Document ID: SEC-2022-0327-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2022-03-11T05:00Z

[Federal Register Volume 87, Number 48 (Friday, March 11, 2022)]
[Notices]
[Pages 14071-14084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05147]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94370; File No. SR-NASDAQ-2022-017]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify Equity 4, Section 
4120 To Add Categories of Regulatory and Operational Halts, To 
Reorganize the Remaining Text of the Rule, and To Make Conforming 
Changes to Related Rules

March 7, 2022.
    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 February 22, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II 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.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to modify Equity 4, Section 4120 to add 
categories of regulatory and operational halts and to reorganize the 
remaining text of the rule, and to make conforming changes to related 
rules.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

[[Page 14072]]

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In conjunction with adoption of an amended Nasdaq UTP Plan proposed 
by its participants (``Amended Nasdaq UTP Plan''),\3\ Nasdaq is 
amending Rule 4120 \4\ to integrate several definitions and concepts 
from the Amended Nasdaq UTP Plan and to reorganize the rule in light of 
Nasdaq's experience with applying the rule over fifteen years as a 
national securities exchange. Nasdaq proposes to reorganize and amend 
Rule 4120 entitled Limit Up-Limit Down Plan and Trading Halts. The rule 
sets forth Nasdaq's authority to halt trading under various 
circumstances. The Exchange is a participant of the transaction 
reporting plan governing Tape C Securities (``Nasdaq UTP Plan'').\5\ As 
part of these changes, Nasdaq will add categories of regulatory and 
operational halts, improve the rule's clarity, adopt defined terms from 
the Amended Nasdaq UTP Plan and delete parts of the rule that are no 
longer needed. Last, Nasdaq is updating cross references in other rules 
that are affected by the proposed changes.
---------------------------------------------------------------------------

    \3\ On February 11, 2021, the Nasdaq UTP Plan participants filed 
Amendment 50 to the Plan, to revise provisions governing regulatory 
and operational halts. See Letter from Robert Brooks, Chairman, UTP 
Operating Committee, Nasdaq UTP Plan, to Vanessa Countryman, 
Secretary, Securities and Exchange Commission, dated February 11, 
2021. The Nasdaq UTP Plan subsequently filed two partial amendments 
to the 50th Amendment, on March 31, 2021 and on April 7, 2021. The 
SEC approved the amendments on May 28, 2021. See Securities Exchange 
Act Release No. 34-92071 (May 28, 2021), 86 FR 29846 (June 3, 2021) 
(S7-24-89). The Amended Nasdaq UTP Plan includes provisions 
requiring participant self-regulatory organizations (``SROs'') to 
honor a Regulatory Halt declared by the Primary Listing Market. The 
provisions in the Nasdaq UTP Plan, and the plan for consolidation of 
data for non-Nasdaq-listed securities, the Consolidated Tape System 
and Consolidated Quotations System (collectively, the ``CTA/CQS 
Plan''), include provisions similar to the changes proposed by the 
Exchange in this filing.
    \4\ References herein to Nasdaq Rules in the 4000 Series shall 
mean Rules in Nasdaq Equity 4.
    \5\ Each transaction reporting plan has a securities information 
processor (``SIP'') responsible for consolidation of information for 
the plan's securities, pursuant to Rule 603 of Regulation NMS. The 
transaction reporting plan for Nasdaq-listed securities is known as 
The Joint Self-Regulatory Organization Plan Governing The 
Collection, Consolidation and Dissemination of Quotation and 
Transaction Information For Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privilege Basis or the ``Nasdaq UTP 
Plan.'' Pursuant to the Nasdaq UTP Plan, the UTP SIP, which is 
Nasdaq, consolidates order and trade data from all markets trading 
Nasdaq-listed securities. The Exchange uses the term ``UTP SIP'' 
herein when referring specifically to the SIP responsible for 
consolidation of information in Nasdaq-listed securities.
---------------------------------------------------------------------------

