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[Federal Register Volume 89, Number 224 (Wednesday, November 20, 2024)]
[Notices]
[Pages 91853-91862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27019]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 101620; File No. SR-NASDAQ-2024-065]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Equity 4 To Establish 
Halt Cross Price Protections and Make Other Related Changes

November 14, 2024.
    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 November 6, 2024, 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, II, and III, 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 Equity 4 to establish halt cross 
price protections and make other related changes.
    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 the Exchange's

[[Page 91854]]

Rules to implement halt cross protections to prevent clearly erroneous 
executions after the reopening of trading and ensure that securities 
are priced within reasonable levels from their halted price. The 
Exchange proposes to introduce price protections to the halt cross 
process that are similar to the protections currently employed in other 
auctions the Exchange conducts. In addition, the Exchange proposes to 
establish a ``Hybrid Closing Cross'' and introduce related price 
protections, as described below. With the proposed changes, the 
Exchange's processes would be more harmonized, which the Exchange 
believes would promote a more consistent experience for members and 
investors participating in the Exchange's auctions.
    To implement the proposed price protections, the Exchange proposes 
to modify Equity 4 by: (i) adding the proposed halt cross protections 
to Equity 4, Section 4120,\3\ replacing the prior procedures; (ii) 
adding information about dissemination of Auction Reference Prices and 
Auction Collars in Rule 4753(a)(3); and (iii) adding Rules for a 
modified closing cross in Rule 4754(b)(7).
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    \3\ All of the Rule 4000 series referenced in this filing are 
within Equity 4.
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    In addition, the Exchange proposes to make a number of changes in 
Equity 4, including: (i) removing references to the Limit-Up-Limit-Down 
(``LULD'') Closing Cross in Rule 4702 and Rule 4755; (ii) clarifying 
how Auction Reference Prices and Auction Collars are disseminated in 
Rule 4753(a)(3); (iii) clarifying rule language about cancellation of 
IOC Orders for halted securities in Rule 4753(e); (iv) specifying that 
the Nasdaq Closing Cross shall include the LULD Closing Cross and the 
Hybrid Closing Cross in Rule 4754(a)(6); (v) adding ``NOII'' as an 
alternative defined term for ``Order Imbalance Indicator'' in Rule 
4754(a)(7); (vi) adding ``EOII'' as an alternative defined term for 
``Early Order Imbalance Indicator'' in Rule 4754(a)(10); (vii) amending 
language related to handling of late Limit on Close (``LOC'') Orders 
\4\ in Rule 4754(b)(6); and (viii) modifying the priority for orders 
participating in the LULD Closing Cross in Rule 4754(b)(6).
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    \4\ 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 or the LULD Closing Cross, and only if the price determined by 
the Nasdaq Closing Cross or the LULD Closing Cross is equal to or 
better than the price at which the LOC Order was entered. See Rule 
4702(b)(12).
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Background
    The Exchange currently offers price protection mechanisms in most 
of the auctions it conducts during the normal course of trading 
(including opening/closing auction, market-wide circuit breaker 
(``MWCB'') halts,\5\ and LULD pauses \6\). In February 2023, there was 
an instance where a stock was halted for pending news and reopened at a 
price that was significantly away from its current market value due to 
an erroneous market order. Given such event, the Exchange believes that 
additional price protections specific to the halt cross process are 
needed. Implementing these new protections would help to ensure that 
securities reopen within a reasonable price range after the Exchange 
halts a security.
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    \5\ A market-wide circuit breaker is triggered if the price of 
the S&P 500 Index declines by a specified amount compared to the 
closing price for the immediately preceding trading day. See Rule 
4121.
    \6\ A LULD pause is a trading pause pursuant to the Plan to 
Address Extraordinary Market Volatility or ``LULD Plan''. See 
https://www.luldplan.com/.
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    The Exchange proposes to implement a new price protection mechanism 
to the Nasdaq Halt Cross \7\ process. In 2017, the Exchange amended its 
auction process for reopening a Nasdaq listed security following a 
trading pause initiated pursuant to the LULD Plan.\8\ Specifically, the 
Exchange modified its Rules such that initial Auction Collars following 
a trading pause are calculated based on the Price Band that triggered 
the trading pause, and instituted the process for extending the auction 
and further widening the collars if necessary to accommodate buy or 
sell pressure outside of the collars then in effect.\9\ In 2020, the 
Exchange amended its auction process for reopening a Nasdaq listed 
security following a MWCB halt to follow a process similar to the 
process applied for releasing a security following a trading pause 
under the LULD Plan.\10\ The Exchange believes that these changes have 
been effective in facilitating a fair and orderly market following 
trading pauses initiated pursuant to the LULD Plan and following MWCB 
halts, and proposes to implement similar functionality for certain 
trading halts.\11\ The Exchange believes that the proposed changes 
would promote price formation and provide a more consistent reopening 
process for members and investors following such trading halts.
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    \7\ 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 Rule 4753(a)(4). ``Eligible Interest'' shall mean any 
quotation or any order that has been entered into the system and 
designated with a time-in-force that would allow the order to be in 
force at the time of the Halt Cross. See Nasdaq Rule 4753(a)(5).
    \8\ See Securities Exchange Act Release No. 79876 (January 25, 
2017), 82 FR 8888 (January 31, 2017) (SR-NASDAQ-2016-131).
    \9\ Id.
    \10\ See Securities Exchange Act Release No. 88383 (March 13, 
2020), 85 FR 15819 (March 19, 2020) (SR-NASDAQ-2020-012).
    \11\ See infra note 13. The Exchange also notes that both NYSE 
Arca, Inc. and Cboe BZX Exchange, Inc. implemented similar processes 
for resuming trading following non-LULD regulatory halts. See 
Securities Exchange Act Release Nos. 79846 (January 19, 2017), 82 FR 
8548 (January 26, 2017) (SR-NYSEArca-2016-130); and 84927 (December 
21, 2018), 83 FR 67768 (December 31, 2018) (SRCboeBZX-2018-090).
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    The new price protection mechanism would be similar to what is 
currently utilized for reopening stocks following a MWCB halt or LULD 
trading pause, where pre-determined price collars would be built into 
the halt cross process. As described in more detail below, the Exchange 
proposes to establish a threshold of 10% below and above a reference 
price, within which the price of the stock must fall to reopen. If the 
price falls outside of those collars after an initial 5-minute display-
only period, the collars would be widened by the same threshold amount 
as the initial collars and a subsequent 5-minute display-only period 
would commence. If the price falls outside of those collars after the 
second 5-minute display-only period, the collars would be widened by 
20% below and above the reference price and a third 5-minute period 
would commence. This process would continue (at 20%) until the price 
falls within the set thresholds, after which the auction would execute 
and the stock would reopen for trading.
    Customers would benefit from having the new price collar 
protections in place as it would ensure that executions received during 
the halt cross process are filled at prices that reflect the true 
market for the security. Allowing additional time for improved price 
discovery could increase market participation, improving liquidity and 
helping reduce price volatility.\12\
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    \12\ During 2023, there were 541 halts that would have been 
subject to the proposed rule if it was in effect at the time. Of 
those 540 halts, 296 of the securities would have fallen outside of 
a 10% collar after the first quoting period. Example A on page 8 
illustrates the proposed price protections.
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Proposed Changes to Rule 4120 (Limit Up-Limit Down Plan and Trading 
Halts)
    As noted above, the Exchange proposes to introduce price 
protections to the halt cross process that are similar to the 
protections used today for reopening stocks following a LULD pause and 
MWCB halt and would ensure that the reopening price is reasonably 
related to current market conditions. The Exchange proposes to remove 
the current procedure for terminating certain trading halts provided in 
Rule 4120(c)(7) and replace

