```

[Federal Register Volume 90, Number 26 (Monday, February 10, 2025)]
[Notices]
[Pages 9259-9266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-02386]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102336; File No. SR-NASDAQ-2024-065]

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

February 4, 2025.

I. Introduction

    On November 6, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Equity 4 to establish halt cross price 
protections and make other related changes. The proposed rule change 
was published for comment in the Federal Register on November 20, 
2024.\3\ This order grants approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 101620 (Nov. 14, 
2024), 89 FR 91853 (``Notice''). The Commission has received no 
comment letters on the proposed rule change.
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend its 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. In addition, the Exchange proposes to 
establish a ``Hybrid Closing Cross'' and introduce related price 
protections. 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, replacing the prior procedures; 
(ii) adding information about dissemination of Auction Reference Prices 
and Auction Collars in Nasdaq Rule 4753(a)(3); and (iii) adding rules 
for a

[[Page 9260]]

modified closing cross in Nasdaq Rule 4754(b)(7).
    In addition, the Exchange proposes to make a number of additional 
related changes in Equity 4, including: (i) removing references to the 
Limit-Up-Limit-Down (``LULD'') Closing Cross in Nasdaq Rules 4702 and 
4755; (ii) clarifying how Auction Reference Prices and Auction Collars 
are disseminated in Nasdaq Rule 4753(a)(3); (iii) clarifying rule 
language about cancellation of IOC Orders for halted securities in 
Nasdaq Rule 4753(e); (iv) specifying that the Nasdaq Closing Cross 
shall include the LULD Closing Cross and the Hybrid Closing Cross in 
Nasdaq Rule 4754(a)(6); (v) adding ``NOII'' as an alternative defined 
term for ``Order Imbalance Indicator'' in Nasdaq Rule 4754(a)(7); (vi) 
adding ``EOII'' as an alternative defined term for ``Early Order 
Imbalance Indicator'' in Nasdaq Rule 4754(a)(10); (vii) amending 
language related to handling of late Limit on Close (``LOC'') Orders 
\4\ in Nasdaq Rule 4754(b)(6); and (viii) modifying the priority for 
orders participating in the LULD Closing Cross in Nasdaq 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 Nasdaq 
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\). The Exchange proposes to 
implement a new price protection mechanism to the Nasdaq Halt Cross \7\ 
process.\8\
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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 Nasdaq 
Rule 4121.
    \6\ An LULD pause is a trading pause pursuant to the Plan to 
Address Extraordinary Market Volatility or ``LULD Plan.'' See 
https://www.luldplan.com/.
    \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 Nasdaq 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 Notice, supra note 3, at 91853-4.
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    The new price protection mechanism would be similar to what is 
currently utilized for reopening stocks following an MWCB halt or LULD 
trading pause, where pre-determined price collars would be built into 
the halt cross process. 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.\9\ 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.\10\
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    \9\ Id.
    \10\ Id.
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Proposed Changes to Nasdaq Rule 4120 (LULD Plan and Trading Halts)

    The Exchange proposes to introduce price protections to the halt 
cross process that are similar to the protections used today for 
reopening stocks following an 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 Nasdaq Rule 4120(c)(7) 
and replace with proposed rule language describing the new procedure in 
proposed Nasdaq Rule 4120(c)(7). 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.\11\
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    \11\ Id. at 91854-55.
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    The introductory language in proposed Nasdaq Rule 4120(c)(7) 
provides that, a trading halt initiated under Nasdaq Rule 4120(a)(1), 
(4), (5), (6), (9), (10), (11) or (14) \12\ 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.\13\ According to the Exchange, 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 
an 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, the Exchange explains that the 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.\16\ The types of halts covered by Nasdaq Rule 4120(c)(7) 
(i.e., trading halt initiated under Nasdaq Rule 4120(a)(1), (4), (5), 
(6), (9), (10), (11) or (14)) remain unchanged.
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    \12\ This covers trading halts related to dissemination of 
material news for Nasdaq-listed securities (see Nasdaq 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 
Nasdaq 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 Nasdaq Rule 
4120(a)(5)); halts related to extraordinary market activity (see 
Nasdaq Rule 4120(a)(6)); halts in certain products where the 
Intraday Indicative Value or index value is not disseminated as 
required (see Nasdaq 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 Nasdaq Rule 4120(a)(10)); halts 
related to large price moves for Nasdaq-listed securities not 
covered by the LULD Plan (see Nasdaq Rule 4120(a)(11)), and halts 
related to reverse stock splits (see Nasdaq 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.
