[Federal Register Volume 86, Number 40 (Wednesday, March 3, 2021)]
[Notices]
[Pages 12503-12509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04307]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91208; File No. SR-NASDAQ-2021-009]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4754 Relating to 
the Limit-Up Limit-Down Closing Cross

February 25, 2021.
    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 February 11, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission

[[Page 12504]]

(``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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 4754 to introduce price 
protections for the Limit-Up Limit-Down (``LULD'') Closing Cross \3\ 
that are similar to the protections currently employed by the standard 
Nasdaq Closing Cross,\4\ and to make other changes related to the LULD 
Closing Cross.
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    \3\ The LULD Closing Cross is the Exchange's auction process for 
executing closing trades in Nasdaq-listed securities when a Trading 
Pause pursuant to Rule 4120(a)(12) exists at or after 3:50 p.m. and 
before 4:00 p.m. ET. See Rule 4754(b)(6).
    \4\ ``Nasdaq Closing Cross'' shall mean the process for 
determining the price at which orders shall be executed at the close 
and for executing those orders. See Rule 4754(a).
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    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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 Rule 4754 to 
introduce price protections for the LULD Closing Cross that are similar 
to the protections currently employed by the standard Nasdaq Closing 
Cross, and to make other changes related to the LULD Closing Cross. 
With the proposed changes, the Exchange's LULD and standard Closing 
Cross processes will be more harmonized, which the Exchange believes 
will promote a more consistent experience for members and investors 
participating in the close and reduce any potential confusion regarding 
Nasdaq's closing processes.
Background
    The Nasdaq Closing Cross is a transparent auction process that 
determines a single price for the close. The price determined by the 
Closing Cross is also the Nasdaq Official Closing Price (``NOCP'') for 
securities that participate in the cross. Members can submit Limit on 
Close (``LOC'') Orders,\5\ Market on Close (``MOC'') Orders,\6\ and 
Imbalance Only (``IO'') Orders \7\ that are available to participate in 
the Closing Cross along with other Close Eligible Interest.\8\ At 4:00 
p.m. ET, the Exchange will execute the Nasdaq Closing Cross at a price 
determined in accordance with Rule 4754(b)(2).
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    \5\ A ``Limit On Close Order'' or ``LOC Order'' is an Order Type 
entered with a price that may be executed only in the Nasdaq Closing 
Cross, and only if the price determined by the Nasdaq Closing Cross 
is equal to or better than the price at which the LOC Order was 
entered. See Rule 4702(b)(12).
    \6\ A ``Market On Close Order'' or ``MOC Order'' is an Order 
Type entered without a price that may be executed only during the 
Nasdaq Closing Cross. See Rule 4702(b)(11).
    \7\ An ``Imbalance Only Order'' or ``IO Order'' is an Order 
entered with a price that may be executed only in the Nasdaq Closing 
Cross and only against MOC Orders or LOC Orders. See Rule 
4702(b)(13).
    \8\ ``Close Eligible Interest'' shall mean any quotation or any 
order that may be entered into the system and designated with a 
time-in-force of SDAY, SGTC, MDAY, MGTC, SHEX, or GTMC. See Rule 
4754(a)(1).
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    When the Closing Cross price is calculated as described in Rule 
4754(b)(2), the Exchange applies a boundary within which the cross must 
execute to ensure that the closing price derived does not exceed a 
price reasonably tied to the prevailing market at the time. 
Specifically, the Exchange applies a threshold amount to a benchmark 
value that, when applied to an individual security, determines the 
threshold price range that a security may cross, outside of which the 
closing price of a security may not occur.\9\ If the Closing Cross 
price of a security would otherwise be outside of this threshold range, 
the Exchange will adjust the Closing Cross price of the security to a 
price within the threshold range that best satisfies the normal process 
for determining the Closing Cross price.\10\ This adjustment happens 
automatically prior to execution of the Closing Cross. All unexecuted 
shares designated to expire upon the conclusion of the Closing 
Cross,\11\ including those that fall outside of the calculated 
threshold price range, are cancelled.
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    \9\ See Rule 4754(b)(2)(E).
    \10\ See Rules 4754(b)(2)(A)-(D).
    \11\ These are: MOC, LOC, and IO Orders designated to 
participate in the Closing Cross. Prior to the Closing Cross, the 
Exchange maintains a continuous order book and a Closing Cross order 
book. Orders in the Closing Cross order book may execute only in the 
Closing Cross process, while Orders in the continuous book may 
execute in regular market hours or in the Closing Cross if the Order 
has a time-in-force that will allow it to remain active.
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    The threshold amounts and benchmarks are set by Nasdaq management 
in advance and communicated to market participants. Nasdaq may adjust 
the threshold amounts and benchmarks from time to time based on 
Nasdaq's experience with the Closing Cross. Nasdaq publishes this 
information publicly on its website, and sets the threshold amount so 
that repricing of a security is rare.\12\ Currently, Nasdaq applies a 
threshold amount that is the greater of $0.50 or 10%, which is applied 
to the Nasdaq Best Bid and Offer (``QBBO'') midpoint and is added to 
the Nasdaq Offer and subtracted from the Nasdaq Bid to establish the 
threshold range. For example, if the QBBO is $10.00 x $11.00, then the 
midpoint is $10.50 and the threshold amount is 10%, resulting in a 
threshold value of $1.05 (10% of 10.50 = 1.05). This value is then 
added to the offer and subtracted from the bid to obtain the Closing 
Cross's threshold price range. In this example, it would result in a 
lower threshold of $8.95 (10.00-1.05 = 8.95) and an upper threshold of 
$12.05 (11.00 + 1.05 = 12.05), thus creating a range between $8.95 to 
$12.05, within which the Closing Cross can occur. This means $8.95 is 
the lowest price at which the cross can occur, and $12.05 is the 
highest price at which it can occur. The threshold range is dynamic; as 
the QBBO changes, the threshold price range changes. The Exchange 
believes that the foregoing price thresholds for the standard Closing 
Cross has been effective at facilitating price discovery and ensuring 
that the closing price of a security is reasonably based on current 
market conditions in the security, and therefore proposes to adopt 
similar thresholds for its LULD Closing Cross.
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    \12\ See http://www.nasdaqtrader.com/content/ProductsServices/Trading/Crosses/openclose_faqs.pdf.
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    Today, in addition to the standard Nasdaq Closing Cross described 
above, the Exchange operates a LULD Closing Cross that provides an 
alternative process for executing closing trades on Nasdaq. The 
Exchange conducts this process (instead of the standard Closing Cross) 
for Nasdaq-listed securities when a Trading Pause pursuant to Rule 
4120(a)(12) exists at or after 3:50 p.m.