[[Page 91855]]

with proposed rule language describing the new procedure in proposed 
Rule 4120(c)(7). The Exchange believes that the imposition of price 
collars and a mechanism similar to what it currently utilized for 
reopening a security following a LULD trading pause or a MWCB halt 
would provide the Exchange with a price protection mechanism that is 
lacking under the Exchange's current Rules. The current reopening 
process does not have a mechanism for calculating price collars and a 
process for widening the collars if necessary to accommodate buy or 
sell pressure outside of the collars then in effect. The Exchange 
believes that its proposal would facilitate a fair and orderly market 
by reducing the potential for significant price disparity in post-
auction trading.
    Example A: The below is illustrative of the proposed price 
protections to the halt cross process:
     1:30p.m.: assume symbol ABC enters a regulatory halt; the 
last sale/reference price is $100.00; and auction collars are 
calculated at $90.00/$110.00;
     1:35p.m.: the calculated auction reference price is 
$114.00; the display only period is extended to 1:40pm; and the new 
auction collars are $80.00/$120.00;
     1:40p.m.: the calculated auction reference price is 
$122.00; the display only period is extended to 1:45pm; and the new 
auction collars are $60.00/$140.00;
     1:45p.m.: the calculated auction reference price is 
$132.00; at 1:45:01pm, there is no longer an order imbalance so the 
halt cross commences and the security is released for trading.
    The introductory language in proposed Rule 4120(c)(7) provides 
that, a trading halt initiated under Rule 4120(a)(1), (4), (5), (6), 
(9), (10), (11) or (14) \13\ shall be terminated when Nasdaq releases 
the security for trading. It would also provide that, for any such 
security listed on Nasdaq, prior to terminating the halt, there would 
be a 5-minute ``Initial Display Only Period'' during which market 
participants may enter quotations and orders in that security in Nasdaq 
systems. This is consistent with the process employed for reopening 
securities following LULD trading pauses.\14\ This is also consistent 
with the process employed for reopening securities following MWCB 
halts, except that in the case of a MWCB halt, the Initial Display Only 
Period is 15 minutes in length (as opposed to 5) to coincide with the 
entire duration of the MWCB halt.\15\ In addition, such introductory 
language is consistent with current rule language, with minor 
revisions. The minor revisions include referencing a ``halt'' rather 
than both a ``halt or pause'' for clarification and adding a specific 
defined term of ``Initial Display Only Period'' for the 5-minute period 
referenced. The types of halts covered by Rule 4120(c)(7) (i.e., 
trading halt initiated under Rule 4120(a)(1), (4), (5), (6), (9), (10), 
(11) or (14)) remain unchanged.
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    \13\ This covers trading halts related to dissemination of 
material news for Nasdaq-listed securities (see Rule 4120(a)(1)); 
halts of Nasdaq-listed American Depository Receipts or other Nasdaq-
listed securities where underlying securities are halted by foreign 
markets or regulators for regulatory reasons (see Rule 4120(a)(4)); 
halts related to Exchange requests from issuers relating to material 
news, the issuer's ability to meet listing qualification 
requirements, or other information necessary to protect investors 
and the public interest (see Rule 4120(a)(5)); halts related to 
extraordinary market activity (see Rule 4120(a)(6)); halts in 
certain products where the Intraday Indicative Value or index value 
is not disseminated as required (see Rule 4120(a)(9)); halts in 
certain products where the net asset value is not being disseminated 
to all market participants at the same time (see Rule 4120(a)(10)); 
halts related to large price moves for Nasdaq-listed securities not 
covered by the LULD Plan (see Rule 4120(a)(11)), and halts related 
to reverse stock splits (see Rule 4120(a)(14)). In 2023, 98% of 
these aforementioned halts were news-related halts. The Exchange 
focuses on these specific trading halts because these halts 
currently not do have any price protection mechanism in place for 
the reopening of securities following a halt.
    \14\ See Rule 4120(c)(10).
    \15\ See Rule 4121(d).
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    Proposed Rule 4120(c)(7)(A) describes the Exchange's proposed 
process for establishing the ``Auction Reference Price''. The Auction 
Reference Price would mean: (a) the Nasdaq last sale price (either 
round or odd lot); and (b) if there is no Nasdaq last sale price, the 
prior trading day's Nasdaq Official Closing Price (``NOCP'').\16\ The 
Exchange proposes to use the Nasdaq last sale price \17\ (or if none, 
the NOCP) as this price is reflective of the current market for the 
halted security. The Exchange proposes to use Nasdaq specific prices 
rather than market-wide prices, consistent with MWCB, because of the 
accessibility and controllability of the Exchange data. In rare 
instances where there is no Nasdaq last sale price or NOCP, Nasdaq's 
MarketWatch Department (``MarketWatch'') would have discretion to set 
the Auction Reference Price.\18\ The Exchange proposes to set the 
Auction Reference Price in a manner similar to that which is utilized 
for MWCB halts, in which the Auction Reference Price is the Nasdaq last 
sale price or if none, the NOCP.\19\ However, the Exchange believes it 
is important to have a mechanism by which it may set a reference price 
in rare situations where there is no Nasdaq last sale price or NOCP. 
Similar to MWCB, the Exchange is not proposing to use the LULD Auction 
Reference Price, which is based on the Price Band that triggered the 
trading pause,\20\ as the Exchange believes that a different reference 
is necessary for a reopening process that is unrelated to the LULD 
mechanism. LULD and halt crosses use distinctly different reference 
prices in the auction pricing methodology. The reference price in a 
LULD auction in all cases will be either the pre-calculated upper or 
lower LULD band value that was last disseminated. In contrast, the 
reference price of a regulatory halt will use the prevailing last price 
or designated price in the event there is no last price. The last 
prevailing price is more representative of the current value of a 
security, and as such, a better reference price to use for the halt 
reopening auction methodology.\21\
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    \16\ If there is no Nasdaq last sale price, the prior trading 
day's NOCP is preferable for establishing the Auction Reference 
Price. The NOCP, as opposed to the last sale price on another 
exchange, serves as the next best reference price as it is derived 
from the primary market center for the Nasdaq-listed securities.
    \17\ The Nasdaq last sale price reflects the last sale price of 
that trading session.
    \18\ Although the proposal would allow for some discretion to 
MarketWatch, the Exchange notes that such discretion is limited to 
setting the Auction Reference Price in these rare instances, which 
does not determine the ultimate price at which the security will 
trade. In exercising such limited discretion in these rare 
instances, MarketWatch would source the best estimation for the 
Auction Reference Price from an external vendor.
    \19\ See Rule 4121(d)(1)(A).
    \20\ See Rule 4120(c)(10)(A)(i).
    \21\ Further, LULD bands are published only during regular 
trading hours 9:30a.m.-4:00p.m. which prevents it from being 
considered as a refence price as halt auctions can occur at all 
eligible trading hours 4:00a.m.-8:00p.m.
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    Proposed Rule 4120(c)(7)(A) also describes the Exchange's proposed 
process for determining the upper and lower ``Auction Collar'' prices. 
For securities with an Auction Reference Price of greater than $1, the 
lower Auction Collar price (which is rounded to the nearest minimum 
price increment \22\) is derived by subtracting $1 or 10% of the 
Auction Reference Price, whichever is greater, from the Auction 
Reference Price. For securities with an Auction Reference Price of $1 
or less, the lower Auction Collar price (which is rounded to the 
nearest minimum price increment) is derived by subtracting $0.50 or 10% 
of the Auction Reference Price, whichever is greater, from the Auction 
Reference Price. For securities with an Auction Reference

