Document ID: SEC-2022-0266-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2022-02-24T05:00Z

[Federal Register Volume 87, Number 37 (Thursday, February 24, 2022)]
[Notices]
[Pages 10418-10419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03876]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94277; File No. SR-NASDAQ-2021-101]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving Proposed Rule Change To Amend Equity 4, Rule 4754 Relating to 
Certain Order Handling in the Limit Up-Limit Down Closing Cross

February 17, 2022.

I. Introduction

    On December 22, 2021, The Nasdaq Stock Market LLC (``Exchange'' or 
``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 amend Equity 4, Rule (``Rule'') 4754 relating 
to certain order handling in the Limit Up-Limit Down (``LULD'') closing 
cross. The proposed rule change was published for comment in the 
Federal Register on January 5, 2022.\3\ The Commission has not received 
any comment letters on the proposed rule change. This order approves 
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. 93876 (December 29, 
2021), 87 FR 501 (``Notice'').
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II. Description of the Proposed Rule Change

    The Nasdaq closing cross is the Exchange's process for determining 
the price at which orders will be executed at the close and for 
executing those orders.\4\ In advance of the closing cross, the 
Exchange disseminates an early order imbalance indicator (``EOII'') 
every 10 seconds, beginning at 3:50 p.m.\5\ until the order imbalance 
indicator (``NOII'') begins to disseminate.\6\ The Exchange 
disseminates the NOII every second, beginning at 3:55 p.m. until market 
close.\7\ Both the EOII and the NOII include, among other things, the 
current reference price for a security, which is the single price that 
is at or within the current Nasdaq best bid and offer at which the 
maximum number of shares of market on close, limit on close (``LOC''), 
and imbalance only orders can be paired.\8\
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    \4\ See Rule 4754(a)(6).
    \5\ All times referenced are in Eastern Time.
    \6\ See Rule 4754(b)(1)(A).
    \7\ See Rule 4754(b)(1)(B).
    \8\ See Rule 4754(a)(7)(A) (also setting forth various tie 
breakers if more than one price meets this definition) and Rule 
4754(a)(10).
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    Currently, Exchange participants may enter LOC orders between 4 
a.m. and immediately prior to 3:55 p.m. for participation in the 
closing cross.\9\ Exchange participants may also enter LOC orders 
between 3:55 p.m. and immediately prior to 3:58 p.m. (``Late LOC 
orders''), provided that there is a First Reference Price (i.e., the 
current reference price disseminated in the EOII at 3:50 p.m.) \10\ or 
a Second Reference Price (i.e., the current reference price 
disseminated in the NOII at 3:55 p.m.) \11\ for the security.\12\ A 
Late LOC order to buy (sell) is accepted at its limit price, unless its 
limit price is higher (lower) than the higher (lower) of the First 
Reference Price and the Second Reference Price, in which case the Late 
LOC order will be handled consistent with the participant's instruction 
that order is to be either rejected or re-priced to the higher (lower) 
of the First Reference Price and the Second Reference Price.\13\
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    \9\ See Rule 4702(b)(12).
    \10\ See Rule 4754(a)(9).
    \11\ See Rule 4754(a)(11).
    \12\ See Rule 4702(b)(12).
    \13\ See id. (also describing the rounding methodology if the 
First Reference Price or Second Reference Price is not at a 
permissible minimum increment).
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    The LULD closing cross is the Exchange's process for executing 
closing trades in Nasdaq-listed securities when an LULD trading pause 
exists at or after 3:50 p.m. and before 4:00 p.m.\14\ In May 2021, the 
Commission approved SR-NASDAQ-2021-009, which included certain changes 
to the Exchange's LULD closing cross process.\15\ As approved, 
consistent with the regular closing cross, the Exchange would 
disseminate the EOII for the LULD closing cross every 10 seconds 
beginning at 3:50 p.m. until the Exchange begins to disseminate the 
NOII, and the NOII would be disseminated every second beginning at 3:55 
p.m. until market close.\16\ Unlike the regular closing cross, the 
reference price contained in such EOII and NOII represents the price at 
which the LULD closing cross would execute should the cross conclude at 
that time, and that price is bound by benchmarks that are calculated 
using either the LULD price bands or the auction collars for reopening 
following an LULD trading pause, depending on the time the trading 
pause was initiated and whether the trading pause was extended.\17\ 
Also as approved in SR-NASDAQ-2021-009, consistent with the regular 
closing cross, LOC orders (including Late LOC orders) for the LULD 
closing cross may be entered, modified, and cancelled pursuant to Rule 
4702(b)(12).\18\ In accordance with Rule 4702(b)(12), the Exchange 
would determine whether Late LOC orders may be entered, rejected, or 
re-priced using the reference prices disseminated in the EOII and NOII.
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    \14\ See Rule 4754(b)(6).
    \15\ See Securities Exchange Act Release No. 92068 (May 28, 
2021), 86 FR 29864 (June 3, 2021). The Exchange has not yet 
implemented the changes made in SR-NASDAQ-2021-009. See Notice, 
supra note 3, at 501.
    \16\ See Rule 4754(b)(6)(C).
    \17\ See id. and Rule 4754(b)(6)(E).
    \18\ See Rule 4754(b)(6)(F)(ii).
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    The Exchange now proposes to amend the handling of Late LOC orders 
in an LULD closing cross. Specifically, for purposes of determining 
whether to accept, reject, or re-price a Late LOC order, the Exchange 
would use the First Reference Price and the Second Reference Price, if 
any, that was disseminated in the regular closing cross EOII and NOII, 
instead of any First Reference Price and Second Reference Price that 
was disseminated in the LULD closing cross EOII and NOII.