[[Page 12505]]

and before 4:00 p.m. ET.\13\ The LULD Closing Cross price will be the 
NOCP for Nasdaq-listed securities that participate in the LULD Closing 
Cross. Unlike the standard Closing Cross, the LULD Closing Cross 
currently occurs at 4:00 p.m. ET, with no price thresholds, and may be 
extended pursuant to Rule 4754(b)(6)(A)(iii) if there is an order 
imbalance. In this case, the Exchange would extend the time of the LULD 
Closing Cross in one minute increments until the order imbalance no 
longer exists.\14\ If this condition persists until 5:00 p.m., Nasdaq 
would not conduct a cross in that security and would instead use the 
last-sale on Nasdaq as the NOCP in that security for that trading day.
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    \13\ See Rule 4754(b)(6). While the current language indicates 
that the ``stock'' will resume trading via the LULD Closing Cross, 
the Exchange will amend this Rule to make clear that the LULD 
Closing Cross will apply only for Nasdaq-listed securities.
    \14\ Specifically, if the expected cross price moves the greater 
of 5% or 50 cents, or if all market orders will not be executed in 
the cross, Nasdaq will delay the execution of the LULD Closing Cross 
pursuant to Rule 4754(b)(6)(A)(iii). These volatility checks are 
governed by Rule 4120(c)(7)(C).
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Price Thresholds
    The Exchange now proposes to introduce price protections to the 
LULD Closing Cross that will be similar to the protections used today 
for the standard Closing Cross, and will ensure that the LULD Closing 
Cross price is reasonably related to current market conditions.
    The proposed price thresholds will be calculated by applying a 
threshold amount set by Nasdaq management in advance and communicated 
to market participants (``LULD Price Thresholds''). The LULD Price 
Thresholds, like the thresholds presently used for the standard Closing 
Cross, will be published on Nasdaq's public website. The LULD Price 
Thresholds will be applied to a benchmark associated with the LULD Band 
that triggered the Trading Pause to calculate the benchmark price range 
within which the LULD Closing Cross price must fall (``Benchmark 
Prices''). The Benchmark Prices will be published via the SIP and 
Exchange proprietary data feeds. Nasdaq will initially set the LULD 
Price Thresholds at the greater of $1.00 or 10% for securities with a 
reference price greater than $1.00 (or $0.50 for securities with a 
benchmark equal to or less than $1.00), which will be applied to the 
last disseminated LULD Auction Collar, or the LULD Band that triggered 
the Trading Pause in the direction of the trading that invoked the 
Trading Pause.
    To effect these changes, the Exchange proposes in new paragraph (E) 
of Rule 4754(b)(6) \15\ to provide that the Benchmark Prices within 
which the LULD Closing Cross price must fall is established by adding 
(or subtracting) a threshold amount from the:
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    \15\ With the proposed change, current paragraphs (C) and (D) 
will be renumbered as paragraphs (F) and (G).
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    (i) Upper (or lower) Auction Collar that was last updated for any 
security that enters a Trading Pause that was extended prior to 3:50 
p.m. ET, rounded to the nearest minimum price increment;
    (ii) Upper Auction Collar for a Limit Up triggered pause (or lower 
Auction Collar for a Limit Down triggered pause) for any security that 
entered a Trading Pause that was not extended prior to 3:50 p.m. ET, 
rounded to the nearest minimum price increment; or
    (ii) [sic] Upper Band for a Limit Up triggered pause (or Lower Band 
for a Limit Down triggered pause) for any security that entered a 
Trading Pause at or after 3:50 p.m. ET, rounded to the nearest minimum 
price increment.
    Nasdaq management shall set and modify such thresholds from time to 
time upon prior notice to market participants.
    As applied, for securities that entered a Trading Pause prior to 
3:50 p.m. ET and for which the Trading Pause was subsequently extended, 
the Exchange will calculate the lower and upper Benchmark Prices as 
follows:
    <bullet> If the lower Auction Collar was the collar that was last 
widened for the security subject to the Trading Pause, the lower 
Benchmark Price will be calculated by subtracting 10% of the last 
updated lower Auction Collar price (or $1.00 (or $0.50 if the lower 
Auction Collar price is equal to or below $1.00), whichever is greater) 
from the last updated lower Auction Collar price (rounded to the 
nearest minimum price increment). The upper Benchmark Price will be 
equal to the last updated upper Auction Collar price that was updated 
with the lower Auction Collar price used to calculate the lower 
Benchmark Price.
    <bullet> If the upper Auction Collar was the collar that was last 
widened for the security subject to the Trading Pause, the upper 
Benchmark Price will be calculated by adding 10% of the last updated 
upper Auction Collar price (or $1.00 (or $0.50 if the upper Auction 
Collar price is equal to or below $1.00), whichever is greater) to the 
last updated upper Auction Collar price (rounded to the nearest minimum 
price increment). The lower Benchmark Price will be equal to the last 
updated lower Auction Collar price that was updated with the upper 
Auction Collar price used to calculate the upper Benchmark Price.
    For securities that entered a Trading Pause that was not extended 
prior to 3:50 p.m. ET,\16\ the Exchange will calculate the lower and 
upper Benchmark Prices as follows:
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    \16\ This would occur if, for example, a security entered a 
Trading Pause between 3:45 and 3:50 p.m. ET, and the LULD Auction 
Collar had not yet been updated.
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    <bullet> For a Limit Down triggered pause, the lower Benchmark 
Price will be calculated by subtracting 10% of the lower Auction Collar 
price (or $1.00 (or $0.50 if the lower Auction Collar price is equal to 
or below $1.00), whichever is greater) from the lower Auction Collar 
price (rounded to the nearest minimum price increment). The upper 
Benchmark Price will be equal to the upper Auction Collar price that 
was disseminated with the lower Auction Collar price used to calculate 
the lower Benchmark Price.
    <bullet> For a Limit Up triggered pause, the upper Benchmark Price 
will be calculated by adding 10% of the upper Auction Collar price (or 
$1.00 (or $0.50 if the upper Auction Collar price is equal to or below 
$1.00), whichever is greater) to the upper Auction Collar price 
(rounded to the nearest minimum price increment). The lower Benchmark 
Price will be equal to the lower Auction Collar price that was 
disseminated with the upper Auction Collar price used to calculate the 
upper Benchmark Price.
    For securities that entered a Trading Pause at or after 3:50 p.m. 
ET, the Exchange will calculate the lower and upper Benchmark Prices as 
follows:
    <bullet> For a Limit Down triggered pause, the lower Benchmark 
Price will be calculated by subtracting 10% of the Lower LULD Band (or 
$1.00 (or $0.50 if the Lower LULD Band is equal to or below $1.00), 
whichever is greater) from the Lower LULD Band (rounded to the nearest 
minimum price increment). The upper Benchmark Price will be equal to 
Upper LULD Band in place at the time the Trading Pause was triggered.
    <bullet> For a Limit Up triggered pause, the upper Benchmark Price 
will be calculated by adding 10% of the Upper LULD Band (or $1.00 (or 
$0.50 if the Upper LULD Band is equal to or below $1.00), whichever is 
greater) to the Upper LULD Band (rounded to the nearest minimum price 
increment). The lower Benchmark Price will be equal to Lower LULD Band 
in place at the time the Trading Pause was triggered.
    At 4:00 p.m. ET, Nasdaq will conduct the LULD Closing Cross, and if 
the cross price would fall outside of the Benchmark Prices as 
calculated above, the LULD Closing Cross will execute all