[[Page 91856]]

Price of greater than $1, the upper Auction Collar price (which is 
rounded to the nearest minimum price increment) is derived by adding $1 
or 10% of the Auction Reference Price, whichever is greater, to the 
Auction Reference Price. For securities with an Auction Reference Price 
of $1 or less, the upper Auction Collar price (which is rounded to the 
nearest minimum price increment) is derived by adding $0.50 or 10% of 
the Auction Reference Price, whichever is greater, to the Auction 
Reference Price. The proposed process for calculating the upper and 
lower Auction Collars is similar to the process used to calculate MWCB 
Auction Collars, where initial thresholds are applied on both sides of 
the Auction Reference Price.\23\ In contrast, the initial price collar 
thresholds used for the LULD mechanism are determined by the direction 
of the trading that invoked the trading pause and the price of the LULD 
Band in place at the time the trading pause was triggered.\24\ In this 
case, because there would not be a security-specific pricing direction 
reason for the halt, the Exchange believes that it is appropriate to 
apply the initial thresholds on both sides of the Auction Reference 
Price, as is currently done in the case of a MWCB halt. While the 
specific price collar thresholds used for the LULD and MWCB mechanisms 
are 5% of the Auction Reference Price, the proposed rule change would 
provide price collar thresholds of 10% (and 20% in the event a security 
enters a third period, as described below) of the Auction Reference 
Price. These price collar thresholds are appropriate as they balance 
the need for price protections with the desire to promote efficient 
price discovery and minimize the length of the interruption from a 
trading halt. The Exchange believes it is appropriate to set the price 
collar thresholds at a higher percentage as compared to the price 
collar thresholds used for the LULD and MWCB mechanisms because halts 
under the proposal are more likely to have a significant price impact, 
warranting wider collars to allow for price discovery to happen 
quicker.\25\ While the LULD and MWCB mechanisms provide a price collar 
threshold of $0.15 for securities with an Auction Reference Price of $3 
or less,\26\ the Exchange proposes to include minimum threshold amounts 
for calculating the price collars (i.e., $0.50 for securities with an 
Auction Reference Price of $1 or less and $1 for securities with an 
Auction Reference Price of greater than $1) to ensure that the Auction 
Collars for lower-priced securities are wide enough to allow for 
reopening and effective price discovery. This approach is reasonable 
because lower priced stocks can have significant price movement which 
warrants a greater minimum threshold in order to allow for efficient 
price discovery and a more timely reopening.
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    \22\ The term ``minimum price increment'' means $0.01 in the 
case of a System Security priced at $1 or more per share, and 
$0.0001 in the case of a System Security priced at less than $1 per 
share. See Equity 1, Section 1(a)(13).
    \23\ See Rule 4121(d)(1)(B).
    \24\ See Rule 4120(c)(10)(A)(ii). In the LULD context, the 
initial price collar thresholds are asymmetrically updated because 
direction of the order imbalance (buyer/seller imbalances) are known 
at the time of the pause. In the halt cross context, the direction 
of the order imbalance (buyer/seller imbalances) is not known at the 
time of the halt. Accordingly, the initial price collar thresholds 
need to be applied symmetrically before arriving at the price at 
which the security will trade.
    \25\ For example, a news driven halt related to a drug 
announcement may warrant a significant price movement in a short 
period of time and a wider collar would allow the stock to reopen in 
a reasonable period.
    \26\ See Rule 4120(c)(10)(A)(ii); Rule 4121(d)(1)(B).
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    Proposed Rule 4120(c)(7)(B) describes what would happen at the end 
of the Initial Display Only Period, the circumstances when the Exchange 
would extend the Display Only Period, and how the Exchange would adjust 
the Auction Collars for an extension. At the conclusion of the Initial 
Display Only Period, the security would be released for trading unless, 
at the end of an Initial Display Only Period, Nasdaq detects an order 
imbalance \27\ in the security. In that case, Nasdaq would extend the 
Display Only Period for an additional 5-minute period (``Extended 
Display Only Period''), and the Auction Collar prices would be adjusted 
as follows: The new lower Auction Collar price is derived by 
subtracting $1 or 10% of the initial Auction Reference Price, whichever 
is greater, from the previous lower Auction Collar price for securities 
with an Auction Reference Price of greater than $1 or $0.50 or 10% of 
the initial Auction Reference Price, whichever is greater, from the 
previous lower Auction Collar price for securities with an Auction 
Reference price of $1 or less. The new upper Auction Collar price is 
derived by adding $1 or 10% of the initial Auction Reference Price, 
whichever is greater, to the previous upper Auction Collar price for 
securities with an Auction Reference Price of greater than $1 or $0.50 
or 10% of the initial Auction Reference Price, whichever is greater, to 
the previous upper Auction Collar price for securities with an Auction 
Reference price of $1 or less. The proposed process for initiating 
extensions is similar to the process currently used for extending 
trading pauses or halts under LULD \28\ and MWCB,\29\ with a couple 
differences. First, the proposed minimum thresholds and percentages 
used to calculate the Auction Collars during the Extended Display Only 
Period are consistent with that of the Initial Display Only Period and 
continue to differ from the LULD and MWCB mechanisms in that regard, as 
discussed above. Second, the proposed process for calculating the upper 
and lower Auction Collars during the Extended Display Only Period is 
similar to the process used to calculate Auction Collars during the 
Initial Display Only Period, where thresholds are applied on both sides 
of the Auction Reference Price. In contrast, the price collar 
thresholds used for the LULD and MWCB mechanisms are applied only in 
the direction that caused extension of the Display Only Period.\30\ In 
this case, the Exchange believes that it is appropriate to continue to 
apply the thresholds on both sides of the Auction Reference Price to 
accommodate price swings in either direction and to increase the 
likelihood of resolving order imbalances.
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    \27\ The definition of an order imbalance is described below and 
included in proposed Rule 4120(c)(7)(E).
    \28\ See Rule 4120(c)(10)(B).
    \29\ See Rule 4121(d)(2).
    \30\ See Rule 4120(c)(10)(B); Rule 4121(d)(2).
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    Proposed Rule 4120(c)(7)(C) explains what would happen at the end 
of the Extended Display Only Period. At the conclusion of the Extended 
Display Only Period, the security would be released for trading unless, 
at the end of the Extended Display Only Period, Nasdaq detects an order 
imbalance in the security. In that case, Nasdaq would further extend 
the Display Only Period for an additional 5-minute period (``Third 
Period''), and the Auction Collar prices would be adjusted as follows: 
The new lower Auction Collar price is derived by subtracting $1 or 20% 
of the initial Auction Reference Price, whichever is greater, from the 
previous lower Auction Collar price for securities with an Auction 
Reference Price of greater than $1 or $0.50 or 20% of the initial 
Auction Reference Price, whichever is greater, from the previous lower 
Auction Collar price for securities with an Auction Reference price of 
$1 or less. The new upper Auction Collar price is derived by adding $1 
or 20% of the initial Auction Reference Price, whichever is greater, to 
the previous upper Auction Collar price for securities with an Auction 
Reference Price of greater than $1 or $0.50 or 20% of the initial 
Auction Reference Price, whichever is greater, to the previous upper 
Auction Collar price for securities with an Auction Reference price of 
$1 or less. Nasdaq would release the

