50380 Federal Register / Vol. 73, No. 166 / Tuesday, August 26, 2008 / Notices 

9 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 57595 

(April 1, 2008), 73 FR 19118 (‘‘Original Filing’’). 

4For example, for a security trading at $50.00, if 

a trade occurs at $42.50 or below or 57.50 or above 

it will trigger the Imbalance Cross. 

investors and the public interest. At any 

time within 60 days of the filing of the 

proposed rule change, the Commission 

may summarily abrogate such rule 

change if it appears to the Commission 

that such action is necessary or 

appropriate in the public interest, for 

the protection of investors, or otherwise 

in furtherance of the purposes of the 

Act. 

The proposal may assist investors by 

allowing participants the benefits of 

attributable orders. Additionally, the 

Exchange provided the Commission 

with written notice of its intent to file 

the proposal, along with a brief 

description and text of the proposal, 

prior to the date of the filing of the 

proposal. 

For the foregoing reasons, this rule 

filing qualifies for immediate 

effectiveness as a ‘‘non-controversial’’

rule change under paragraph (f)(6) of 

Rule 19b–4 of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–CBOE–2008–85 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–CBOE–2008–85. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room, on official business days between 

the hours of 10 a.m. and 3 p.m. Copies 

of the filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–CBOE–

2008–85 and should be submitted on or 

before September 16, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–19785 Filed 8–25–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58386; File No. SR–

NASDAQ–2007–067] 

Self-Regulatory Organizations; the 

NASDAQ Stock Market LLC; Order 

Granting Approval of Proposed Rule 

Change as Modified by Amendment 

No. 1 To Establish an Imbalance Cross 

August 19, 2008. 

I. Introduction 

On July 18, 2007, The NASDAQ Stock 

Market LLC (‘‘Nasdaq’’) 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 

establish the ‘‘Imbalance Cross’’ on a 

pilot basis. The proposed rule change 

was published for comment in the 

Federal Register on April 8, 2008.3 No 

comments were received on the 

proposed rule change. On August 13, 

2008, Nasdaq filed Amendment No. 1 to 

the proposed rule change to make 

certain technical, non-substantive 

modifications to the original rule filing. 

This order approves the proposed rule 

change as amended. 

II. Description of the Proposal 

Nasdaq proposes to implement for a 

one-year pilot the Imbalance Cross, a 

system enhancement which will 

automatically suspend trading in 

Nasdaq-listed securities that are the 

subject of abrupt and significant intraday price movements. The Imbalance 

Cross will be fully automated, be based 

on objective, quantitative criteria, and 

be triggered automatically when the 

execution price of a Nasdaq-listed 

security moves more than a fixed 

amount away from a pre-established 

‘‘triggering price’’ for that security. The 

Triggering Price for each security will be 

the price of any execution by the System 

in that security within the previous 30 

seconds. For each Nasdaq security, the 

System will continually compare the 

price of each execution against the 

prices of all executions in that security 

over the 30 seconds. 

As the System compares current 

executions against executions occurring 

in the previous 30 seconds, it will 

determine whether the current 

execution price is outside of a 

‘‘threshold range’’ for that security. The 

Threshold Range for each security will 

be based upon the current execution 

price for that security and will vary by 

price. Specifically, for per-share 

execution prices of $1.75 or less, the 

Threshold Range will be 15 percent; for 

execution prices over $1.75 and up to 

$25, the Threshold Range will be 10 

percent; for execution prices over $25 

and up to $50, the Threshold Range will 

be five percent; and for execution prices 

over $50, the Threshold Range will be 

three percent. 

If the execution price of a trade in a 

Nasdaq security exceeds the Threshold 

Range from the Triggering Price, the 

System will automatically trigger the 

Imbalance Cross.4 When that occurs, the 

System will cease executing trades in 

that security for a 60-second ‘‘Display 

Only Period.’’ During that 60-second 

Display Only Period, the System will 

maintain all current quotes and orders 

and continue to accept new quotes and 

orders in that Security. The System will 

disseminate an Order Imbalance 

Indicator every 5 seconds. 

Unlike a trading halt pursuant to 

Nasdaq Rule 4120, the Imbalance Cross 

will not be considered a regulatory halt 

and, therefore, it will not trigger a 

marketwide trading halt under Section 

X of the Nasdaq UTP Plan. As a result, 

other markets will be permitted to 

continue trading a Nasdaq stock that is 

undergoing a Market Re-Opening on 

Nasdaq. During the Imbalance Cross, 

Nasdaq’s quotations will be marked 

‘‘non-firm,’’ signaling to other markets 

that quotes and orders routed to Nasdaq 


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Federal Register / Vol. 73, No. 166 / Tuesday, August 26, 2008 / Notices 50381 

5See Nasdaq Rule 4754(b)(2)(E) (Nasdaq Closing 

Cross). 

6 In approving this proposed rule change the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. 15 U.S.C. 78c(f). 

7 15 U.S.C. 78f. 

8 15 U.S.C. 78f(b)(5). 

9For a detailed description of the Nasdaq Halt 

Cross, see Securities Exchange Act Release No. 

53488 (March 15, 2006), 71 FR 14272 (March 21, 

2006) (notice of filing of SR–NASD–2006–015). 