[[Page 12506]]

available orders at a price within or equal to the Benchmark Prices. 
Any unexecuted orders intended for the Closing Cross (i.e., MOC, LOC, 
and IO Orders), including those that fall outside of the Benchmark 
Prices, will be cancelled. This will be similar to the current standard 
Closing Cross functionality as described above. All other orders not 
executed in the LULD Closing Cross will be processed according to the 
entering firm's instructions, consistent with the current LULD Closing 
Cross rule.
    The following illustrate how the proposed Benchmark Prices will be 
calculated:
Example 1: Security Enters Trading Pause Prior to 3:50 p.m.
Assume:
    Symbol ABC is a Tier 1 security
    Last sale/reference price: $100
    LULD price bands: $95 x $105
NBBO updates to $94.50 x $95
At 3:38 p.m., Symbol ABC enters a Trading Pause
LULD Auction Collars calculated:
    Upper Collar: $105
    Lower Collar: $90.25
At 3:43 p.m., due to a market order imbalance, the LULD halt cross will 
not occur and the LULD Auction Collars (1st extension) are calculated:
    Upper Collar: $105
    Lower Collar: $85.50
At 3:48 p.m., due to a market order imbalance, the LULD halt cross will 
not occur and the LULD Auction Collars (2nd extension) are calculated:
    Upper Collar: $105
    Lower Collar: $80.75
At 3:50 p.m., the security enters a LULD Closing Cross and the 
Benchmark Prices will be calculated:
    Upper Benchmark Price: $105
    Lower Benchmark Price: $72.68

Here, the lower Auction Collar is the collar that was widened in the 
last dissemination of the LULD Auction Collars message, so the 
Benchmark Prices will be calculated from the last updated lower Auction 
Collar ($80.75). The threshold amount is 8.075 (10% of 80.75 = 8.075), 
which is subtracted from the last updated Auction Collar (rounded to 
the nearest price increment) to calculate the lower Benchmark Price of 
72.68 (80.75-8.075 = 72.675) (i.e., 72.68 when rounded to the nearest 
price increment). The upper Benchmark Price of $105 is equal to the 
last updated upper Auction Collar price that was disseminated with the 
lower Auction Collar price used to calculate the lower Benchmark Price. 
Thus, $72.68 is the lowest price at which the LULD Closing Cross can 
occur, and $105 is the highest price at which the cross can occur.
Example 2: Security Enters Trading Pause After 3:50 p.m.
Assume:
    Symbol ABC is a Tier 1 security
    Last sale/reference price: $100
    LULD price bands: $95 x $105
NBBO updates to $94.50 x $95
At 3:53 p.m., Symbol ABC enters a Trading Pause and will go through a 
LULD Closing Cross.
The Benchmark Prices will be calculated:
    Upper Benchmark Price: $105
    Lower Benchmark Price: $85.50