[[Page 91857]]

security for trading at the first point \31\ there is no order 
imbalance.\32\ The Exchange believes it is appropriate to widen the 
collars by 20% instead of 10% to the extent a security has not reopened 
after the Extended Display Only Period because the order imbalance may 
be indicative that a significant price movement in the security is 
warranted based on the news announcement (or otherwise). If the 
security has not been released for trading by the conclusion of the 
Third Period, Nasdaq will continue to adjust the Auction Collar prices 
every five minutes in the manner described in this Rule 4120(c)(7)(C) 
until the security is released for trading. Other than the change in 
the percentage by which the Exchange will widen the collars, the 
process in proposed Rule 4120(c)(7)(C) is consistent with that of the 
LULD and MWCB mechanisms.\33\
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    \31\ The ``first point'' there is no order imbalance would occur 
after the next NOII message dissemination.
    \32\ Unlike the Initial Display Only Period and the Extended 
Display Only Period, the security could be released for trading 
prior to the end of the Third Period. For example, assume ABC 
security enters a regulatory halt at 1:30 p.m. The last sale/
reference price is $100. The auction collars are $90 and $110. At 
1:35 p.m., the calculated price at which the security would be 
released for trading is $122. The display only period is extended 
until 1:40. The new auction collars are $80 and $120. At 1:40 p.m., 
the calculated price at which the security would be release for 
trading is still $122. The Third Period commences at 1:40 p.m. The 
new auction collars are $60 and $140. At 1:40:01 p.m., the system 
detects that there is no longer an Order Imbalance so the Halt Cross 
commences and the security is released for trading.
    \33\ See Rule 4120(c)(10)(C); Rule 4121(d)(3).
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    Proposed Rule 4120(c)(7)(D) explains that, notwithstanding Rule 
4120(c)(7)(A)-(C), a trading halt that exists at or after 3:50 p.m.\34\ 
in a stock shall reopen via a Hybrid Closing Cross pursuant to Rule 
4754(b)(7). As described in more detail below, the Hybrid Closing Cross 
would provide an alternative process for executing closing trades on 
the Exchange. Proposed Rule 4120(c)(7)(D) is consistent with the LULD 
mechanism, where a stock reopens via a LULD Closing Cross where a 
trading pause exists at or after 3:50 p.m.\35\
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    \34\ All times referenced in this filing are Eastern Time.
    \35\ See Rule 4120(c)(10)(D).
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    Proposed Rule 4120(c)(7)(E) explains when an order imbalance 
exists. Specifically, it provides that, for purposes of Rule 
4120(c)(7), upon completion of the cross calculation an order imbalance 
shall be established as follows: the calculated price at which the 
security would be released for trading is above (below) the upper 
(lower) Auction Collar price; or (ii) all market orders would not be 
executed in the cross. This is the same manner in which an order 
imbalance is established under the current reopening process for 
trading pauses and MWCB halts.\36\
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    \36\ See Rule 4120(c)(10)(E); Rule 4121(d)(4).
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    Proposed Rule 4120(c)(7)(F) provides that, if the Exchange is 
unable to reopen trading due to a systems or technology issue, it shall 
notify the securities information processor immediately. This is 
consistent with the Exchange's notification process for LULD.\37\
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    \37\ See Rule 4120(a)(12)(G).
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    In sum, the proposed changes to Rule 4120(c)(7) would establish a 
price protection mechanism for the halt cross process for securities 
halted under the provisions noted above.\38\ The proposed price 
protection mechanism is similar to what is currently utilized for 
reopening stocks following a LULD trading pause or MWCB halt. Price 
collars would be built into the halt cross process and if the price 
falls outside of those collars after an initial 5-minute display only 
period, the collars would be widened by the same threshold amount as 
the initial collars and a subsequent 5-minute display only period would 
commence. If the price falls outside of those collars after the second 
5-minute display only period, the collars would be widened by a wider 
amount and a subsequent, third period would commence. This process 
would continue until the price falls within the set thresholds, after 
which the auction would execute and the stock would reopen for trading. 
Customers would benefit from having the new price collar protections in 
place as it would ensure that executions received during the halt cross 
process are filled at prices that reflect the true market for the 
security. Allowing additional time for improved price discovery could 
increase market participation, improving liquidity and helping reduce 
price volatility.
---------------------------------------------------------------------------

    \38\ Supra note 13.
---------------------------------------------------------------------------

Proposed Changes to Rule 4702 (Order Types)
    The Exchange proposes to amend Rule 4702 by deleting references to 
the LULD Closing Cross from Rule 4702(b)(12) (Limit on Close (LOC) 
Orders) and Rule 4702(b)(17) (Extended Trading Close (ETC) Orders). The 
Exchange believes that the LULD Closing Cross \39\ as well as the 
proposed Hybrid Closing Cross \40\ should be included in the definition 
of the Nasdaq Closing Cross because the LULD Closing Cross and the 
Hybrid Closing Cross are alternative processes for executing closing 
trades on the Exchange and therefore do not need to be specifically 
referenced in the Rules where the Nasdaq Closing Cross is already 
referenced, thereby simplifying the rule language. For clarification, 
the Exchange also proposes to specify that the Nasdaq Closing Cross 
includes the LULD Closing Cross and Hybrid Closing Cross in the 
definition of the Nasdaq Closing Cross in Rule 4754(a)(6), as described 
below.
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    \39\ 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. See Rule 4754(b)(6).
    \40\ As described below, the Exchange proposes to establish the 
Hybrid Closing Cross in Rule 4754(b)(7). The Hybrid Closing Cross 
would be the Exchange's auction process for executing closing trades 
in Nasdaq-listed securities when a trading halt pursuant to Rules 
4120(a)(1), (4), (5), (6), (9), (10), (11), or (14) exists at or 
after 3:50 p.m. and before 4:00 p.m.
---------------------------------------------------------------------------

