Document ID: SEC-2012-1377-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2012-08-22T04:00Z

[Federal Register Volume 77, Number 163 (Wednesday, August 22, 2012)]
[Notices]
[Pages 50738-50740]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20594]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67678; File No. SR-NASDAQ-2012-094]

 Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Remove the Expired Pilot Under Rule 4753(c) From the NASDAQ Rule Book

August 16, 2012.
    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 August 3, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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.
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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 remove the expired pilot under Rule 4753(c) (the 
``Volatility Guard'') from the NASDAQ rule book. NASDAQ will remove the 
rule text 30 days after the filing date of this proposal.
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in [brackets].
* * * * *

4753. Nasdaq Halt and Imbalance Crosses

    (a)-(b) No change.
    (c) Reserved. [For a pilot period ending the earlier of July 31, 
2012 or the date on which, if approved, a limit up/limit down mechanism 
to address extraordinary market volatility, is approved, between 9:30 
a.m. and 3:35 p.m. EST, the System will automatically monitor System 
executions to determine whether the market is trading in an orderly 
fashion and whether to conduct an Imbalance Cross in order to restore 
an orderly market in a single Nasdaq Security.
    (1) An Imbalance Cross shall occur if the System executes a 
transaction in a Nasdaq Security at a price that is beyond the 
Threshold Range away from the Triggering Price for that security. The 
Triggering Price for each Nasdaq Security shall be the price of any 
execution by the System in that security within the prior 30 seconds. 
The Threshold Range shall be determined as follows:

------------------------------------------------------------------------
                                                        Threshold range
                                                           away from
                   Execution price                     triggering price
                                                           (percent)
------------------------------------------------------------------------
$1.75 and under.....................................                  15
Over $1.75 and up to $25............................                  10
Over $25 and up to $50..............................                   5
Over $50............................................                   3
------------------------------------------------------------------------

    (2) If the System determines pursuant to subsection (1) above to 
conduct an Imbalance Cross in a Nasdaq Security, the System shall 
automatically cease executing trades in that security for a 60-second 
Display Only Period. During that 60-second Display Only Period, the 
System shall:
    (A) Maintain all current quotes and orders and continue to accept 
quotes and orders in that System Security; and
    (B) Disseminate by electronic means an Order Imbalance Indicator 
every 5 seconds.
    (3) At the conclusion of the 60-second Display Only Period, the 
System shall re-open the market by executing the Nasdaq Halt Cross as 
set forth in subsection (b)(2)-(4) above.
    (4) If the opening price established by the Nasdaq Halt Cross 
pursuant to subsection (b)(2)(A)-(D) above is outside the benchmarks 
established by Nasdaq by a threshold amount, the Nasdaq Halt Cross will 
occur at the price within the threshold amounts that best satisfies the 
conditions of subparagraphs (b)(2)(A) through (D) above. Nasdaq 
management shall set and modify such benchmarks and thresholds from 
time to time upon prior notice to market participants.]
    (d) 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ is proposing to remove the expired pilot under Rule 4753(c) 
from the rule book. On June 18, 2010, NASDAQ filed a rule change for 
Commission approval, proposing to adopt Volatility Guard as a six month 
pilot in 100 NASDAQ-listed securities.\3\ NASDAQ proposed implementing 
the Volatility Guard pilot as a means to address aberrant trading 
volatility on the Exchange, in part, as a response to the unprecedented 
aberrant volatility witnessed on May 6, 2010 and the limited effect 
that NASDAQ's market collars had in dampening such volatility.
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    \3\ Securities Exchange Act Release No. 64071 (March 11, 2011), 
76 FR 14699 (March 17, 2011) (SR-NASDAQ-2010-074). The proposal was 
amended to identify the 100 pilot securities as the securities 
comprising NASDAQ 100 Index. See Amendment 1 to SR-NASDAQ-2010-074.
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    On March 11, 2011, the Commission approved the Volatility Guard. 
Important to its subsequent determination to hold the implementation of 
Volatility Guard in abeyance, NASDAQ notes that the Commission stated 
in approving Volatility Guard that it may find exchange-specific 
volatility moderators inconsistent with the Act once a uniform, cross-
market mechanism to address aberrant volatility is adopted. 
Specifically, the Commission stated:

    [T]hat it is continuing to work diligently with the exchanges 
and FINRA to develop an appropriate consistent cross-market 
mechanism to moderate excessive volatility that could be applied 
widely to individual exchange-listed securities and to address 
commenters' concerns regarding the complexity and potential 
confusion of exchange-specific volatility moderators. To the extent 
the Commission approves such a mechanism, whether it be an expanded 
circuit breaker with a limit up/limit down feature or otherwise, the 
Commission may no longer be able to find that exchange-specific 
volatility moderators--including both Nasdaq's Volatility Guard and 
the NYSE's LRPs--are consistent with the Act.\4\
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    \4\ Id. at 14701 (emphasis added).