Here, the security entered a Limit Down triggered pause, so the 
Benchmark Prices will be calculated from the Lower LULD Band ($95). The 
threshold amount is 9.50 (10% of 95 = 9.50), which is subtracted from 
the Lower LULD Band to calculate the lower Benchmark Price of 85.50 (95 
x 9.50 = 85.50). The upper Benchmark Price of $105 is equal to the 
Upper LULD Band in place at the time the Trading Pause was triggered. 
Thus, $85.50 is the lowest price at which the LULD Closing Cross can 
occur, and $105 is the highest price at which the cross can occur.
Execution Processing
    In connection with the changes proposed above to introduce price 
protections for the LULD Closing Cross, the Exchange proposes to amend 
the methodology for determining the LULD cross price. Specifically, the 
Exchange proposes the following in new paragraph (D) of Rule 
4754(b)(6):
    (D)(i) The LULD Closing Cross will occur at the price within the 
benchmark prices established pursuant to paragraph (E) below 
(``Benchmark Prices'') that maximizes the number of shares of Eligible 
Interest in the Nasdaq Market Center to be executed.
    (ii) If more than one price exists under subparagraph (i), the LULD 
Closing Cross shall occur at the price within the Benchmark Prices that 
minimizes any Imbalance.
    (iii) If more than one price exists under subparagraph (ii), the 
LULD Closing Cross shall occur at the entered price within the 
Benchmark Prices at which shares will remain unexecuted in the cross.
    (iv) If there is no price within the Benchmark Prices that 
satisfies the above conditions, then the LULD Closing Cross shall occur 
at:
    (a) If an Imbalance exists, a price equal to the upper (lower) 
Benchmark Price for a buy (sell) Imbalance; or
    (b) if no Imbalance exists, a price that minimizes the distance 
from the last published Upper Band (Lower Band) for a Limit Up (Limit 
Down) Trading Pause.
    Today, the LULD Closing Cross price is determined by the same 
execution algorithm as currently used by the standard Closing 
Cross.\17\ As discussed below, the proposed execution algorithm retains 
many aspects of the standard cross methodology with certain intended 
differences.
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    \17\ See Rule 4754(b)(2)(A)-(D).
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    The first tiebreaker in new paragraph (D)(i) will be substantially 
similar to the existing tiebreaker in Rule 4754(b)(2)(A),\18\ except 
that the proposed language will specify the LULD cross price must also 
fall within the proposed Benchmark Prices established pursuant to new 
paragraph (E) of Rule 4754(b)(6). In connection with this change, the 
Exchange also proposes to add a definition for ``Eligible Interest,'' 
which is currently undefined in this Rule. Specifically, the Exchange 
proposes to add in new paragraph (A)(i) of Rule 4754(b)(6) that for 
purposes of the LULD Closing Cross rule, Eligible Interest shall have 
the same meaning as ``Close Eligible Interest'' in Rule 4754(a), with 
the addition of any new orders, with an eligible underlying Order Type 
and Attribute, entered during the Trading Pause. The proposed change 
reflects current system behavior, and indicates that there is an 
additional category of orders that may participate in the LULD Closing 
Cross (i.e., new incoming orders, with an eligible underlying Order 
Type and Attribute, entered during the Trading Pause), which are not 
fully applicable in the context of the standard close. The Exchange 
therefore believes that using the proposed definition throughout the 
LULD Closing Cross rule (instead of ``Close Eligible Interest'' as 
currently used in the standard Closing Cross) will better align the 
rule to the current operation of the system.
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    \18\ Rule 4754(b)(2)(A) currently provides that the Nasdaq 
Closing Cross will occur at the price that maximizes the number of 
shares of Eligible Interest in the Nasdaq Market Center to be 
executed.
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    The second tiebreaker in new paragraph (D)(ii) will be based on the 
same principle as the existing tiebreaker in Rule 4754(b)(2)(B) (i.e., 
to minimize the number of shares that cannot be matched in the 
cross).\19\ However, the new tiebreaker will specify that the LULD 
Closing Cross price must be within the proposed Benchmark Prices

[[Page 12507]]

