Document ID: SEC-2013-0279-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2013-02-08T05:00Z

[Federal Register Volume 78, Number 27 (Friday, February 8, 2013)]
[Notices]
[Pages 9438-9440]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02799]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68819; File No. SR-NASDAQ-2013-022]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Extend a Pilot Program Related to Rule 11890, Entitled ``Clearly 
Erroneous Transactions''

February 1, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on January 31, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by NASDAQ. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    NASDAQ is filing with the Commission a proposal to extend a pilot 
program related to Rule 11890, entitled ``Clearly Erroneous 
Transactions.'' The Exchange also proposes to adopt new paragraph (g) 
to Rule 11890 in connection with the upcoming operation of the Plan to 
Address Extraordinary Market Volatility Pursuant to Rule 608 of 
Regulation NMS under the Act (the ``Limit Up-Limit Down Plan'' or 
``Plan'').\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
---------------------------------------------------------------------------

    The text of the proposed rule change is available from NASDAQ's Web 
site at http://nasdaq.cchwallstreet.com, at NASDAQ's principal office, 
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, NASDAQ 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. NASDAQ 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 this filing is to extend the effectiveness of the 
Exchange's current rule applicable to Clearly Erroneous Transactions 
and to adopt new paragraph (g) to Rule 11890 in connection with 
upcoming operation of the Limit Up-Limit Down Plan.
Proposal To Extend Pilot
    Portions of Rule 11890, explained in further detail below, are 
currently operating as a pilot program set to expire on February 4, 
2013.\4\ The Exchange proposes to extend the pilot program to September 
30, 2013.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 67536 (July 30, 
2012), 77 FR 46541 (August 3, 2012) (SR-NASDAQ-2012-091).
---------------------------------------------------------------------------

    On September 10, 2010, the Commission approved, on a pilot basis, 
changes to NASDAQ Rule 11890 to provide for uniform treatment: (1) Of

[[Page 9439]]

clearly erroneous transaction reviews in multi-stock events involving 
twenty or more securities; and (2) in the event transactions occur that 
result in the issuance of an individual stock trading pause by the 
primary market and subsequent transactions that occur before the 
trading pause is in effect on the Exchange.\5\ The Exchange also 
adopted additional changes to Rule 11890 that reduced the ability of 
the Exchange to deviate from the objective standards set forth in Rule 
11890.\6\ The Exchange believes the benefits to market participants 
from the more objective clearly erroneous transactions rule should 
continue on a pilot basis through September 30, 2013, which is the date 
that the Exchange anticipates that the phased implementation of the 
Limit Up-Limit Down Plan will be complete. As explained in further 
detail below, although the Limit Up-Limit Down Plan is intended to 
prevent transactions that would need to be nullified as clearly 
erroneous, the Exchange believes that certain protections should be 
maintained while the industry gains initial experience operating with 
the Limit Up-Limit Down Plan, including the provisions of Rule 11890 
that currently operate as a pilot.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 62886 (September 10, 
2010), 75 FR 56613 (September 16, 2010) (SR-NASDAQ-2010-076).
    \6\ Id.
---------------------------------------------------------------------------

