Document ID: SEC-2013-0979-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2013-05-24T04:00Z

[Federal Register Volume 78, Number 101 (Friday, May 24, 2013)]
[Notices]
[Pages 31616-31619]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12407]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69611; File No. SR-NASDAQ-2013-077]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4751(f)(15)

 May 20, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 10, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II and 
III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to amend Rule 4751(f)(15). The text of the proposed 
rule change is below. Proposed deletions are in brackets; new language 
is italicized.
* * * * *

4751. Definitions

    The following definitions apply to the Rule 4600 and 4750 Series 
for the trading of securities listed on Nasdaq or a national securities 
exchange other than Nasdaq.
    (a)-(e) No change.
    (f) The term ``Order Type'' shall mean the unique processing 
prescribed for

[[Page 31617]]

designated orders that are eligible for entry into the System, and 
shall include:
    (1)-(14) No change.
    (15) ``Market Maker Peg Order'' is a limit order that, upon entry, 
the bid or offer is automatically priced by the System at the 
Designated Percentage away from the then current National Best Bid and 
National Best Offer, or if no National Best Bid or National Best Offer, 
at the Designated Percentage away from the last reported sale from the 
responsible single plan processor in order to comply with the quotation 
requirements for Market Makers set forth in Rule 4613(a)(2). Upon 
reaching the Defined Limit, the price of a Market Maker Peg Order bid 
or offer will be adjusted by the System to the Designated Percentage 
away from the then current National Best Bid and National Best Offer, 
or, if no National Best Bid or National Best Offer, to the Designated 
Percentage away from the last reported sale from the responsible single 
plan processor. If a Market Maker Peg Order bid or offer moves away 
from the Designated Percentage towards the then current National Best 
Bid or National Best Offer, as appropriate, by [the greater of (a) ]4 
percentage points[, or, (b) one-quarter the applicable percentage 
necessary to trigger an individual stock trading pause as described in 
Rule 4120(a)(11), or expands to within that same percentage less 0.5%], 
the price of such bid or offer will be adjusted to the Designated 
Percentage away from the then current National Best Bid and National 
Best Offer, or if no National Best Bid or National Best Offer, to the 
Designated Percentage away from the last reported sale from the 
responsible single plan processor. In the absence of a National Best 
Bid or National Best Offer and if no last reported sale, the order will 
be cancelled or rejected. If, after entry, the Market Maker Peg Order 
is priced based on the consolidated last sale and such Market Maker Peg 
Order is established as the National Best Bid or National Best Offer, 
the Market Maker Peg Order will not be subsequently adjusted in 
accordance with this rule until either there is a new consolidated last 
sale, or a new National Best Bid or new National Best Offer is 
established by either a national securities exchange or NASDAQ. Market 
Maker Peg Orders are not eligible for routing pursuant to Rule 4758 and 
are always displayed on NASDAQ. Notwithstanding the availability of 
Market Maker Peg Order functionality, a Market Maker remains 
responsible for entering, monitoring, and resubmitting, as applicable, 
quotations that meet the requirements of Rule 4613. A new timestamp is 
created for the order each time that it is automatically adjusted. For 
purposes of this paragraph, NASDAQ will apply the Designated Percentage 
and Defined Limit as set forth in Rule 4613, subject to the following 
exception. Nothing in this rule shall preclude a Market Maker from 
designating a more aggressive offset from the National Best Bid or 
National Best Offer than the given Designated Percentage for any 
individual Market Maker Peg Order. If a Market Maker designates a more 
aggressive offset from the National Best Bid or National Best Offer, 
the price of a Market Maker Peg Order bid or offer will be adjusted by 
the System to maintain the Market Maker-designated offset from the 
National Best Bid or National Best Offer, or if no National Best Bid or 
National Best Offer, the order will be cancelled or rejected.
    (g)-(i) No change.
* * * * *