and at the price that minimizes any Imbalance, which will be defined in 
new paragraph (A)(ii) of Rule 4754(b)(6) as the number of shares of buy 
or sell MOC or LOC orders or Eligible Interest that cannot be matched 
with other MOC, LOC, or IO order shares or Eligible Interest at a 
particular price at any given time. The Exchange notes that the 
proposed change to state that the LULD cross price must minimize any 
Imbalance within the second tiebreaker is a corrective change to more 
accurately reflect how the system in the LULD Closing Cross currently 
behaves. Specifically, the change addresses that during a LULD Closing 
Cross, the Exchange considers all orders when calculating the 
Imbalance, whereas the standard Closing Cross considers orders 
specifically designated for participation in the Closing Cross (i.e., 
MOC, LOC, or IO orders). This reflects current system behavior, which 
automatically designates all orders (whether resting on the book, or 
new incoming orders entered during the cross) for participation in LULD 
Closing Cross.
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    \19\ Rule 4754(b)(2)(B) currently provides that if more than one 
price exists under subparagraph (A), the Nasdaq Closing Cross shall 
occur at the price that minimizes the number of shares of buy or 
sell MOC or LOC orders that cannot be matched with other MOC or LOC, 
Close Eligible interest, or IO order shares.
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    The third tiebreaker in new paragraph (D)(iii) will be 
substantially similar to the existing tiebreaker in Rule 
4754(b)(2)(C),\20\ except that the proposed language will specify the 
LULD cross price must also fall within the proposed Benchmark Prices.
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    \20\ Rule 4754(b)(2)(C) currently provides that if more than one 
price exists under subparagraph (B), the Nasdaq Closing Cross shall 
occur at the entered price at which shares will remain unexecuted in 
the cross.
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    The fourth and final tiebreaker in new paragraph (D)(iv) will be 
used if there is no price within the proposed Benchmark Prices that 
satisfies the conditions described above in (D)(i)-(iii), and speaks to 
two possible outcomes. The first outcome is reached when an Imbalance 
exists, in which case the LULD cross price would be the upper (lower) 
Benchmark Price for a buy (sell) Imbalance. The Exchange believes that 
this outcome is the appropriate result in the presence of an Imbalance 
as it best reflects current market forces while also making it clear to 
market participants that the imbalance exists. The second outcome is 
reached when there is no Imbalance, in which case the LULD Closing 
Cross would occur at a price that minimizes the distance from the last 
published Upper Band (Lower Band) for a Limit Up (Limit Down) Trading 
Pause. This tiebreaker is similar to the existing tiebreaker in Rule 
4754(b)(2)(D) \21\ in that the price that minimizes the distance from 
the last published Upper or Lower Band is effectively considered the 
midpoint price for the LULD Closing Cross. Unlike the existing 
tiebreaker, which uses the price that minimizes the distance from the 
System bid-ask midpoint, the proposed tiebreaker will use the relevant 
LULD Band. The Exchange believes this is the more appropriate result 
because unlike a standard Closing Cross, there is no continuous market 
just prior to the execution of the LULD Closing Cross, so using the 
relevant LULD Band more accurately reflects current market conditions 
as opposed to the System bid-ask midpoint.
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    \21\ Rule 4754(b)(2)(D) currently provides that if more than one 
price exists under subparagraph (C), the Nasdaq Closing Cross shall 
occur at: A price that minimizes the distance from the System bid-
ask midpoint at the time of the Nasdaq Closing Cross.
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Timing of LULD Closing Cross
    The Exchange also proposes to amend the LULD Closing Cross Rule to 
remove all provisions relating to extending the cross past 4:00 p.m. ET 
as this language will no longer be necessary with the changes proposed 