Background
    The Exchange has been working with other SROs to establish common 
criteria and procedures for halting and resuming trading in equity 
securities in the event of regulatory or operational issues. These 
common standards are designed to ensure that events which might impact 
multiple exchanges are handled in a consistent manner that is 
transparent. The Exchange believes that implementation of these common 
standards will assist the SROs in maintaining fair and orderly markets. 
Notwithstanding the development of these common standards, Nasdaq will 
retain discretion in certain instances as to whether and how to handle 
halts, as is discussed below.
    Every U.S.-listed equity security has its primary listing on a 
specific stock exchange that is responsible for a number of regulatory 
functions.\6\ These include confirming that the security continues to 
meet the exchange's listing standards, monitoring trading in that 
security and taking action to halt trading in the security when 
necessary to protect investors and to ensure a fair and orderly market. 
While these core responsibilities remain with the primary listing 
venue, trading in the security can occur on multiple exchanges that 
have unlisted trading privileges for the security \7\ or in the over-
the-counter market, regulated by the Financial Industry Regulatory 
Authority, Inc. (``FINRA''). The exchanges and FINRA are responsible 
for monitoring activity on the markets over which they have oversight, 
but also must abide by the regulatory decisions made by the Primary 
Listing Market. For example, a venue trading a security pursuant to 
unlisted trading privileges must halt trading in that security during a 
Regulatory Halt, which is a defined term under the proposed rules,\8\ 
and may only trade the security once the Primary Listing Market has 
cleared the security to resume trading.
---------------------------------------------------------------------------

    \6\ Nasdaq is proposing to adopt Primary Listing Market as a new 
term, defined in Nasdaq UTP Plan, Section X.A.8, as follows: ``[T]he 
national securities exchange on which an Eligible Security is 
listed. If an Eligible Security is listed on more than one national 
securities exchange, Primary Listing Market means the exchange on 
which the security has been listed the longest.''
    \7\ In addition, securities may also be listed on the New York 
Stock Exchange (``dually-listed''). See Rules 5005(a)(11), 5220 and 
IM-5220.
    \8\ See proposed Rule 4120(a)(11).
---------------------------------------------------------------------------

    All SROs have rules that require them to honor a Regulatory Halt. 
Nasdaq, as a Primary Listing Market, also has rules outlining the 
circumstances in which it will halt trading in its listed securities, 
including situations in which such halts are for regulatory purposes 
\9\--and therefore are applicable to all markets trading the security--
or for operational purposes, which would not halt trading on other 
markets. However, the trading halt rules are not consistent across 
SROs. Consequently, events that might constitute a Regulatory Halt for 
securities listed on one Primary Listing Market theoretically might not 
be grounds for a Regulatory Halt in securities listed on another 
Primary Listing Market. Such inconsistency among exchange rules could 
lead to confusion in circumstances such as a cross market event, which 
could be deemed ``Extraordinary Market Activity.'' \10\
---------------------------------------------------------------------------

    \9\ Nasdaq's current Rule 4120 establishes a limited number of 
reasons for instituting a Regulatory Halt for a Nasdaq-listed 
security. These reasons are: To permit the dissemination of material 
news concerning a listed company (Rule 4120(a)(1)); with respect to 
an American Depository Receipt (``ADR'') listed on Nasdaq, where 
another U.S. or foreign exchange that lists the security or the 
security underlying the ADR imposes a Regulatory Halt on the 
security listed on its market (Rule 4120(a)(4)); where Nasdaq 
requests information from the issuer relating to material news, the 
issuer's ability to meet Nasdaq's listing standards, or to protect 
investors (Rule 4120(a)(5)); in the event that extraordinary market 
activity in the security is occurring, ``such as the execution of a 
series of transactions for a significant dollar value at prices 
substantially unrelated to the current market for the security'' 
that is ``likely to have a material effect on the market for the 
security'' and the Exchange believes it is ``caused by the misuse or 
malfunction of an electronic quotation, communication, reporting or 
execution system operated by, or linked to,'' Nasdaq or another 
market (Rule 4120(a)(6)); in the event of an initial public offering 
(``IPO'') (Rule 4120(a)(7)); with respect to an index warrant, under 
certain specified conditions, or when appropriate in the interests 
of a fair and orderly market (Rule 4120(a)(8)); with respect to 
certain ``Derivative Securities Products'' (defined in Rule 
4120(b)(4)(A)) when certain pricing information concerning the 
instrument is not available or is not being disseminated to all 
market participants at the same time (Rules 4120(a)(9) and (10)); 
for securities not covered by the Limit Up-Limit Down Plan, in the 
event a single stock trading pause is triggered (Rule 4120(a)(11)); 
and for securities covered by the Limit Up-Limit Down Plan, in the 
event of a trading pause (Rule 4120(a)(12)).
    \10\ The proposed definition of Extraordinary Market Activity 
encompasses a market event that affects multiple markets. See 
proposed Rule 4120(a)(2) (incorporating by reference Nasdaq UTP 
Plan, Section X.A.1). Thus, such cross-market events could be 
considered Extraordinary Market Activity.