Proposed Changes to Rule 4753 (Nasdaq Halt Cross)
    First, the Exchange proposes to clarify that Auction Reference 
Prices and Auction Collars are not included in the Order Imbalance 
Indicator, but instead are disseminated in a separate message. For 
purposes of LULD and MWCB, the Rules incorrectly state that the Auction 
Reference Prices and Auction Collars are included in the Order 
Imbalance Indicator and the Exchange proposes to correct such 
inaccuracies by modifying Section (F) and (G) in Rule 4753(a)(3) 
accordingly.
    The Exchange also proposes to add section (H) in Rule 4753(a)(3). 
This section (H) would provide that, for purposes of a trading halt 
initiated under Rule 4120(a)(1), (4), (5), (6), (9), (10), (11) or 
(14), the Exchange will disseminate a separate message with Auction 
Reference Prices and Auction Collars, as defined in Rule 
4120(c)(7)(A).\41\ This is consistent with dissemination of Auction 
Reference Prices and Auction Collars for purposes of LULD pauses and 
MWCB halts.
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    \41\ Dissemination will take place on Nasdaq's proprietary feed, 
Nasdaq TotalView-ITCH. As is the case with MWCB halts and to be 
consistent with current Exchange processes, the Exchange will not 
send auction information to the SIP, including price collars and the 
number of extensions. While auction information for LULD pauses is 
disseminated to the SIP per plan requirements, the Exchange does not 
disseminate auction information to the SIP for other halts.
---------------------------------------------------------------------------

    Rule 4753(e) currently states that any IOC Order for a halted 
security that is entered prior to the Nasdaq Closing Cross and for 
which the halt remains in effect at the commencement of the Nasdaq 
Closing Cross, shall be cancelled immediately after the Nasdaq Closing 
Cross. With the introduction of the Hybrid Closing Cross, as described 
further below, if the quoting period has

[[Page 91858]]

commenced at any time prior to 4 p.m. IOC orders for halted securities 
would execute in the Hybrid Closing Cross. Similarly, IOC orders could 
also execute in the LULD Closing Cross. Therefore, the Exchange 
proposes to clarify, in Rule 4753(e), that any IOC Order for a halted 
security that is entered prior to the Nasdaq Closing Cross and for 
which the halt remains in effect at the commencement of the Nasdaq 
Closing Cross, shall either execute in the Nasdaq Closing Cross or be 
cancelled immediately after the Nasdaq Closing Cross.
Proposed Changes to Rule 4754 (Nasdaq Closing Cross)
    First, the Exchange proposes to amend the definition of ``Nasdaq 
Closing Cross'' in Rule 4754(a)(6). As noted above, the Exchange 
believes that the LULD Closing Cross and Hybrid Closing Cross should be 
included in the definition of Nasdaq Closing Cross because they are 
types of closing crosses. The Exchange therefore proposes to clarify 
that the Nasdaq Closing Cross shall include the LULD Closing Cross and 
the Hybrid Closing Cross in Rule 4754(a)(6). Such change would allow 
the Exchange to simplify its rule language and prevent the Exchange 
from needing to list the LULD Closing Cross and Hybrid Closing Cross 
where the Nasdaq Closing Cross is referenced in the Rules.
    Second, the Exchange proposes to add ``NOII'' as an alternative 
defined term for ``Order Imbalance Indicator'' in Rule 4754(a)(7). NOII 
is currently referenced in the Rules and the Exchange proposes to add 
references to NOII in the proposed rule change; however, NOII is not 
currently defined in the Rules. The Exchange is not proposing to make 
any substantive changes to the meaning of NOII or Order Imbalance 
Indicator. Rather, the Exchange wishes to provide clarity regarding the 
definition of NOII.
    Third, the Exchange proposes to add ``EOII'' as an alternative 
defined term for ``Early Order Imbalance Indicator'' in Rule 
4754(a)(10). EOII is currently referenced in the Rules and the Exchange 
proposes to add references to EOII in the proposed rule change; 
however, EOII is not currently defined in the Rules. The Exchange is 
not proposing to make any substantive changes to the meaning of EOII or 
Early Order Imbalance Indicator. Rather, the Exchange wishes to provide 
clarity regarding the definition of EOII.
    Fourth, the Exchange proposes to make two changes to Rule 
4754(b)(6), which relates to the LULD Closing Cross Following Limit-Up-
Limit-Down Trading Pause. In part, Rule 4754(b)(6)(F)(ii) sets forth 
Rules as to how the Exchange would handle LOC Orders entered between 
3:55 p.m. and immediately prior to 3:58 p.m. The Exchange wishes to 
make a clarifying change to specify that the relevant timeframe is 
after the NOII immediately following 3:55 p.m. and immediately prior to 
3:58 p.m. In other words, instead of stating ``between 3:55 p.m. ET and 
immediately prior to 3:58 p.m. ET,'' the Exchange proposes to state, 
``after the NOII immediately following 3:55 p.m. ET and immediately 
prior to 3:58 p.m. ET'' to ensure the Rule is precise. In addition, the 
Exchange wishes to modify in Rule 4754(b)(6)(G) that orders 
participating in the LULD Closing Cross shall be executed in price/
display/time priority rather than just price/time priority as the 
current rule language states. This modification would be consistent 
with how the Exchange generally assigns priority with the execution of 
Displayed Orders and interest before Non-Displayed Orders. 
Specifically, Rule 4754(b)(3)(B) prescribes that, in the Closing Cross, 
the Exchange prioritizes as a group the execution of Displayed Orders 
and interest, with price as the primary priority, and then within each 
price level, with time as the secondary priority.\42\ Accordingly, the 
Exchange proposes to update the rule to reflect this current behavior, 
whereby displayed orders are executed ahead of hidden orders. Such 
change would provide more specificity in the Rule for accuracy.
---------------------------------------------------------------------------

    \42\ See Rule 4754(b)(3)(B); see also Securities Exchange Act 
Release No. 34-97973 (July 25, 2023), 88 FR 49522 (July 31, 2023) 
(Notice of Filing and Immediate Effectiveness of File No. SR-NASDAQ-
2023-024 to Amend Equity 4, Rules 4752, 4753, and 4754).
---------------------------------------------------------------------------

    Lastly, in proposed Rule 4754(b)(7), the Exchange proposes to adopt 
a modified closing cross (defined as the ``Hybrid Closing Cross'') that 
the Exchange would conduct for Nasdaq-listed securities when a trading 
halt pursuant to Rule 4120(a)(1), (4), (5), (6), (9), (10), (11) or 
(14) exists at or after 3:50 p.m. and before 4:00 p.m.\43\ Today, the 
Exchange has not needed to handle a halt reopening auction at or after 
3:50 p.m. and before 4:00 p.m. due to the current policy of MarketWatch 
not scheduling any reopening of a security past 3:30 p.m. The Exchange 
in practice does not want to negatively impact the price discovery 
process because of the possibility of a conflict between a halt cross 
reopening and the official closing cross in the closing minutes of the 
trading day. Under the Exchange's halt cross protection proposal, 
however, and its advent of collars and extensions, it is possible for a 
stock to be scheduled for reopening well ahead of the 4:00 p.m. close 
and have its quoting period extended multiple times past 3:50 p.m. due 
to its reference price falling outside of the established collars. As 
such, our proposed Hybrid Closing Cross process eliminates the 
possibility of a conflicting cross and allows the Exchange to ensure 
that it can establish an efficient price discovery process for the 
closing price upon the market close at 4:00 p.m. The Hybrid Closing 
Cross provides an alternative process for executing closing trades on 
Nasdaq for when certain trading halts \44\ exist at or after 3:50 p.m. 
and before 4:00 p.m. (if the Display Only Period has begun for a halted 
security). The Exchange believes that the price protections for the 
LULD Closing Cross have 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 price protections for its Hybrid Closing Cross.
---------------------------------------------------------------------------