herein. In particular, the Exchange proposes to delete Rule 
4754(b)(6)(A)(iii) as this provision relates to how the Exchange would 
extend the time of the LULD Closing Cross. Further, the Exchange 
proposes to amend current Rule 4754(b)(6)(C)(iii) (renumbered to Rule 
4754(b)(6)(D)(iii) [sic] under this proposal) to delete the last two 
sentences, which provide how certain new orders may be entered or 
modified after 4:00 p.m. ET.
MOC/LOC/IO Order Handling
    The Exchange also proposes other aligning changes to the LULD 
Closing Cross that would more closely harmonize this process with the 
current standard Closing Cross. In Rule 4754(b)(6)(C)(iii) (renumbered 
to Rule 4754(b)(6)(D)(iii) [sic]), the Exchange proposes to remove the 
parenthetical that excludes MOC and LOC orders from being entered, 
modified, and cancelled in the LULD Closing Cross. The Exchange 
proposes to allow MOC and LOC orders to participate in the LULD Closing 
Cross in order to align with the regular Closing Cross where such 
orders may participate pursuant to Rules 4702(b)(11) and 4702(b)(12). 
The Exchange similarly proposes to allow IO orders to participate in 
the LULD Closing Cross in the same manner as in the regular Closing 
Cross (i.e., pursuant to Rule 4702(b)(13)). Accordingly, the Exchange 
will add that MOC, LOC and IO orders may be entered, modified, and 
cancelled pursuant to Rules 4702(b)(11), 4702(b)(12) and 4702(b)(13). 
The Exchange will also delete current Rule 4754(b)(6)(C)(i), which sets 
forth special handling instructions for MOC, LOC, and IO orders in an 
LULD Closing Cross. In particular, this Rule stipulates that in the 
event of an LULD Closing Cross, MOC, LOC and IO orders intended for the 
closing cross entered into the system and placed on the book prior to 
the Trading Pause will remain on the book to participate in the LULD 
Closing Cross, and that such orders may not be modified or cancelled. 
With the proposed changes to allow MOC, LOC, and IO orders to 
participate in the LULD Closing Cross in the same way as a standard 
Closing Cross, this provision is no longer necessary.
Net Order Imbalance Indicator
    The Exchange proposes to amend Rule 4754(b)(6)(B), which governs 
the Net Order Imbalance Indicator (``NOII'') message for the LULD 
Closing Cross and disseminates information about MOC, LOC, IO, and 
Close Eligible Interest and the price at which those orders would 
execute at the time of dissemination. The Rule currently provides that 
Nasdaq shall continue disseminating the NOII every second until After 
Hours Trading begins. The Exchange notes, however, that it recently 
updated its Closing Cross to allow for the dissemination of abbreviated 
NOII data (i.e., Early Order Imbalance Indicator) \22\ every 10 seconds 
between 3:50 p.m. ET and 3:55 p.m. ET, which would be followed by the 
dissemination of regular NOII data between 3:55 and market close.\23\ 
This change should have been reflected in the LULD Closing Cross rule 
in Rule 4754(b)(6)(B) as well. Accordingly, the Exchange proposes to 
amend the Rule to more accurately reflect current System behavior, and 
provide that Nasdaq shall continue disseminating the NOII pursuant to 
Rule 4754(b)(1) until After Hours Trading begins.
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    \22\ ``Early Order Imbalance Indicator'' shall mean a message 
disseminated by electronic means containing the same information as 
the Order Imbalance Indicator, except that it will exclude 
information about indicative prices, as set forth in subparagraph 
(a)(7)(E) of Rule 4754. See Rule 4754(a)(10).
    \23\ See Securities Exchange Act Release No. 85292 (March 12, 
2019), 84 FR 9848 (March 18, 2019) (SR-NASDAQ-2019-010).
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    The Rule also indicates that the NOII message displays the Near 
Price, Far Price, and Reference Prices, which all currently represent 
the price at which the LULD Closing Cross would execute should the 
cross conclude at that time. With the proposed changes to implement the 
new Benchmark Prices, the Near Price and Reference Price will both 
represent the price at which the LULD Closing Cross would execute, 
bounded by the Benchmark Prices, at

