Document ID: SEC-2015-0606-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2015-04-09T04:00Z

[Federal Register Volume 80, Number 68 (Thursday, April 9, 2015)]
[Notices]
[Pages 19099-19102]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08109]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74644; File No. SR-NASDAQ-2015-031]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding Rule 4758

April 3, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on March 30, 2015, 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 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\ 15 U.S.C. 78a.
    \3\ 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

    The Exchange proposes to amend Rule 4758 (Order Routing) to (a) 
explain the treatment of a DOT or DOTI order designated to participate 
in the closing only; (b) explain the treatment of a LIST order 
designated to participate in the closing only; and (c) explain the 
treatment of a LIST order in the after-hours market.\4\ The Exchange 
also proposes to make technical changes to further explain the language 
of the rule.
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    \4\ For a description of market sessions and hours on the 
Exchange, see Rule 4120(b)(4). DOT, DOTI, and LIST orders are 
defined below.
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    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at the Exchange'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, the Exchange 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. The Exchange 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
    The purpose of this proposed rule change is to amend subsection 
(a)(1)(A) of Rule 4758 to: (a) Explain the treatment of a DOT or DOTI 
order designated to participate in the closing only; (b) explain the 
treatment of a LIST order designated to participate in the closing 
only; and (c) explain the treatment of a LIST order in the after-hours 
market. The Exchange also proposes to make technical changes to further 
explain the language of the rule.
    NASDAQ offers its members optional routing functionality that 
allows them to use NASDAQ's facilities to access liquidity available on 
other trading venues. The functionality includes a range of defined 
routing algorithms--known as strategies--that determine the 
destinations and pattern of routing. The particular pattern of routing 
to other venues associated with a particular strategy is referred to in 
Rule 4758 as the ``System routing table.'' All routing is designed to 
be conducted in a manner consistent with the requirements of Regulation 
NMS.
    NASDAQ currently offers a set of strategies designed to allow 
market participants to route orders to the primary market on which a 
security is listed. NASDAQ is proposing minor

[[Page 19100]]