    \13\ See Notice, supra note 3, at 91855.
    \14\ Id.; See Nasdaq Rule 4120(c)(10).
    \15\ See Notice, supra note 3, at 91855; See Nasdaq Rule 
4121(d).
    \16\ See Notice, supra note 3, at 91855.
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    Proposed Nasdaq 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'').\17\ The Exchange proposes to use the Nasdaq last sale price 
\18\ (or if none, the NOCP) as this price is reflective of the current 
market for the

[[Page 9261]]

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.\19\ 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.\20\ 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.\21\
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    \17\ If there is no Nasdaq last sale price, the Exchange states 
that the prior trading day's NOCP is preferable for establishing the 
Auction Reference Price noting that 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. See Notice, supra note 3, at 91855, n.16.
    \18\ The Nasdaq last sale price reflects the last sale price of 
that trading session. See Notice, supra note 3, at 91855, n.17.
    \19\ 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. The Exchange states that in exercising such limited 
discretion in these rare instances, MarketWatch would source the 
best estimation for the Auction Reference Price from an external 
vendor. See Notice, supra note 3, at 91855, n.18.
    \20\ See Notice, supra note 3, at 91855; See Nasdaq Rule 
4121(d)(1)(A).
    \21\ Id.
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    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,\22\ as the Exchange believes that a 
different reference is necessary for a reopening process that is 
unrelated to the LULD mechanism.\23\ LULD and halt crosses use 
distinctly different reference prices in the auction pricing 
methodology. The reference price in an 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 Exchange states that 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.\24\
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    \22\ See Nasdaq Rule 4120(c)(10)(A)(i).
    \23\ See Notice, supra note 3, at 91855.
    \24\ Id. Further, LULD bands are published only during regular 
trading hours 9:30 a.m.-4:00 p.m. which prevents it from being 
considered as a refence price as halt auctions can occur at all 
eligible trading hours 4:00 a.m.-8:00 p.m. Id. at 91855, n.21.
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    Proposed Nasdaq 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 \25\) is derived by subtracting $1 or 10% of 
the Auction Reference Price, whichever is greater, from the Auction 
Reference Price.\26\ 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 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.\27\ 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.\28\ 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.\29\ 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.\30\ 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 an MWCB halt.\31\
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    \25\ 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).
    \26\ See Notice, supra note 3, at 91855-6.
    \27\ Id. at 91856.
    \28\ Id.
    \29\ Id.; See Nasdaq Rule 4121(d)(1)(B).
    \30\ See Nasdaq 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 Exchange explains 
that the initial price collar thresholds need to be applied 
symmetrically before arriving at the price at which the security 
will trade. See Notice, supra note 3, at 91856.
    \31\ See Notice, supra note 3, at 91856.
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    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) of the Auction Reference 
Price. 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.\32\ 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,\33\ 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.\34\ According to the Exchange, 
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.\35\
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    \32\ For example, the Exchange states that 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. See Notice, supra note 
3, at 91856, n.25.
    \33\ See Nasdaq Rule 4120(c)(10)(A)(ii); Rule 4121(d)(1)(B).
    \34\ See Notice, supra note 3, at 91856.
    \35\ Id.
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    Proposed Nasdaq 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 \36\ 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

[[Page 9262]]

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.\37\ 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.\38\ The 
proposed process for initiating extensions is similar to the process 
currently used for extending trading pauses or halts under LULD \39\ 
and MWCB,\40\ with a few 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,\41\ 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.\42\ 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.\43\
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    \36\ The definition of an order imbalance is included in 
proposed Nasdaq Rule 4120(c)(7)(E).
    \37\ See Notice, supra note 3, at 91856.
    \38\ Id.
    \39\ See Nasdaq Rule 4120(c)(10)(B).
    \40\ See Nasdaq Rule 4121(d)(2).
    \41\ See Notice, supra note 3, at 91856.