[[Page 12508]]

the time of dissemination. The Far Price will represent the price at 
which the LULD Closing Cross would execute if the cross were not 
bounded by the Benchmark Prices. The Far Price will be different from 
the Near Price and Reference Price to indicate that not all marketable 
orders can be filled within the Benchmark Prices. To effect this 
change, Rule 4754(b)(6)(B) will be amended to provide that the Near 
Price and Reference Prices contained in the NOII will represent the 
price at which the LULD Closing Cross would execute should the cross 
conclude at that time, and the Far Price will represent the price at 
which Eligible Interest would execute.
Corrective Changes
    The Exchange proposes a corrective change in Rule 4754(b)(6)(A)(i), 
which currently contains language relating to Trading Pauses 
``triggered'' at or after 3:50 and before 4:00 p.m. The Exchange 
previously amended paragraph (b)(6) of Rule 4754 in 2017 to provide 
that the cross is employed when a Trading Pause exists at or after 3:50 
and before 4:00 p.m., but inadvertently did not make a similar change 
in paragraph (b)(6)(A)(i) of this Rule.\24\ The Exchange now proposes 
to amend this provision accordingly.
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release No. 79876 (January 25, 
2017), 82 FR 8888 (January 31, 2017) (SR-NASDAQ-2016-131).
---------------------------------------------------------------------------