    During the time that the Volatility Guard pilot was progressing 
through the notice and comment process with the Commission, NASDAQ 
together with the other national securities exchanges and FINRA 
(``SROs'') and in

[[Page 50739]]

consultation with the Commission, worked diligently to implement 
changes to the markets to prevent another event like May 6, 2010 from 
occurring. One such joint effort was a proposed limit up/limit down 
mechanism to replace the single stock circuit breaker pilots currently 
in place. On April 5, 2011, the SROs filed with the Commission a 
national market system plan to address extraordinary market volatility, 
which proposed a market-wide limit up/limit down mechanism applicable 
to all NMS stocks (the ``Plan'').\5\ Because NASDAQ believed that a 
limit up/limit down mechanism, as proposed in the Plan, would be 
preferable to disparate individual market solutions to aberrant 
volatility, and because the Commission indicated that it may not find 
exchange-specific volatility moderators consistent with the Act, the 
Exchange determined to extend the pilot to January 31, 2011 yet hold 
implementation of the Volatility Guard pilot in abeyance.\6\ On January 
27, 2012, NASDAQ filed an immediately effective filing to extend the 
operative period of the Volatility Guard pilot, while continuing to 
hold it in abeyance, so that it would expire the earlier of July 31, 
2012 or the date on which, if approved, a limit up/limit down mechanism 
to address extraordinary market volatility, is approved.\7\
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    \5\ Securities Exchange Act Release No. 64547 (May 25, 2011), 76 
FR 31647 (June 1, 2011) (File No. 4-631).
    \6\ Securities Exchange Act Release No. 65176 (August 19, 2011), 
76 FR 53518 (August 26, 2011) (SR-NASDAQ-2011-117).
    \7\ Securities Exchange Act Release No. 66275 (January 30, 
2012), 77 FR 5606 (February 3, 2012) (SR-NASDAQ-2012-019).
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    On May 31, 2012, the Commission approved the Plan on a pilot basis, 
with an implementation date of February 4, 2013.\8\ In approving the 
Plan, the Commission stated:

    \8\ Securities Exchange Act Release No. 67091 (May 31, 2012), 77 
FR 33498 (June 6, 2012).

    The Commission notes that some of the comments focused on the 
relation between the Plan, and other, exchange-specific volatility 
mechanisms, including the NYSE Liquidity Replenishment Points, and 
the Nasdaq Volatility Guard. While a stated purpose of the Plan is 
to replace the current single-stock circuit breaker, the Commission 
is also aware of the potential for unnecessary complexity that could 
result if the Plan were adopted, and exchange-specific volatility 
mechanisms were retained. To this end, the Commission expects that, 
upon implementation of the Plan, such exchange-specific volatility 
mechanisms would be discontinued by the respective exchanges. In 
that regard, the Commission notes that one such mechanism, the 
Nasdaq Volatility Guard, is currently set to expire on the earlier 
of July 31, 2012, or the date on which the Plan is approved by the 
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Commission.\9\

    \9\ Id. at 33510, n. 182 (emphasis added).
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    In light of the Commission's multiple statements concerning its 
expectation that exchanged-based volatility moderators, such as the 
Volatility Guard and the NYSE Liquidity Replenishment Point process, 
would be discontinued by their respective exchanges, NASDAQ is hereby 
proposing to eliminate the Volatility Guard rule text from its 
rulebook.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\10\ in general and with 
Sections 6(b)(5) of the Act,\11\ in particular in that it is 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.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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    NASDAQ believes that the proposed rule change meets these 
requirements in that it promotes the adoption of the Plan's uniform, 
cross-market limit up/limit down process to address aberrant volatility 
by eliminating an exchange-specific process that may add complexity and 
be potentially confusing to market participants. In this regard, NASDAQ 
notes that Volatility Guard, like other market-specific volatility 
mechanisms such as the NYSE Liquidity Replenishment Point program, may 
not be consistent with the Act upon implementation of the limit up/
limit down mechanism to address extraordinary market volatility.

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

    NASDAQ 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, as amended.

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 \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \13\ 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. NASDAQ has 
provided the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the date of 
filing of the proposed rule change.

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 No. SR-NASDAQ-2012-094 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 No. SR-NASDAQ-2012-094. 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

[[Page 50740]]

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 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 No. SR-NASDAQ-2012-094 and should be submitted on or before 
September 12, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20594 Filed 8-21-12; 8:45 am]
BILLING CODE 8011-01-P