publicly available. All submissions should refer to File Number SR-
NASDAQ-2011-051 and should be submitted on or before May 4, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Cathy Ahn,
Deputy Secretary.
[FR Doc. 2011-8917 Filed 4-12-11; 8:45 am]
BILLING CODE 8011-01-P