[[Page 10419]]

    Accordingly, as proposed, if a security entered an LULD trading 
pause prior and up to 3:50 p.m., the Exchange would not accept Late LOC 
orders in that security,\19\ because that security would not have a 
regular closing cross First Reference Price or Second Reference 
Price.\20\ In addition, if a security entered an LULD trading pause 
after 3:50 p.m. and up to 3:55 p.m., the Exchange would accept Late LOC 
orders in that security, provided that there is a regular closing cross 
First Reference Price.\21\ A security that entered an LULD trading 
pause after 3:50 p.m. and up to 3:55 p.m. could have a regular closing 
cross First Reference Price, but would not have a regular closing cross 
Second Reference Price.\22\ Finally, if a security entered an LULD 
trading pause after 3:55 p.m., the Exchange would accept Late LOC 
orders in that security, provided that there is a regular closing cross 
First Reference Price or Second Reference Price.\23\ A security that 
entered an LULD trading pause after 3:55 p.m. could have both a regular 
closing cross First Reference Price and a regular closing cross Second 
Reference Price.\24\
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    \19\ See proposed Rule 4754(b)(6)(F)(ii)(a).
    \20\ See Notice, supra note 3, at 503 n.15. A security that 
entered an LULD trading pause prior and up to 3:50 p.m. would 
instead have an LULD closing cross First Reference Price and Second 
Reference Price. See id. at 503.
    \21\ Such orders may then be rejected or subject to re-pricing 
in accordance with Rule 4702(b)(12), in either case consistent with 
the participant's instructions. See proposed Rule 
4754(b)(6)(F)(ii)(b).
    \22\ See Notice, supra note 3, at 503 n.16. A security that 
entered an LULD trading pause after 3:50 p.m. and up to 3:55 p.m. 
would instead have an LULD closing cross Second Reference Price. See 
id. at 503.
    \23\ Such orders may then be rejected or subject to re-pricing 
in accordance with Rule 4702(b)(12), in either case consistent with 
the participant's instructions. See proposed Rule 
4754(b)(6)(F)(ii)(c).
    \24\ See Notice, supra note 3, at 503 n.17.
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III. Discussion and Commission Findings

    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.\25\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\26\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in 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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    \25\ 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).
    \26\ 15 U.S.C. 78f(b)(5).
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    As described above, the Exchange proposes to use the First 
Reference Price and the Second Reference Price, if any, that was 
disseminated in the regular closing cross EOII and NOII, for purposes 
of determining whether to accept, reject, or re-price a Late LOC order 
in the LULD closing cross. The Commission believes that the Exchange's 
proposal would allow consistent handling of Late LOC orders in the LULD 
closing cross and the regular closing cross. The Commission also 
believes that the proposal would allow the Exchange to consistently use 
reference prices that are bound by the Nasdaq best bid and offer (i.e., 
the First Reference Price and Second Reference Price, if any, 
disseminated for the regular closing cross) for purposes of determining 
whether to accept, reject, or re-price Late LOC orders, regardless of 
whether a security entered an LULD trading pause prior and up to 3:50 
p.m., after 3:50 p.m. and up to 3:55 p.m., or after 3:55 p.m.\27\ 
Accordingly, the Commission believes that the proposal would promote a 
more consistent experience for Exchange participants that choose to 
submit Late LOC orders to participate in the Exchange's closing 
crosses.
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    \27\ See supra notes 20, 22, and 24 and accompanying text 
(describing the different First and Second Reference Prices that are 
calculated for a security, depending on whether the security entered 
an LULD trading pause prior and up to 3:50 p.m., after 3:50 p.m. and 
up to 3:55 p.m., or after 3:55 p.m.).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-NASDAQ-2021-101), be, and 
hereby is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03876 Filed 2-23-22; 8:45 am]
BILLING CODE 8011-01-P