    \42\ See Nasdaq Rule 4120(c)(10)(B); Nasdaq Rule 4121(d)(2).
    \43\ Id.
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    Proposed Nasdaq 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.\44\ 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 security for 
trading at the first point \45\ there is no order imbalance.\46\ 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).\47\ 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 Nasdaq Rule 4120(c)(7)(C) until the security 
is released for trading.\48\ Other than the change in the percentage by 
which the Exchange will widen the collars, the process in proposed 
Nasdaq Rule 4120(c)(7)(C) is consistent with that of the LULD and MWCB 
mechanisms.\49\
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    \44\ Id.
    \45\ The ``first point'' there is no order imbalance would occur 
after the next NOII message dissemination.
    \46\ The Exchange explains that 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. See 
Notice, supra note 3, at 91857, n.32.
    \47\ See Notice, supra note 3, at 91857.
    \48\ Id.
    \49\ See Nasdaq Rule 4120(c)(10)(C); Nasdaq Rule 4121(d)(3).
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    Proposed Nasdaq Rule 4120(c)(7)(D) explains that, notwithstanding 
Nasdaq Rules 4120(c)(7)(A)-(C), a trading halt that exists at or after 
3:50 p.m.\50\ in a stock shall reopen via a Hybrid Closing Cross 
pursuant to Nasdaq Rule 4754(b)(7). The Hybrid Closing Cross would 
provide an alternative process for executing closing trades on the 
Exchange. Proposed Nasdaq Rule 4120(c)(7)(D) is consistent with the 
LULD mechanism, where a stock reopens via an LULD Closing Cross where a 
trading pause exists at or after 3:50 p.m.\51\
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    \50\ All times referenced in the proposal are Eastern Time.
    \51\ See Nasdaq Rule 4120(c)(10)(D).
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    Proposed Nasdaq Rule 4120(c)(7)(E) explains when an order imbalance 
exists. Specifically, it provides that, for purposes of Nasdaq 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.\52\
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    \52\ See Nasdaq Rule 4120(c)(10)(E); Nasdaq Rule 4121(d)(4).
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    Proposed Nasdaq 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.\53\
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    \53\ See Nasdaq Rule 4120(a)(12)(G).
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Proposed Changes to Nasdaq Rule 4702 (Order Types)

    The Exchange proposes to amend Nasdaq Rule 4702 by deleting 
references to the LULD Closing Cross from Nasdaq Rule 4702(b)(12) 
(Limit on Close (LOC) Orders) and Nasdaq Rule 4702(b)(17) (Extended 
Trading Close (ETC) Orders). The Exchange believes that the LULD 
Closing Cross \54\ as well as the proposed

[[Page 9263]]

Hybrid Closing Cross \55\ 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.\56\ 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 Nasdaq Rule 4754(a)(6), as described below.
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    \54\ The LULD Closing Cross is the Exchange's auction process 
for executing closing trades in Nasdaq-listed securities when a 
trading pause pursuant to Nasdaq Rule 4120(a)(12) exists at or after 
3:50 p.m. and before 4:00 p.m. See Nasdaq Rule 4754(b)(6).
    \55\ 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 Nasdaq 
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.
    \56\ See Notice, supra note 3, at 91857.
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Proposed Changes to Nasdaq 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 Nasdaq Rule 4753(a)(3) 
accordingly.\57\
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    \57\ Id.
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    The Exchange also proposes to add section (H) in Nasdaq Rule 
4753(a)(3). This section (H) would provide that, for purposes of a 
trading halt initiated under Nasdaq 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 Nasdaq Rule 4120(c)(7)(A).\58\ This is consistent with dissemination 
of Auction Reference Prices and Auction Collars for purposes of LULD 
pauses and MWCB halts.
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    \58\ Id. 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.
---------------------------------------------------------------------------

    Nasdaq 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 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 Nasdaq 
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.\59\
---------------------------------------------------------------------------

    \59\ See Notice, supra note 3, at 91858.
---------------------------------------------------------------------------

Proposed Changes to Nasdaq Rule 4754 (Nasdaq Closing Cross)

    First, the Exchange proposes to amend the definition of ``Nasdaq 
Closing Cross'' in Nasdaq 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.\60\ The Exchange therefore proposes to 
clarify that the Nasdaq Closing Cross shall include the LULD Closing 
Cross and the Hybrid Closing Cross in Nasdaq 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.\61\
---------------------------------------------------------------------------

    \60\ Id.