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 those statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ is proposing to simplify the calculation of the price 
adjustment trigger of the Market Maker Peg Order (``MMPO'') under Rule 
4751(f)(15). The MMPO is an order type available only to Exchange 
market makers that provides a means by which a market maker may comply 
with its market making obligations under Rule 4613(a), but also 
maintain an order price a certain percentage from the National Best Bid 
or National Best Offer. The MMPO was adopted as a replacement to the 
Exchange's automated quotation functionality, which was retired in 
February 2013.\3\ When NASDAQ adopted the MMPO, it applied the same 
triggering percentages used by AQR to initiate a repricing of the 
market maker's quote. Specifically, MMPO price adjustment occurs if 
upon entry and at any time the order exceeds either the Defined Limit 
\4\, as described in Rule 4613(a)(2)(E), or moves away from the 
Designated Percentage \5\ towards the then current National Best Bid or 
National Best Offer, as appropriate, by the greater of (a) 4 percentage 
points, or, (b) one-quarter the applicable percentage necessary to 
trigger an individual stock trading pause as described in Rule 
4120(a)(11), or expands to within that same percentage less 0.5 
percent. Once price adjustment is triggered, the MMPO is priced by the 
Exchange at the Designated Percentage away from the then current 
National Best Bid and National Best Offer, or, if no National Best Bid 
or National Best Offer, to the Designated Percentage away from the last 
reported sale from the responsible single plan processor. In the 
absence of a National Best Bid or National Best Offer and last reported 
sale, the order will be cancelled or rejected. Adjustment to the 
Designated Percentage is designed to avoid an execution against a MMPO 
that would initiate a single stock circuit breaker.
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    \3\ The automated quotation functionality was previously under 
Rules 4613(a)(2)(F) and (G). See Securities Exchange Act Release No. 
68528 (December 21, 2012), 77 FR 77165 (December 31, 2012) (SR-
NASDAQ-2012-140).
    \4\ The term Defined Limit is defined by Rule 4613(a)(2)(E) as 
9.5% for securities subject to Rule 4120(a)(11)(A), 29.5% for 
securities subject to Rule 4120(a)(11)(B), and 31.5% for securities 
subject to Rule 4120(a)(11)(C), except that between 9:30 a.m. and 
9:45 a.m. and between 3:35 p.m. and the close of trading, when Rule 
4120(a)(11) is not in effect, the Defined Limit shall be 21.5% for 
securities subject to Rule 4120(a)(11)(A), 29.5% for securities 
subject to Rule 4120(a)(11)(B), and 31.5% for securities subject to 
Rule 4120(a)(11)(C).
    \5\ The Designated Percentage is the individual stock pause 
trigger percentage under Rule 4120(a)(11) less two (2) percentage 
points and is defined by Rule 4613(a)(2)(D) as 8% for securities 
subject to Rule 4120(a)(11)(A), 28% for securities subject to Rule 
4120(a)(11)(B), and 30% for securities subject to Rule 
4120(a)(11)(C), except that between 9:30 a.m. and 9:45 a.m. and 
between 3:35 p.m. and the close of trading, when Rule 4120(a)(11) is 
not in effect, the Designated Percentage shall be 20% for securities 
subject to Rule 4120(a)(11)(A), 28% for securities subject to Rule 
4120(a)(11)(B), and 30% for securities subject to Rule 
4120(a)(11)(C). The Designated Percentage for rights and warrants 
shall be 30%.
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    In an effort to simplify the calculation of the price adjustment 
trigger of the MMPO when it moves toward the National Best Bid or 
National Best Offer, NASDAQ is proposing to eliminate the trigger based 
on a one quarter of the applicable percentage necessary to trigger an 
individual stock trading pause. As currently written, once a market 
maker enters a MMPO Rule 4751(f)(15) requires NASDAQ to constantly 
compare the 4 percent threshold to \1/4\ of the applicable Rule 
4120(a)(11) percentage in order to

[[Page 31618]]