Proposed Limit Up-Limit Down Provision to Rule 11890
    The Exchange proposes to adopt new paragraph (g) to Rule 11890, to 
provide that the existing provisions of Rule 11890 will continue to 
apply to all Exchange transactions, including transactions in 
securities subject to the Plan, other than as set forth in proposed 
paragraph (g). Accordingly, other than as proposed below, the Exchange 
proposes to maintain and continue to apply the Clearly Erroneous 
Transaction standards in the same way that it does today. Notably, this 
means that the Exchange might nullify transactions that occur within 
the price bands disseminated pursuant to the Limit Up-Limit Down Plan 
to the extent such transactions qualify as clearly erroneous under 
existing criteria. As an example, assume that a Tier 1 security 
pursuant to the Plan has a reference price pursuant to both the Plan 
and Rule 11890 of $100.00. The lower pricing band under the Plan would 
be $95.00 and the upper pricing band under the Plan would be $105.00. 
An execution could occur on the Exchange in this security at $96.00, as 
this is within the Plan's pricing bands. However, if subjected to 
review as potentially clearly erroneous, the Exchange would nullify an 
execution at $96.00 as clearly erroneous because it exceeds the 3% 
threshold that is in place pursuant to Rule 11890(a)(2)(C)(1) for 
securities priced above $50.00 (i.e., with a reference price of 
$100.00, any transactions at or below $97.00 or above $103.00 could be 
nullified as clearly erroneous). Accordingly, this proposal maintains 
the status quo with respect to reviews of Clearly Erroneous 
Transactions and the application of objective numerical guidelines by 
the Exchange. The proposal does not increase the discretion afforded to 
the Exchange in connection with reviews of Clearly Erroneous 
Transactions.
    The Limit Up-Limit Down Plan is designed to prevent executions from 
occurring outside of dynamic price bands disseminated to the public by 
the single plan processor as defined in the Limit Up-Limit Down 
Plan.\7\ The possibility remains that the Exchange could experience a 
technology or systems problem with respect to the implementation of the 
price bands disseminated pursuant to the Plan. To address such 
possibilities, the Exchange proposes to adopt language to make clear 
that if an Exchange technology or systems issue results in any 
transaction occurring outside of the price bands disseminated pursuant 
to the Plan, a Senior Official of the Exchange, acting on his or her 
own motion or at the request of a third party, shall review and declare 
any such trades null and void. Absent extraordinary circumstances, any 
such action of the Senior Official of the Exchange shall be taken in a 
timely fashion, generally within thirty (30) minutes of the detection 
of the erroneous transaction. When extraordinary circumstances exist, 
any such action of the Senior Official of the Exchange must be taken by 
no later than the start of Regular Trading Hours \8\ on the trading day 
following the date on which the execution(s) under review occurred. 
Although the Exchange will act as promptly as possible and the proposed 
objective standard (i.e., whether an execution occurred outside the 
band) should make it feasible to quickly make a determination, there 
may be circumstances in which additional time may be needed for 
verification of facts or coordination with outside parties, including 
the single plan processor responsible for disseminating the price bands 
and other market centers. Accordingly, the Exchange believes it 
necessary to maintain some flexibility to make a determination outside 
of the thirty (30) minute guideline. In addition, the Exchange proposes 
that a transaction that is nullified pursuant to new paragraph (g) 
would be appealable in accordance with the provisions of Rule 11890(c). 
In addition, the Exchange proposes to make clear that in the event that 
a single plan processor experiences a technology or systems problem 
that prevents the dissemination of price bands, the Exchange would make 
the determination of whether to nullify transactions based on Rule 
11890(a)-(f).
---------------------------------------------------------------------------

    \7\ See Limit Up-Limit Down Release, supra note 3.
    \8\ Regular Trading Hours commence at 9:30 a.m. Eastern Time. 
See NASDAQ Rule 11890(a)(2)(B).
---------------------------------------------------------------------------

    The Exchange believes that cancelling trades that occur outside of 
the price bands disseminated pursuant to the Plan is consistent with 
the purpose and intent of the Plan, as such transactions are not 
intended to occur in the first place. If transactions do occur outside 
of the price bands and no exception applies--which necessarily would be 
caused by a technology or systems issue--then the Exchange believes the 
appropriate result is to nullify such transactions.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\9\ In particular, the 
proposal is consistent with Section 6(b)(5) of the Act,\10\ because it 
would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system. The Exchange believes that the pilot 
program promotes just and equitable principles of trade in that it 
promotes transparency and uniformity across markets concerning review 
of transactions as clearly erroneous. More specifically, the Exchange 
believes that the extension of the pilot would help assure that the 
determination of whether a clearly erroneous trade has occurred will be 
based on clear and objective criteria, and that the resolution of the 
incident will occur promptly through a transparent process. The 
proposed rule change would also help assure consistent results in 
handling erroneous trades across the U.S. markets, thus furthering fair 
and orderly markets, the protection of investors and the public 
interest. Although the Limit Up-Limit

[[Page 9440]]

Down Plan will be operational during the same time period as the 
proposed extended pilot, the Exchange believes that maintaining the 
pilot for at least through the phased implementation of the Plan is 
operational will help to protect against unanticipated consequences. To 
that end, the extension will allow the Exchange to determine whether 
Rule 11890 is necessary once the Plan is operational and, if so, 
whether improvements can be made. Further, the Exchange believes it 
consistent with the protection of investors and the public interest to 
adopt objective criteria to nullify transactions that occur outside of 
the Plan's price bands when such transactions should not have been 
executed but were due to a systems or technology issue.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 
implicates any competitive issues. To the contrary, the Exchange 
believes that FINRA and other national securities exchanges are also 
filing similar proposals, and thus, that the proposal will help to 
ensure consistent rules across market centers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b 4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------

    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
as it will allow the pilot program to continue uninterrupted, thereby 
avoiding the investor confusion that could result from a temporary 
interruption in the pilot program. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\13\
---------------------------------------------------------------------------

    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-022 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2013-022. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room on official business 
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal offices 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-NASDAQ-2013-022, and should be submitted on or before 
March 1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02799 Filed 2-7-13; 8:45 am]
BILLING CODE 8011-01-P