    \61\ Id.
---------------------------------------------------------------------------

    Second, the Exchange proposes to add ``NOII'' as an alternative 
defined term for ``Order Imbalance Indicator'' in Nasdaq 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.\62\
---------------------------------------------------------------------------

    \62\ Id.
---------------------------------------------------------------------------

    Third, the Exchange proposes to add ``EOII'' as an alternative 
defined term for ``Early Order Imbalance Indicator'' in Nasdaq 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.\63\
---------------------------------------------------------------------------

    \63\ Id.
---------------------------------------------------------------------------

    Fourth, the Exchange proposes to make two changes to Nasdaq Rule 
4754(b)(6), which relates to the LULD Closing Cross Following Limit-Up-
Limit-Down Trading Pause. In part, Nasdaq 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.\64\ In addition, the Exchange proposes to modify Nasdaq Rule 
4754(b)(6)(G) such 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, Nasdaq 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.\65\ Accordingly, the Exchange proposes to update 
the rule whereby displayed orders are executed ahead of hidden orders. 
Such change would provide more specificity in the Rule for 
accuracy.\66\
---------------------------------------------------------------------------

    \64\ Id.
    \65\ See Nasdaq Rule 4754(b)(3)(B); see also Securities Exchange 
Act Release No. 97973 (July 25, 2023), 88 FR 49522 (July 31, 2023) 
(SR-NASDAQ-2023-024) (Notice of Filing and Immediate Effectiveness 
to Amend Equity 4, Rules 4752, 4753, and 4754).
    \66\ See Notice, supra note 3, at 91858.
---------------------------------------------------------------------------

    Lastly, in proposed Nasdaq 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 Nasdaq Rule 4120(a)(1), (4), (5), (6), 
(9), (10), (11) or (14) exists at or

[[Page 9264]]

after 3:50 p.m. and before 4:00 p.m.\67\ 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 
states that it 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.\68\ 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, the Exchange's 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 \69\ 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).
---------------------------------------------------------------------------

    \67\ In contrast, today, such halts would typically not be 
scheduled to resume trading during such period, avoiding 
interference with the closing cross.
    \68\ See Notice, supra note 3, at 91858.
    \69\ See supra note 8.
---------------------------------------------------------------------------

    Under the proposal, a halted security would only be eligible to 
resume trading via the Hybrid Closing Cross after the Display Only 
Period begins.\70\ The Exchange proposes to define ``Auction Reference 
Price,'' ``Eligible Interest,'' and ``Imbalance'' in Nasdaq Rule 
4754(b)(7)(A) for purposes of Nasdaq Rule 4754(b)(7). ``Auction 
Reference Price'' would have the same meaning as defined in Nasdaq Rule 
4120(c)(7)(A), discussed above. ``Eligible Interest'' would have the 
same meaning as ``Close Eligible Interest'' in Nasdaq Rule 4754(a),\71\ 
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''),\72\ LOC Orders, or Eligible Interest that cannot 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.\73\
---------------------------------------------------------------------------

    \70\ 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.
    \71\ ``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 Nasdaq Rule 4754(a)(1).
    \72\ 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 Nasdaq Rule 4702(b)(11).
    \73\ See Nasdaq Rule 4754(b)(6)(A).
---------------------------------------------------------------------------

    In proposed Nasdaq 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.\74\ 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.\75\
---------------------------------------------------------------------------

    \74\ See Notice, supra note 3, at 91859.
    \75\ See Nasdaq Rule 4754(b)(6)(B).
---------------------------------------------------------------------------

    Proposed Nasdaq Rule 4754(b)(7)(C) provides information about 
dissemination of the EOII \76\ and NOII \77\ 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 
Nasdaq Rule 4754(b)(1) until After Hours Trading begins. The Near 
Clearing Price \78\ 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 \79\ 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.\80\
---------------------------------------------------------------------------

    \76\ See Nasdaq Rule 4754(a)(10).
    \77\ See Nasdaq Rule 4754(a)(7).
    \78\ See Nasdaq Rule 4754(a)(7)(E)(ii).