changes to these strategies to improve their functioning and make clear 
the language of the rule. As an example, NASDAQ currently offers the 
DOT strategy (which includes several variations) as a means of 
designating an order for routing to the New York Stock Exchange 
(``NYSE'') or NYSE MKT (formerly NYSE Amex) for participation in their 
respective opening or closing processes. DOT orders are routed directly 
to NYSE or NYSE MKT, as appropriate. After attempting to execute in the 
opening or closing process, if any shares remain unexecuted, DOT orders 
thereafter check the NASDAQ Market Center System for available shares 
and behave as SCAN or STGY orders, depending on the designation of the 
entering firm.\5\ DOTI and LIST strategies are discussed below.
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    \5\ STGY is a routing option under which orders check the System 
for available shares and simultaneously route the remaining shares 
to destinations on the applicable System routing table. If shares 
remain un-executed after routing, they are posted on the NASDAQ 
book. Once the order is on the book, if the order is subsequently 
locked or crossed by another accessible market center, the System 
routes the order to the locking or crossing market center. SCAN 
behaves similarly, but once the order is on the NASDAQ book, the 
System will not route the order to a locking or crossing market 
center. Although both options are described in Rule 4758 as 
variations of the DOT strategy, NASDAQ's system specifications refer 
to the SCAN option as either ``DOTA'' or ``DOTD'' and refer to the 
STGY option as ``DOTM.''
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The Proposal
    First, NASDAQ is proposing to modify the language of subsection 
(a)(1)(A) of Rule 4758 to make it clear that a DOT order may be 
designated to participate in the opening only or in the closing only, 
with different outcomes. Currently, an order entered before the open 
(or close) that is designated as opening only (or closing only) will 
likely be cancelled by the destination market after the open (or close) 
in accordance with its terms and therefore will not return to NASDAQ, 
even if not executed in full. Similarly, if NASDAQ receives a DOT order 
after the security has opened (or closed) and the order has been 
designated to participate in the opening only (or closing only), the 
order will nevertheless be routed to NYSE or NYSE MKT (which would be 
expected to reject the order based on its designation as opening only 
or closing only).\6\ Specifically, the Exchange proposes in subsection 
(a)(1)(A)(i) of Rule 4758 to delete the option of a DOT order being 
designated to participate in the closing only at the proper time as 
described below, in which case a closing only order would be expected 
to be rejected by the destination market and would also be cancelled by 
NASDAQ if returned by the destination market. The Exchange proposes new 
language in subsection (a)(1)(A)(i) stating that if a DOT order entered 
in NYSE or NYSE MKT securities has been designated to participate in 
the closing only and is entered at 3:45 p.m. Eastern Time or later (or 
in the case of an early closing, is entered 15 minutes prior to the 
close or later), the order will be rejected.\7\ A DOT order entered in 
non-NYSE or non-NYSE MKT securities, however, will be treated as a SCAN 
or STGY order depending on the designation of the firm. The Exchange 
believes the proposed explanation of how DOT orders will be treated 
makes the rule clearer and easier to follow, and should serve to 
minimize any potential confusion regarding its application.\8\ The 
modifications make clear the processing logic for NYSE or NYSE MKT and 
non- NYSE or non-NYSE MKT orders. The modifications also make clear the 
processing logic for NYSE or NYSE MKT DOT orders designated to 
participate in the closing only and entered at 3:45 p.m. Eastern Time 
or later (or in the case of an early closing, entered 15 minutes prior 
to the close or later), which would be rejected. Also, the 
modifications make clear the processing logic for a non-NYSE or NYSE 
MKT DOT order, which would continue to be treated as SCAN or STGY 
orders depending on the designation of the firm.
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    \6\ In the event that an opening or closing only order was 
returned to NASDAQ after the time of the open or close on the 
destination market, NASDAQ would cancel the order.
    \7\ NYSE and NYSE MKT rules do not permit the entry of on close 
orders after 3:45 p.m. Eastern Time unless they are offsetting an 
imbalance. Since the Exchange is a pass through for these purposes 
and does not read imbalances, the System is set to reject at the 
3:45 p.m. Eastern Time cut-off or later (or in the case of an early 
closing, to reject 15 minutes prior to the close or later), so that 
the Exchange is in synch with the rules of NYSE and NYSE MKT. As 
discussed, the Exchange adds language to ensure that the noted 
orders are rejected if there is an early market close. This is 
similar for DOT, DOTI, and LIST.
    \8\ For additional explanation and clarity in subsection 
(a)(1)(A)(i), the Exchange proposes to add the phrase ``if 
applicable'' following ``after attempting to execute in the opening 
or closing process.''
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    Second, NASDAQ is proposing similar changes to the DOTI routing 
strategy in subsection (a)(1)(A) of Rule 4758 to make it clear that a 
DOTI order may be designated to participate in the opening only but not 
in the closing only under certain circumstances. Currently, DOTI is a 
routing option for orders that the entering firm wishes to direct to 
the NYSE or NYSE MKT without them returning to the NASDAQ Market 
Center. DOTI orders check the System for available shares and then are 
sent to destinations on the System routing table before being sent to 
NYSE or NYSE MKT, as appropriate. Alternatively, the member entering 
the order may opt to have it check the System and then be sent directly 
to NYSE or NYSE MKT, without routing to destinations on the System 
routing table.\9\ DOTI orders do not return to the NASDAQ Market Center 
book after routing. Specifically, the Exchange proposes in subsection 
(a)(1)(A)(ii)a. of Rule 4758 to delete the current option of a DOTI 
order being designated to participate in the closing only at the proper 
time as described below, in which case a closing only order would be 
expected to be rejected by the destination market and would also be 
cancelled by NASDAQ if returned by the destination market. The Exchange 
proposes new language in subsection (a)(1)(A)(ii)a. stating that if a 
DOTI order entered in NYSE or NYSE MKT securities has been designated 
to participate in the closing only and is entered at 3:45 p.m. Eastern 
Time or later (or in the case of an early closing, is entered 15 
minutes prior to the close or later) it will be rejected.\10\ The 
Exchange believes the proposed explanation of how DOTI orders will be 
treated makes the rule clearer and easier to follow, and should serve 
to minimize any potential confusion regarding its application. As is 
the case with DOT, the modifications make clear the processing logic 
for NYSE or NYSE MKT DOTI orders designated to participate in the 
closing only and entered at 3:45 p.m. Eastern Time or later (or in the 
case of an early closing, entered 15 minutes prior to the close or 
later), which would be rejected.
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    \9\ This option is referred to in system specifications as 
``DOTZ''.
    \10\ See also supra note 6.
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    Third, NASDAQ is proposing similar changes to the LIST routing 
strategy in subsection (a)(1)(A) of Rule 4758 to make it clear how a 
LIST order designated to participate in the closing only will be 
handled. Currently, LIST is a routing option designed to allow orders 
to participate in the opening and/or closing process of the primary 
listing market for a security, and to follow additional routing logic 
as described below. A LIST order received before the security has 
opened on its primary listing market will be routed to the primary 
listing market for participation in that market's opening process. 
After the security has opened on its primary listing market, unexecuted 
shares will be returned to the NASDAQ system; the order would be 
returned only to the extent that the order has not been designated 
opening only and has not