    \43\ In contrast, today, such halts would typically not be 
scheduled to resume trading during such period, avoiding 
interference with the closing cross.
    \44\ See supra note 13.
---------------------------------------------------------------------------

    Under the proposal, a halted security would only be eligible to 
resume trading via the Hybrid Closing Cross after the Display Only 
Period begins.\45\ The Exchange proposes to define ``Auction Reference 
Price'', ``Eligible Interest'', and ``Imbalance'' in Rule 4754(b)(7)(A) 
for purposes of Rule 4754(b)(7). ``Auction Reference Price'' would have 
the same meaning as defined in Rule 4120(c)(7)(A), discussed above. 
``Eligible Interest'' would have the same meaning as ``Close Eligible 
Interest'' in Rule 4754(a),\46\ with the addition of any new orders 
with an eligible underlying Order Type and Attribute, entered during 
the trading halt. ``Imbalance'' would mean the number of shares of buy 
or sell Market on Close (``MOC''),\47\ LOC Orders, or Eligible Interest 
that cannot

[[Page 91859]]

be matched with other MOC, LOC, or Imbalance Only (``IO'') Order shares 
or Eligible Interest at a particular price at any given time. These 
proposed definitions are consistent with the definitions of Eligible 
Interest and Imbalance used for purposes of the LULD Closing Cross.\48\
---------------------------------------------------------------------------

    \45\ A halted stock that has not entered the Display Only Period 
at or after 3:50 and before 4:00 p.m. would not participate in the 
Hybrid Closing Cross and would remain halted.
    \46\ ``Close Eligible Interest'' means 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. The System 
will delay processing any full cancellation request for Close 
Eligible Interest made during the Nasdaq Closing Cross until such 
time as the Nasdaq Closing Cross concludes, except for securities in 
a halt or pause. During a halt or pause, the System will process any 
full or partial cancellation request for Close Eligible Interest 
made for such halted or paused security during the Nasdaq Closing 
Cross. See Rule 4754(a)(1).
    \47\ 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).
    \48\ See Rule 4754(b)(6)(A).
---------------------------------------------------------------------------

    In proposed Rule 4754(b)(7)(B), the Exchange proposes to specify 
the timing of the Hybrid Closing Cross and After Hours Trading, as well 
as what happens if there is insufficient trading in the System to 
execute a Hybrid Closing Cross. For trading halts existing at or after 
3:50 and before 4:00 p.m., the Hybrid Closing Cross would occur at 4:00 
p.m. After Hours Trading would commence after the Hybrid Closing Cross 
executes. If there is insufficient trading interest in the Nasdaq 
system to execute a Hybrid Closing Cross, 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. After Hours Trading 
would commence after Nasdaq publishes the NOCP. Such procedures are 
consistent with that of the LULD Closing Cross.\49\
---------------------------------------------------------------------------

    \49\ See Rule 4754(b)(6)(B).
---------------------------------------------------------------------------

    Proposed Rule 4754(b)(7)(C) provides information about 
dissemination of the EOII \50\ and NOII \51\ and about the price at 
which the Hybrid Closing Cross would execute. Specifically, Nasdaq 
proposes to continue disseminating the EOII and the NOII pursuant to 
Rule 4754(b)(1) until After Hours Trading begins. The Near Clearing 
Price \52\ and Reference Prices contained in the EOII and the NOII, as 
applicable, would represent the price at which the Hybrid Closing Cross 
would execute should the cross conclude at that time, bounded by the 
Threshold Prices (defined below), and the Far Clearing Price \53\ would 
represent the price at which the Hybrid Closing Cross would execute 
should the cross conclude at that time, if it were not bounded by the 
Threshold Prices (defined below). Such procedures are similar to that 
of the LULD Closing Cross.\54\
---------------------------------------------------------------------------

    \50\ See Rule 4754(a)(10).
    \51\ See Rule 4754(a)(7).
    \52\ See Rule 4754(a)(7)(E)(ii).
    \53\ See Rule 4754(a)(7)(E)(i).
    \54\ See Rule 4754(b)(6)(C).
---------------------------------------------------------------------------

    Proposed Rule 4754(b)(7)(D) would specify that the Hybrid Closing 
Cross would occur at the price within the threshold prices established 
pursuant to Rule 4754(b)(7)(E) (``Threshold Prices'') that maximizes 
the number of shares of Eligible Interest, MOC, LOC, and IO \55\ Orders 
in the Nasdaq Market Center to be executed. If more than one price 
exists, the Hybrid Closing Cross would occur at the price within the 
Threshold Prices that minimizes any Imbalance. If more than one price 
still exists, the Hybrid Closing Cross would occur at the entered price 
\56\ within the Threshold Prices at which shares will remain unexecuted 
in the cross. If there is no price within the Threshold Prices that 
satisfies the above conditions, then the Hybrid Closing Cross would 
occur at: (a) if an Imbalance exists, a price equal to the upper 
(lower) Threshold Price for a buy (sell) Imbalance; or (b) if no 
Imbalance exists, a price equal to the Auction Reference Price. The 
proposed tiebreakers in Rule 4754(b)(7)(D) are consistent with the 
tiebreakers used for determining the LULD Closing Cross price with one 
exception.\57\ Specifically, if there is no price within the Threshold 
Prices that satisfies the conditions mentioned above and no Imbalance 
exists, the Hybrid Closing Cross would occur at a price equal to the 
Auction Reference Price \58\ whereas the LULD Closing Cross occurs at a 
price that minimizes the distance from the last published Upper Band 
(Lower Band) for a Limit Up (Limit Down) Trading Pause.\59\ Such 
difference reflects the need for a price that is unrelated to the LULD 
mechanism in the case of the Hybrid Closing Cross given there would not 
be a security-specific pricing direction reason for the halt (or LULD 
Bands).
---------------------------------------------------------------------------

    \55\ 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).
    \56\ The ``entered price'' refers to the price of the cross 
eligible order interest at which shares would remain unexecuted in 
the Hybrid Closing Cross.
    \57\ See Rule 4754(b)(6)(D).
    \58\ See Rule 4754(b)(7)(A)(i).
    \59\ See Rule 4754(b)(6)(D)(iv)(b).
---------------------------------------------------------------------------

    The Exchange proposes to introduce price protections to the Hybrid 
Closing Cross that are similar to the protections used today for the 
LULD Closing Cross and will ensure that the Hybrid Closing Cross price 
is reasonably related to current market conditions. Proposed Rule 
4754(b)(7)(E) would describe the Threshold Prices within which the 
Hybrid Closing Cross price must fall. The upper (lower) Threshold Price 
would be established by adding (subtracting) $1 or a certain percentage 
of the initial Auction Reference Price, whichever is greater, to the 
upper (or from the lower) Auction Collar price that was last 
disseminated pursuant to 4120(c)(7)(A)(ii) for securities with an 
Auction Reference Price of greater than $1. The upper (lower) Threshold 
Price would be established by adding (subtracting) $0.50 or a certain 
percentage of the initial Auction Reference Price, whichever is 
greater, to the upper (or from the lower) Auction Collar price that was 
last disseminated pursuant to 4120(c)(7)(A)(ii) for securities with an 
Auction Reference price of $1 or less. Nasdaq management would set and 
modify the thresholds from time to time upon prior notice to market 
participants. This is similar to the discretion provided to Nasdaq 
management in connection with the opening cross, closing cross, and 
LULD Closing Cross, where Nasdaq management has discretion to set and 
modify thresholds used in determining the Benchmark Prices.\60\ 
Although the proposed price protections are similar in nature to those 
used for the LULD Closing Cross, the process for calculating the 
Benchmark Prices for the LULD Closing Cross is distinct because it 
involves widening the Auction Collar (or Band) on only one side,\61\ 
while the proposed process would widen the Auction Reference Price on 
both sides for the Hybrid Closing Cross. In this case, because there 
would not be a security-specific pricing direction reason for the halt, 
the Exchange believes that it is appropriate to apply the thresholds on 
both sides of the Auction Reference Price.
---------------------------------------------------------------------------