    \79\ See Nasdaq Rule 4754(a)(7)(E)(i).
    \80\ See Nasdaq Rule 4754(b)(6)(C).
---------------------------------------------------------------------------

    Proposed Nasdaq Rule 4754(b)(7)(D) would specify that the Hybrid 
Closing Cross would occur at the price within the threshold prices 
established pursuant to Nasdaq Rule 4754(b)(7)(E) (``Threshold 
Prices'') that maximizes the number of shares of Eligible Interest, 
MOC, LOC, and IO \81\ 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 \82\ 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 Nasdaq Rule 
4754(b)(7)(D) are consistent with the tiebreakers used for determining 
the LULD Closing Cross price with one exception.\83\ 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 \84\ 
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.\85\ 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).\86\
---------------------------------------------------------------------------

    \81\ 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 Nasdaq Rule 
4702(b)(13).
    \82\ The ``entered price'' refers to the price of the cross 
eligible order interest at which shares would remain unexecuted in 
the Hybrid Closing Cross. See Notice, supra note 3, at 91859, n.56.
    \83\ See Nasdaq Rule 4754(b)(6)(D).
    \84\ See Nasdaq Rule 4754(b)(7)(A)(i).
    \85\ See Nasdaq Rule 4754(b)(6)(D)(iv)(b).
    \86\ See Notice, supra note 3, at 91859.
---------------------------------------------------------------------------

    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

[[Page 9265]]

current market conditions. Proposed Nasdaq 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 
Nasdaq Rule 4120(c)(7)(A)(ii) for securities with an Auction Reference 
Price of greater than $1.\87\ 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 Nasdaq Rule 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.\88\ 
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,\89\ 
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.\90\
---------------------------------------------------------------------------

    \87\ Id.
    \88\ See Nasdaq Rule 4752(d)(2)(E)(Opening Cross); Nasdaq Rule 
4754(b)(2)(E)(Closing Cross); Nasdaq Rule 4754(b)(6)(E)(LULD Closing 
Cross).
    \89\ See Nasdaq Rule 4754(b)(6)(E) (LULD Closing Cross).
    \90\ See Notice, supra note 3, at 91859.
---------------------------------------------------------------------------

    Proposed Nasdaq 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 Nasdaq Rules 4702(b)(11), 
4702(b)(12), and 4702(b)(13).\91\ If the security entered a trading 
halt prior and up to 3:50 p.m., the System would not accept late LOC 
Orders.\92\ For purposes 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,\93\ except that the proposed rules do not 
include certain inapplicable language from the LULD Closing Cross 
processes.\94\
---------------------------------------------------------------------------

    \91\ 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 Nasdaq 
Rules 4702(b)(11), 4702(b)(12), and 4702(b)(13) prevail. See Notice, 
supra note 3, at 91859, n.62.
    \92\ 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.
    \93\ See Nasdaq Rule 4754(b)(6)(F).
    \94\ 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., Nasdaq Rules 4754(b)(6)(F)(ii)(b)-
(c).
---------------------------------------------------------------------------

    Proposed Nasdaq 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.\95\ In addition, Proposed Nasdaq 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.\96\
---------------------------------------------------------------------------

    \95\ See Notice, supra note 3, at 91860.
    \96\ See Nasdaq Rule 4754(b)(6)(G).
---------------------------------------------------------------------------

    Finally, the Exchange would renumber current Nasdaq Rule 4754(b)(7) 
as Nasdaq Rule 4754(b)(8) and update a related reference in such Rule.

Proposed Changes to Nasdaq Rule 4755 (Extended Trading Close)

    Similar to the revisions made to Nasdaq Rule 4702 (Order Types), 
the Exchange proposes to delete references to the LULD Closing Cross 
from Nasdaq 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 Nasdaq Rule 4755 unnecessary.\97\
---------------------------------------------------------------------------

    \97\ See Notice, supra note 3, at 91860.
---------------------------------------------------------------------------

Implementation

    The Exchange represents that it will issue an Equities Trader Alert 
not less than 7 days prior to implementing the proposed changes.\98\ 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.\99\ The Halts Proposal was approved 
on June 8, 2022.\100\ 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 to 
incorporate the changes herein with those changes in the Halts 
Proposal.\101\ As such, the proposed rule changes described herein 
reflect changes to the Exchange's currently operative rule language.