10For a detailed description of the adjudication 

of potential clearly erroneous trades, see Securities 

Exchange Act Release No. 54854 (December 1, 

2006), 71 FR 71208 (December 8, 2006) (notice of 

SR–NASDAQ–2006–046). 

11 17 CFR 242.611(b)(3). 

12Nasdaq has provided the Commission data that 

indicates that the Imbalance Cross should be 

triggered in only 0.001% of executions and, on 

average, in less than one percent of the securities 

traded on any given day. Because of the expected 

infrequency of occurrence, the Commission believes 

that there would be little opportunity to abuse the 

Imbalance Cross functionality simply to avoid 

compliance with the Order Protection Rule. 

13 17 CFR 200.30–3(a)(12). 

will not be executed during this reopening process. 

At the conclusion of the 60-second 

Display Only Period, the System will 

automatically re-open the market by 

executing the Nasdaq Halt Cross as set 

forth in Rule 4753(b)(2)–(4) as it does 

today for securities subject to a trading 

halt pursuant to Rule 4120. Unlike 

securities subject to a trading halt under 

Nasdaq Rule 4120, securities subject to 

an Imbalance Cross will automatically 

re-open at the end of the 60-second 

Display Only Period; the 60-second 

period will not be subject to further 

extensions. 

The Imbalance Cross price will result 

in a single price opening; the price will 

be set by the Nasdaq Halt Cross. The 

Nasdaq Halt Cross will operate in the 

same manner as the Halt Cross operates 

when trading resumes following a 

trading halt initiated pursuant to 

Nasdaq Rule 4120 with one exception. 

Quotes and orders residing on the 

Nasdaq book during the Imbalance 

Cross will be subject to the same 

priorities and same execution algorithm 

that applies during the standard Halt 

Cross. However, unlike the standard 

Halt Cross, Nasdaq proposes to ‘‘bound’’

the Imbalance Cross price as it does the 

Nasdaq Closing Cross.5 As already exists 

for the Nasdaq Closing Cross, Nasdaq 

will establish a benchmark price and a 

threshold range beyond which the 

Imbalance Cross price cannot move. 

III. Discussion and Commission 

Findings 

After careful consideration, 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 6 and, in 

particular, the requirements of Section 6 

of the Act.7 Specifically, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,8 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

The Commission believes that the 

proposal to create the Imbalance Cross, 

which would systematically suspend 

trading in Nasdaq-listed securities that 

are the subject of abrupt and significant 

intra-day price movements, will 

promote fair and orderly markets and 

the protection of investors. 

The proposed Imbalance Cross would 

complement existing Nasdaq rules that 

are designed to protect the integrity of 

the market. Specifically, Nasdaq Rule 

4120 9 authorizes Nasdaq Regulation to 

halt trading in a security based upon 

news or an emergency in the market. In 

addition, Nasdaq Regulation also has 

the ability under Nasdaq Rule 11890 to 

break trades if the trades meet the 

definition of clearly erroneous 

transactions.10 The Commission notes 

that the Imbalance Cross shares 

characteristics with trading halts 

initiated pursuant to Nasdaq Rule 4120 

as well as with the evaluation of 

potential clearly erroneous trades 

pursuant to Nasdaq Rule 11890. The 

Threshold Ranges for the Imbalance 

Cross generally correspond to the 

thresholds established for clearly 

erroneous trades under Nasdaq IM–

11890–4 with the exception of 

executions priced under $1.75 which 

will be subject to a straightforward 15 

percent threshold. The Display Only 

Period is similar to the Display Only 

Period provided before the opening of a 

security subject to a trading halt 

initiated pursuant to Rule 4120. In 

addition, the dissemination of an Order 

Imbalance Indicator every 5 seconds is 

similar to the manner of reopening of 

securities that are the subject of a 

trading halt. 

The Commission believes that, as 

presently constituted and under current 

market conditions, Nasdaq’s Imbalance 

Cross trade qualifies for the singlepriced reopening exception under Rule 

611(b)(3) of Reg. NMS.11 Nasdaq’s 

Imbalance Cross will operate pursuant 

to written rules and procedures. When 

an Imbalance Cross is triggered in 

accordance with such rules, Nasdaq will 

call a formal trading halt during which 

time Nasdaq systems will be prohibited 

from executing orders. Members, 

however, may continue to enter quotes 

and orders, which will be queued 

during the 60-second Display Only 

Period. At the conclusion of the Display 

Only Period, the queued orders will be 

executed at a single price, pursuant to 

the rules governing the Imbalance Cross. 

Given the transparent and formalized 

process, the opportunity offered to all 

members to participate in the Imbalance 

Cross, and the infrequency with which 

Nasdaq anticipates the Imbalance Cross 

would be triggered,12 the Commission 

believes that the exception from the 

Order Protection Rule for single-priced 

reopenings applies with regard to the 

Imbalance Cross process. 

The Commission approves the 

proposal to establish the Imbalance 

Cross as a one-year pilot for an initial 

100 Nasdaq-listed securities. Nasdaq 

will file a proposed rule change if it 

decides to expand the pilot or 

implement the pilot on a permanent 

basis. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and in 

particular Section 6 of the Act and the 

rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule change (File No. SR–

NASDAQ–2007–067), as modified by 

Amendment No. 1, be and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–19783 Filed 8–25–08; 8:45 am] 

BILLING CODE 8010–01–P 


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