    \60\ See Rule 4752(d)(2)(E)(Opening Cross); Rule 
4754(b)(2)(E)(Closing Cross); Rule 4754(b)(6)(E)(LULD Closing 
Cross).
    \61\ Rule 4754(b)(6)(E)(LULD Closing Cross).
---------------------------------------------------------------------------

    Proposed Rule 4754(b)(7)(F) sets forth the orders that would be 
eligible to participate in the Hybrid Closing Cross, including all 
orders entered into the system and placed on the continuous book prior 
to the trading halt. Such orders may be modified or cancelled up until 
the time of the Hybrid Closing Cross. During the halt and prior to 4:00 
p.m., new orders may be entered, modified, and cancelled and may 
participate in the Hybrid Closing Cross. MOC, LOC and IO Orders may be 
entered, modified, and cancelled pursuant to Rules 4702(b)(11), 
4702(b)(12), and 4702(b)(13).\62\ If the security entered a trading 
halt prior and up to 3:50 p.m., the System would not accept late LOC 
Orders.\63\ For purposes

[[Page 91860]]

of Hybrid Closing Cross price selection, buy (sell) IO orders are re-
priced to one minimum price increment below (above) the initial Auction 
Reference Price. Such rules are consistent with the LULD mechanism,\64\ 
except that the proposed rules do not include certain inapplicable 
language from the LULD Closing Cross processes.\65\
---------------------------------------------------------------------------

    \62\ Though other order types are also applicable, the Exchange 
calls out MOC, LOC and IO Orders to make it clear that, for these 
order types, there may be exceptions to the general rule that 
``During the halt and prior to 4:00 p.m., new orders may be entered, 
modified, and cancelled and may participate in the Hybrid Closing 
Cross.'' As such, the Exchange proposes to make it clear that Rules 
4702(b)(11), 4702(b)(12), and 4702(b)(13) prevail.
    \63\ The System would not accept late LOC orders in this 
scenario because if a security entered a trading halt prior and up 
to 3:50 p.m. ET, there would be no relevant reference prices, upon 
which such orders depend.
    \64\ See Rule 4754(b)(6)(F).
    \65\ Trading halts subject to the Hybrid Closing Cross would not 
be entered between 3:50 and 4 p.m. and therefore certain procedures 
included in the LULD Closing Cross Rules are inapplicable to the 
Hybrid Closing Cross. See, e.g., Rule 4754(b)(6)(F)(ii)(b)-(c).
---------------------------------------------------------------------------

    Proposed Rule 4754(b)(7)(G) provides that orders participating in 
the Hybrid Closing Cross would be executed in price/display/time 
priority order and for purposes of determining priority, eligible IO 
orders would be priced to the closing price and executed in time 
priority with other orders at that price. This clarification would be 
consistent with how the Exchange generally assigns priority with the 
execution of Displayed Orders and interest before Non-Displayed Orders. 
In addition, Proposed Rule 4754(b)(7)(G) provides that any order not 
executed in the Hybrid Closing Cross would be processed according to 
the entering firm's instructions. This is consistent with how orders 
execute in the LULD Closing Cross.\66\
---------------------------------------------------------------------------

    \66\ See Rule 4754(b)(6)(G).
---------------------------------------------------------------------------

    Finally, the Exchange would renumber current Rule 4754(b)(7) as 
Rule 4754(b)(8) and update a related reference in such Rule.
Proposed Changes to Rule 4755 (Extended Trading Close)
    Similar to the revisions made to Rule 4702 (Order Types), the 
Exchange proposes to delete references to the LULD Closing Cross from 
Rule 4755 because the Exchange proposes to include the LULD Closing 
Cross and the Hybrid Closing Cross in the definition of the Nasdaq 
Closing Cross, thereby making the specific references to the LULD 
Closing Cross in Rule 4755 unnecessary.
Implementation
    The Exchange will issue an Equities Trader Alert not less than 7 
days prior to implementing the proposed changes.
    On February 22, 2022, the Exchange submitted a proposal to amend 
its Rules related to halts (``Halts Proposal'') for the purpose of 
implementing UTP Plan amendments and establishing common criteria and 
procedures for halting and resuming trading in equity securities in the 
event of regulatory or operational issues.\67\ The Halts Proposal was 
approved on June 8, 2022.\68\ The Exchange intends to implement the 
Halts Proposal in conjunction with other SROs. Because the Exchange 
continues to await an industry-wide implementation and wishes to 
implement the proposed enhancements to its halt cross process in the 
meantime, the Exchange intends to file a proposed rule change in the 
future in order to incorporate the changes herein with those changes in 
the Halts Proposal. As such, the proposed rule changes described herein 
reflect changes to the Exchange's currently operative rule language.
---------------------------------------------------------------------------

    \67\ See Securities Exchange Act Release No. 94370 (March 7, 
2022), 87 FR 14071 (March 11, 2022). Nasdaq filed an amendment to 
the proposal on April 29, 2022. See Securities Exchange Act Release 
No. 94838 (May 3, 2022), 87 FR 27683 (May 9, 2022).
    \68\ See Securities Exchange Act Release No. 95069 (June 8, 
2022), 87 FR 36018 (June 14, 2022).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\69\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\70\ 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.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f(b).
    \70\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with the Act because it would amend the halt auction process following 
certain trading halts \71\ to be more closely aligned with the process 
currently implemented for halt auctions following a trading pause under 
the LULD Plan and the process for halt auctions following a MWCB halt. 
The current reopening process following a trading pause and following a 
MWCB halt have been generally successful in facilitating a fair and 
orderly process for reopening securities. The Exchange has therefore 
decided to propose a similar process for halt auctions following other 
types of halts, as specified above. The Exchange believes that its 
proposal would benefit investors by facilitating price discovery and 
promoting more consistency in how the Exchange conducts the reopening 
process following trading halts and pauses. While auctions cannot 
prevent price volatility, auctions should facilitate ongoing trading 
and afford market participants with ample time to participate in the 
auction price discovery process. Accordingly, this proposal balances 
transparency and timeliness to ensure efficient price discovery. 
Furthermore, because there are no price protection mechanisms specific 
to the halt cross process today, the Exchange believes that there is 
little risk \72\ in adopting the proposal.
---------------------------------------------------------------------------

    \71\ See supra note 13.
    \72\ There is a risk of a delayed reopening if the price of the 
halted security is fluctuating.
---------------------------------------------------------------------------