---------------------------------------------------------------------------

    \98\ Id.
    \99\ See Securities Exchange Act Release No. 94370 (Mar. 7, 
2022), 87 FR 14071 (Mar. 11, 2022) (SR-NASDAQ-2022-017) (Notice of 
Filing of Proposed Rule Change To Modify Equity 4, Section 4120 To 
Add Categories of Regulatory and Operational Halts, To Reorganize 
the Remaining Text of the Rule, and To Make Conforming Changes to 
Related Rule).
    \100\ See Securities Exchange Act Release No. 95069 (June 8, 
2022), 87 FR 36018 (June 14, 2022) (SR-NASDAQ-2022-017).
    \101\ See Notice, supra note 3, at 91860.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\102\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\103\ which 
requires, among other things, that the rules of an exchange be designed 
to promote just and equitable principles of trade, to

[[Page 9266]]

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, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \102\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \103\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange's proposal would amend the halt auction process 
following certain trading halts 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 halting auctions 
following an 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. As noted by the Exchange, 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.
    These price collar thresholds 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. Further, 
the standardized procedures to extend halt auctions by 5-minute periods 
are designed to protect investors and the public interest because 
allowing additional time could help reduce the potential for 
significant price disparity in post-auction trading and promote 
improved price discovery, attract offsetting liquidity, and potentially 
increase market participation, which could improve liquidity and help 
reduce price volatility. Accordingly, this proposal balances 
transparency and timeliness to ensure efficient price discovery.
    The Exchange also proposes to establish a Hybrid Closing Cross and 
implement price protections for the Hybrid Closing Cross, which are 
similar to the protections currently employed for the LULD Closing 
Cross. With respect to 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 Hybrid Closing Cross proposal is necessary given the changes the 
Exchange proposes to make to the halt reopening process. In particular, 
the Exchange states that it 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.\104\ Because of the potential for a halt reopening to extend 
beyond 3:50 p.m. under the proposal, the Exchange proposes to establish 
the Hybrid Closing Cross. Nasdaq's proposal to establish a Hybrid 
Closing Cross and associated protections similar to the LULD Closing 
Cross would promote just and equitable principles of trade by 
facilitating a fair and orderly price discovery process at the close 
and ensuring that the closing price of a security is reasonably based 
on current market conditions in the security and that the cross price 
derived does not exceed a price reasonably tied to the prevailing 
market at the time.
---------------------------------------------------------------------------

    \104\ See Notice, supra note 3, at 91858.
---------------------------------------------------------------------------

    In addition, the Exchange proposes additional changes to Equity 4 
to remove references to the LULD Closing Cross in Nasdaq Rule 4702 and 
Nasdaq Rule 4755, clarify how Auction Reference Prices and Auction 
Collars are disseminated in Nasdaq Rule 4753(a)(3), add an exception 
regarding cancellation of IOC Orders for halted securities in Nasdaq 
Rule 4753(e), specify that the Nasdaq Closing Cross shall include the 
LULD Closing Cross and the Hybrid Closing Cross in Nasdaq Rule 
4754(a)(6), add ``NOII'' as an alternative defined term for ``Order 
Imbalance Indicator'' in Nasdaq Rule 4754(a)(7), add ``EOII'' as an 
alternative defined term for ``Early Order Imbalance Indicator'' in 
Nasdaq Rule 4754(a)(10), amend language related to handling of late LOC 
Orders in Nasdaq Rule 4754(b)(6), and modify the priority for orders 
participating in the LULD Closing Cross in Nasdaq Rule 4754(b)(6) so 
that priority is assigned to the execution of Displayed Orders and 
interest before Non-Displayed Orders. The Commission agrees with the 
Exchange that such proposed changes would increase clarity and 
transparency in the Rules, consistent with the public interest and the 
protection of investors.
    For the reasons discussed above, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\105\ that the proposed rule change (SR-NASDAQ-2024-065) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \105\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\106\
---------------------------------------------------------------------------

    \106\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02386 Filed 2-7-25; 8:45 am]
BILLING CODE 8011-01-P
```