[[Page 19101]]

been fully executed, rejected, or cancelled by the destination market. 
Thereafter, the order will check the System for available shares and 
simultaneously route the remaining shares to destinations on the System 
routing table. Any remaining shares will be posted on the book. As with 
DOT and DOTI, if a LIST order is received by NASDAQ before the 
destination market is able to receive orders for its opening process, 
the order will be held until such time as the destination market can 
receive it. The Exchange specifically proposes new language in 
subsection (a)(1)(A)(x) to state that for NYSE and NYSE MKT securities, 
LIST orders that have been designated to participate in the closing 
only and are entered at the 3:45 p.m. Eastern Time cut-off or later (or 
in the case of an early closing, are entered 15 minutes prior to the 
close or later), will be rejected. This is the same as DOT and DOTI. 
Currently, the provision in subsection (a)(1)(A)(x) governing a LIST 
order that has been designated to participate in the closing only and 
is entered after the security has closed states that the order will 
nevertheless be routed to the primary listing market. The Exchange 
proposes to add language stating ``unless the primary market for the 
security is NYSE or NYSE MKT.'' \11\ Accordingly, if a LIST order has 
been designated to participate in the closing only and is entered after 
the security has closed and the primary market for the security is 
other than NYSE or NYSE MKT, the order will nevertheless be routed to 
the primary listing market. Currently, subsection (a)(1)(A)(x) states 
that LIST Orders received after market close that have not been 
designated as closing only will check the System for available shares 
and simultaneously route the remaining shares to destinations on the 
System routing table. The Exchange proposes to add language regarding 
such LIST orders, stating ``and are eligible, based on the orders' 
time-in force,\12\ to participate in the after-hours market.'' 
Accordingly, LIST Orders received after market close that have not been 
designated as closing only and are eligible, based on the orders' time-
in force, to participate in the after-hours market will check the 
System for available shares and simultaneously route the remaining 
shares to destinations on the System routing table. Any remaining 
shares will be posted to the NASDAQ book. This additional language 
explains the processing logic if a LIST order is received after market 
close and is not designated to participate in the closing only.
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    \11\ Based on its designation as closing only, this type of 
eligible LIST order will nevertheless be routed to the primary 
listing market; based on its designation as closing only, such an 
order would be expected to be rejected by the destination market, 
and would also be cancelled by NASDAQ if returned by the destination 
market. Rule 4758(a)(1)(A)(x). If the primary market for the 
security is NYSE or NYSE MKT, the order will be rejected because the 
cutoff is at 3:45 p.m. Eastern Time or later (or in the case of an 
early closing, is at 15 minutes prior to the close or later). See 
also supra note 6.
    \12\ For example, orders with a time in force that is valid for 
extended hours trading.
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    By way of housekeeping, the Exchange also proposes additional 
explanatory language in respect of LIST orders. First, where currently 
Rule 4758(a)(1)(A)(x) states that two minutes before market close, all 
LIST orders on the book ``will route'' to the security's primary 
listing market for participation in its closing process, the Exchange 
proposes to say ``will begin routing'' in recognition of the fact that 
the sheer volume of orders will not allow all orders to route at 
exactly the same time. Second, where currently Rule 4758(a)(1)(A)(x) 
states that after the security has closed on the primary listing 
market, a LIST order that has not been designated as ``a closing only 
order'' and that has not been fully executed, rejected, or cancelled by 
the market to which it was routed will be returned to the NASDAQ 
System, the Exchange proposes to state ``a closing only or MDAY order'' 
in recognition of the time in force of a MDAY order.\13\
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    \13\ ``Market Hours Day'' or ``MDAY'' shall mean for orders so 
designated, that if after entry into the System, the order is not 
fully executed, the order (or unexecuted portion thereof) shall 
remain available for potential display and/or execution until 4:00 
p.m. Eastern Time, unless canceled by the entering party, after 
which it shall be returned to the entering party. MDAY Orders shall 
be available for entry from 4:00 a.m. until 4:00 p.m. Eastern Time 
and for potential execution from 9:30 a.m. until 4:00 p.m. Eastern 
Time. Rule 4751(h)(6).
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    The Exchange believes that these proposed explanatory changes are 
non-controversial and are consistent with the Act.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\14\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \15\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts and practices, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and to perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    NASDAQ believes that the changes will make clear to market 
participants that they may not designate DOT and DOTI orders to 
participate in the closing only of a primary listing venue under 
certain circumstances. In addition, NASDAQ proposes to clearly explain 
to market participants how orders designated to participate in the 
closing only and are entered at 3:45 p.m. Eastern Time or later (or in 
the case of an early closing, are entered 15 minutes prior to the close 
or later) will be handled. Collectively, the changes discussed in the 
proposal facilitate transactions in securities and perfect the 
mechanism of a free and open market and a national market system by 
providing NASDAQ members with greater explanation regarding the routing 
of their orders. The Exchange believes the changes make clear the 
language to Rule 4758 and make it easier to follow, and should serve to 
minimize any potential confusion regarding its application. The 
majority of the changes are explanatory, and some are technical in 
nature.
    As noted, the Exchange believes that the changes proposed are 
explanatory and non-controversial in nature.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will have any impact on 
competition.

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

[[Page 19102]]

19(b)(3)(A)(ii) of the Act \16\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 satisfied this requirement.
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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: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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:

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-2015-031 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-031. 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 will also 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-NASDAQ-2015-031 and should 
be submitted on or before April 30, 2015.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Brent J. Fields,
Secretary.
[FR Doc. 2015-08109 Filed 4-8-15; 8:45 am]
 BILLING CODE 8011-01-P