    Lastly, the Exchange proposes to update obsolete cross-cites to 
Rule 4751 within Rules 4756(c)(3)(B) and 4763(b). Rule 4751 was 
previously relocated as part of a prior rule filing, so the proposed 
changes will update the obsolete references to their current locations 
in the Rulebook.\25\
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    \25\ See Securities Exchange Act Release No. 75252 (June 22, 
2015), 80 FR 36865 (June 26, 2015) (SR-NASDAQ-2015-024).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\26\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\27\ 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.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that its proposal will promote just and 
equitable principles of trade because it will implement price 
protections for the LULD Closing Cross that are similar to the 
protections used today for the standard Closing Cross. As explained 
above, the Exchange currently calculates and applies a price threshold 
range within which the standard Closing Cross must execute. The 
Exchange believes that this mechanism has been effective in 
facilitating a fair and orderly price discovery process at the close, 
and ensuring that the cross price derived does not exceed a price 
reasonably tied to the prevailing market at the time. The Exchange has 
therefore determined to apply similar protections for the LULD Closing 
Cross. The Exchange believes that its proposal will benefit members and 
investors by facilitating price discovery. Additionally, introducing 
price protections to the LULD Closing Cross in the manner discussed 
above will further harmonize the Exchange's LULD and standard Closing 
Cross processes, thereby promoting a more consistent experience for 
members and investors, and reducing any potential confusion regarding 
Nasdaq's closing processes. The Exchange believes that calculating 
price thresholds associated with the LULD band that triggered the 
Trading Pause as discussed above will ensure that the LULD Closing 
Cross executes at a reasonable level relative to the last disseminated 
LULD Auction Collar, or the LULD band itself, thereby mitigating price 
dislocations in the cross. The Exchange also believes that allowing 
members to enter, modify and cancel new MOC, LOC and IO orders pursuant 
to Rules 4702(b)(11), 4702(b)(12), and 4702(b)(13) in the LULD Closing 
Cross will keep these close order type functionality consistent with 
the standard close behavior, and will facilitate a more efficient 
closing auction by allowing additional interest to participate in the 
close.
    The Exchange believes that the amended execution algorithm for the 
LULD Closing Cross is consistent with the Act because it is 
substantially similar to the execution logic that is used for the cross 
today, with certain intended differences. The proposed tiebreakers in 
new paragraphs (D)(i)-(iii) of Rule 4754(b)(6) are designed to preserve 
to the extent possible the current tiebreakers in paragraphs (B)(2)(A)-
(C) of Rule 4754(b)(2) while accommodating the proposed Benchmark 
Prices. The proposed changes to add the definitions of Eligible 
Interest and Imbalance as used in the proposed first and second 
tiebreakers are consistent with the protection of investors and the 
public interest because these changes will more accurately describe how 
the LULD Closing Cross price will be determined pursuant to the 
tiebreakers in proposed Rule 4754(b)(6)(A) and (B). As it relates to 
the fourth tiebreaker proposed in new paragraph (D)(iv) of Rule 
4754(b)(6), the Exchange believes that using the Benchmark Price in the 
presence of an Imbalance is appropriate and best reflects current 
market forces while also making it clear to market participants that 
the Imbalance exists. The Exchange also believes that using the price 
that minimizes the distance from the last published LULD Band more 
accurately reflects current market conditions as opposed to using the 
existing tiebreaker based on the System bid-ask midpoint as there is no 
continuous market just prior to the execution of the LULD Closing 
Cross.
    With respect to not extending a LULD Closing Cross past 4:00 p.m. 
ET, the Exchange believes that the clarity that comes from requiring 
that the LULD Closing Cross occur at 4:00 p.m. ET will help reduce 
uncertainty for members participating in the cross. While the Exchange 
recognizes the reasons for extending the LULD Closing Cross may exist 
where there are unmatched market orders or dramatic price movements 
during the cross, the Exchange believes based on its experience with 
the cross that these concerns are outweighed by the importance of 
providing members and the investing public with a definitive market 
close and a NOCP at 4:00 p.m. ET. Taken together with the proposed 
price thresholds, the Exchange believes that the LULD Closing Cross 
process, as amended, will reduce unnecessary confusion by providing 
certainty that the LULD Closing Cross will occur at a specified time, 
and will occur at a price that is reasonably based on current market 
conditions.
    The Exchange also believes that it is appropriate to amend Rule 
4754(b)(6)(B) to specify the contents of the NOII message for LULD 
Closing Cross. The proposed changes will bring greater transparency 
around what information is disseminated for the LULD Closing Cross, and 
is therefore consistent with the public interest and the protection of 
investors.

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. Today, the standard Nasdaq 
Closing Cross provides a transparent auction process for executing 
member interest at the close. The proposed rule change is designed to 
further align the Exchange's LULD Closing Cross with the standard 
Closing Cross to promote a more consistent

[[Page 12509]]

experience for members and investors, and reducing any potential 
confusion regarding Nasdaq's closing processes. Further, the proposed 
changes will allow additional interest (i.e., new MOC, LOC, and IO 
orders) to participate in the LULD Closing Cross, and thereby provide a 
more efficient process for executing closing interest, and enhancing 
price discovery during the close.

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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#295b5c454c044a4644444c475d5a695a4c4a074e465f"><span class="__cf_email__" data-cfemail="156760797038767a7878707b6166556670763b727a63">[email protected]</span></a>. Please include 
File Number SR-NASDAQ-2021-009 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2021-009. 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-2021-009 and should be submitted 
on or before March 24, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-04307 Filed 3-2-21; 8:45 am]
BILLING CODE 8011-01-P


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