    While the proposed reopening process would largely follow the 
reopening process in place today for trading pauses under the LULD Plan 
and/or MWCB halts, there would be several differences. These 
differences are primarily designed to ensure that suitable Auction 
Collars are utilized for the reopening process. The Exchange proposes 
to use the Nasdaq last sale price (or if none, the NOCP) as the Auction 
Reference Price, similar to the Auction Reference Price under a MWCB 
halt.\73\ However, the Exchange also proposes to provide MarketWatch 
authority to set an Auction Reference Price in rare situations where 
there is no Nasdaq last sale price or NOCP.\74\ In addition, the 
Exchange believes that it is appropriate to calculate both upper and 
lower Auction Collars that are a specified percentage or dollar amount 
from the reference price because the halts covered in the proposal do 
not involve security specific buy or sell pressure. With extensions, 
the Exchange also believes that it is appropriate to widen the collars 
on both sides to accommodate price swings in either direction and to 
increase the likelihood of resolving order imbalances. The proposal 
would utilize price collar thresholds of 10% (and 20% after the first 
two display only periods) of the Auction Reference Price, as compared 
to price collar thresholds of 5% of the Auction Reference Price used 
for the LULD and MWCB mechanisms, to ensure that the parameters are 
appropriately set to ensure securities are priced within a reasonable 
range of their halted price but are also not so restrictive as to 
prevent effective price discovery. These price collar thresholds are 
appropriate as they balance the need for price protections with the 
desire to promote efficient price discovery and minimize the length of 
the interruption from a trading halt. Finally, the Exchange proposes to 
include minimum threshold amounts for calculating the price collars 
(i.e., $0.50 for securities with an Auction Reference Price of $1 or 
less and $1 for securities with an Auction Reference Price of greater 
than $1) to ensure that the Auction Collars

[[Page 91861]]

for lower-priced securities are wide enough to allow for reopening and 
effective price discovery. This approach is reasonable because lower 
priced stocks can have significant price movement which warrants a 
greater minimum threshold in order to allow for efficient price 
discovery and a more timely reopening.
---------------------------------------------------------------------------

    \73\ Supra note 16.
    \74\ Supra note 18.
---------------------------------------------------------------------------

    Otherwise, the proposed reopening process is consistent with the 
current LULD and/or MWCB reopening process. Similar to the current LULD 
and MWCB reopening process, the Exchange also believes that the 
proposed process is consistent with the protection of investors and the 
public interest because they are designed to facilitate price discovery 
by ensuring that all market order interest could be satisfied in the 
auction process. Furthermore, the Exchange believes that the 
standardized procedures to extend halt auctions an additional five 
minutes are appropriate because this would provide additional time to 
attract offsetting liquidity. If at the end of such extension, market 
orders still cannot be satisfied within the applicable collars, or if 
the reopening price would be outside of the applicable collars, the 
Exchange would extend the halt auction process an additional five 
minutes. The Exchange believes that extending the auction in these 
circumstances would protect investors and the public interest by 
reducing the potential for significant price disparity in post-auction 
trading.
    The Exchange also believes that its proposal to establish a Hybrid 
Closing Cross and implement price protections for the Hybrid Closing 
Cross that are similar to the protections used today for the LULD 
Closing Cross would promote just and equitable principles of trade. For 
purposes of the LULD Closing Cross, the Exchange currently calculates 
and applies a price threshold to a benchmark value that, when applied 
to an individual security, determines the price threshold range within 
which the security must execute in the LULD Closing Cross. 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 
adopt a Hybrid Closing Cross and apply similar protections to such 
Hybrid Closing Cross. The Exchange believes that its proposal would 
facilitate a fair and orderly close. Additionally, the Exchange 
believes that the proposed rule change would benefit investors by 
harmonizing the Exchange's LULD and Hybrid Closing Cross processes, 
thereby promoting a more consistent experience for members and 
investors and reducing any potential confusion regarding Nasdaq's 
closing processes.
    While the proposed price protections for the Hybrid Closing Cross 
will largely follow the current implementation of the protections in 
place today for the LULD Closing Cross, there are certain differences. 
The differences are designed to account for inherent differences 
between LULD pauses and other trading halts and ensure that the 
proposed price protections are reasonably based on market conditions. 
One of the proposed tiebreakers in Rule 4754(b)(7)(D) references the 
Auction Reference Price whereas the LULD Closing Cross rule instead 
refers to a price that minimizes the distance from the last published 
Upper Band (Lower Band) for a Limit Up (Limit Down) Trading Pause. Such 
difference reflects the need for a price that is unrelated to the LULD 
mechanism in the case of the Hybrid Closing Cross given there would not 
be a security-specific pricing direction reason for the halt (or LULD 
Bands). Similarly, the process for calculating the Benchmark Prices for 
the LULD Closing Cross is distinct because it involves widening the 
Auction Collar (or Band) on only one side, while the proposed process 
would widen the Auction Reference Price on both sides for the Hybrid 
Closing Cross. In this case, because there would not be a security-
specific pricing direction reason for the halt, the Exchange believes 
that it is appropriate to apply the thresholds on both sides of the 
Auction Reference Price. Finally, certain language from the LULD 
Closing Cross is omitted where it is inapplicable to the Hybrid Closing 
Cross.\75\
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    \75\ See supra note 65.
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    Finally, the Exchange also believes it is appropriate to make 
clarifying changes in Equity 4 to remove references to the LULD Closing 
Cross in Rule 4702 and Rule 4755, clarify how Auction Reference Prices 
and Auction Collars are disseminated in Rule 4753(a)(3), add an 
exception regarding cancellation of IOC Orders for halted securities in 
Rule 4753(e), specify that the Nasdaq Closing Cross shall include the 
LULD Closing Cross and the Hybrid Closing Cross in Rule 4754(a)(6), add 
``NOII'' as an alternative defined term for ``Order Imbalance 
Indicator'' in Rule 4754(a)(7), add ``EOII'' as an alternative defined 
term for ``Early Order Imbalance Indicator'' in Rule 4754(a)(10), amend 
language related to handling of late LOC Orders in Rule 4754(b)(6), and 
modify the priority for orders participating in the LULD Closing Cross 
in Rule 4754(b)(6). The proposed changes would increase clarity and 
transparency in the Rules, 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. The Exchange believes that the 
proposed rule change is not designed to address any competitive issues, 
but rather, is designed to provide a measured and transparent process 
for reopening Nasdaq listed securities after certain trading halts. The 
proposed rule change is similar to the current reopening process 
following a trading pause initiated under the LULD Plan, the process 
following a MWCB halt, and processes implemented on other exchanges for 
non-LULD regulatory halts. In addition, the proposed rule change is 
also designed to establish a Hybrid Closing Cross that aligns with the 
Exchange's LULD Closing Cross to provide for a transparent auction 
process for executing member interest at the close and promote a more 
consistent experience for members and investors.

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 (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
or disapprove such 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:

[[Page 91862]]

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2024-065 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-NASDAQ-2024-065. 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 (https://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 
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. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2024-065 and should 
be submitted on or before December 11, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\76\
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    \76\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-27019 Filed 11-19-24; 8:45 am]
BILLING CODE 8011-01-P
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