determine whether repricing to the Designated Percentage must occur. 
For example, if a market maker enters a bid MMPO at 11am in a security 
subject to Rule 4120(a)(11)(A) when the market is $10 x $10.01, it 
would initially be priced at $9.20 (the Designated Percentage for such 
securities is 8%). If the NBB moves within 4% of the MMPO to $9.57 (4% 
is greater than \1/4\ of the 10% Rule 4120(a)(11)(A) trigger, which is 
2.5%) the MMPO should reprice to the Designated Percentage away from 
the then current NBB, which in this case would result in the MMPO 
repricing to $8.80 ($9.57 x 92%). If, instead, the security was subject 
to Rule 4120(a)(11)(B), it would be initially priced at $7.20 (the 
Designated Percentage for such securities is 28%). If the NBB moves 
within 7.5% of the MMPO to $7.74 (\1/4\ of the 30% Rule 4120(a)(11)(B) 
trigger is 7.5%, which is greater than 4%) the MMPO should reprice to 
the Designated Percentage away from the then current NBB, which in this 
case would result in the MMPO repricing to $5.57 ($7.74 x 72%). Under 
the proposed language, the MMPO in this last example would not reprice 
when the NBB reaches $7.74, but rather reprice when the NBB reached 
$7.49, which is within 4% of the MMPO. In this example, the MMPO would 
then reprice to $5.39, which is the Designated Percentage from the NBB 
of $7.49.
    NASDAQ believes that applying a 4 percent threshold to all 
securities is a better method because it reduces complexity in 
calculating the repricing trigger price by repricing only when the NBB 
or NBO moves to within 4% of the MMPO price.\6\ NASDAQ notes that the 
MMPO will operate unchanged for the larger, more liquid securities 
covered by Rule 4120(a)(11)(A). Securities subject to Rule 
4120(a)(11)(A) are always subject to the 4 percent threshold, since \1/
4\ of the Rule 4120(a)(11)(A) threshold of 10 percent equals 2.5 
percent. Securities covered by Rules 4120(a)(11)(B) and (C) are less 
liquid and, in the case of securities covered by subparagraph (C), are 
below a dollar. Rules 4120(a)(11)(B) and (C) apply 30 and 50 percent 
thresholds, respectfully, in triggering a single stock circuit breaker. 
Therefore, the MMPO threshold for such securities, is \1/4\ of 30 and 
50 percent, or 7.5 and 12.5 percent, respectively. As a consequence, 
under the proposed change, the MMPO will not reprice to the Designated 
Percentage until the price move percentage is closer to the National 
Best Bid or National Best Offer than is currently the case (i.e., 4 
percent as compared to 7.5 or 12.5 percent). NASDAQ does not believe 
that this will in any way negatively affect trading in these 
securities. A MMPO is not typically executed against and NASDAQ does 
not believe that applying a 4 percent threshold to all securities will 
materially increase the likelihood of an MMPO being executed. NASDAQ 
will continue to adjust the price of a MMPO that reaches the Defined 
Limit.
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    \6\ NASDAQ notes that the MMPO currently operates in the manner 
proposed by this rule change. As such, the proposed change will 
align the rule text with the current operation of the MMPO.
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    NASDAQ is also proposing to eliminate language from the rule text 
that is duplicative of other descriptive language. Specifically, NASDAQ 
is deleting the language that follows subparagraph (b) of the rule, 
which states ``or expands to within that same percentage less 0.5%.'' 
This language summarizes the repricing of the MMPO upon reaching the 
Defined Limit, which is described in the preceding sentence. 
Accordingly, the proposed deletion does not change how the MMPO 
operates, but rather deletes text that is redundant and could be 
confusing.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\7\ which requires the rules of an exchange to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, to protect investors and the public interest. The 
Exchange believes that the proposed rule meets these requirements in 
that it reduces complexity in making the determination to adjust the 
price of a MMPO. The Exchange notes that the calculation that it is 
proposing will have no effect on securities subject to Rule 
4120(a)(11)(A), but will result in securities covered by Rules 
4120(a)(11)(B) and (C) to reprice to the Designated Percentage at a 
point closer to the National Best Bid or National Best Offer. NASDAQ 
does not believe that repricing at 4 percent for all securities will 
result in a material increase in executions of MMPOs. Accordingly, 
removing the price adjustment threshold based on a calculation of \1/4\ 
of the percentages under Rules 4120(a)(11)(B) and (C) will reduce the 
complexity of calculations under the rule without reducing the 
effectiveness of the order. Last, NASDAQ believes that removing 
duplicative, and possibly confusing, language from the rule will 
promote the public interest by clarifying the operation of the MMPO.
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    \7\ 15 U.S.C. 78f(b)(5).
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 B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
change is designed to reduce the complexity of the price adjustment 
triggers under the rule while continuing to maintain a market maker's 
quote so that it meets its market making obligations. Moreover, the 
proposed change will align the rule text with the current operation of 
the order type. As such, the Exchange does not believe that the rule 
will impact competition in any way.

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 foregoing 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, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \8\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \9\ 17 CFR 240.19b-4(f)(6).
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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 31619]]

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-2013-077 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-2013-077. 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, 100 F 
Street NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of 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-2013-077, and 
should be submitted on or before June 14, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12407 Filed 5-23-13; 8:45 am]
BILLING CODE 8011-01-P