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

[[Page 14073]]

    While the existing rule generally has worked as intended to afford 
the Exchange authority to initiate a Regulatory Halt in appropriate 
cases, Nasdaq's experience is that the current rule may not contemplate 
some situations where a Regulatory Halt would help to maintain fair and 
orderly markets. For example, the current definition of ``Extraordinary 
Market Activity'' focuses on events where trading occurs significantly 
away from pre-event market prices. However, there may be other 
situations where trading proceeds in an orderly fashion despite a 
computer error that causes duplicative orders, bad data or other 
erroneous information that could impact investors' understanding of the 
market or their trading activity. The Exchange believes it would 
facilitate fair and orderly markets to give Primary Listing Markets 
greater flexibility to consider the facts and circumstances of each 
case and decide whether a Regulatory Halt is appropriate.
    The complex and interconnected market structure in the United 
States also relies on consolidated market data processed and 
disseminated by the SIPs. In certain circumstances, the loss of this 
information or issues with the accuracy or timeliness of the 
information might cause a Primary Listing Market to determine that a 
trading halt is appropriate. The Exchange believes that further 
guidance in the rules will assist market participants in better 
understanding how various scenarios would be handled.
    The Exchange believes that the cross-market proposed changes by: 
(1) Adopting uniform rules regarding the trigger points for regulatory 
trading halts in situations most likely to have an impact across 
markets and multiple listing venues; (2) addressing more scenarios in 
the uniform rule where a Primary Listing Market may need to implement a 
Regulatory Halt to maintain fair and orderly markets; and (3) adding 
provisions that apply to SIP-related issues to increase transparency 
into how these situations would be handled.
    As noted above, the proposed changes that would be uniformly 
applied across SROs are those that relate to cross-market events as set 
forth in the Amended Nasdaq UTP Plan. However, there will still be 
situations where personnel at the Primary Listing Market will need to 
determine the impact of the cross-market event on the securities listed 
on its market and use discretion in deciding whether to halt trading in 
some or all securities during a cross-market event that affects 
securities listed on different markets. In making a determination as to 
whether to declare a Regulatory Halt for Extraordinary Market Activity, 
the Primary Listing Market will consider the totality of information 
available concerning the severity of the issue, its likely duration, 
potential impact on members and other market participants, and it will 
make a good-faith determination that the criteria for declaring a 
Regulatory Halt have been satisfied and that a Regulatory Halt is 
appropriate.\11\ Moreover, the Primary Listing Market will consult, if 
feasible, with the affected Trading Center(s), other Plan Participants, 
or the Processor, as applicable, regarding the scope of the issue and 
what steps are being taken to address the issue. Exchanges may also 
declare a Regulatory Halt when it determines that it is necessary to 
maintain a fair and orderly market.\12\
---------------------------------------------------------------------------

    \11\ The Exchange will consider these factors for all Regulatory 
Halts, not simply those caused by Extraordinary Market Activity.
    \12\ See proposed Rule 4120(a)(11) and Amended Nasdaq UTP Plan, 
Section X.A.10.
---------------------------------------------------------------------------

    While the Exchange and the other SROs intend to harmonize certain 
aspects of their trading halt rules, other elements of the rules will 
continue to be unique to each market. The Exchange believes that this 
is appropriate to reflect different products listed or traded on each 
market and the unique relationship of the Primary Listing Market to its 
listed companies. It is anticipated that these unique rules would most 
likely be invoked in cases where the Primary Listing Market's decision 
on whether to institute a Regulatory Halt turns on specific information 
related to an individual security or issuer, such as the dissemination 
of news and the issuer's ability to meet listing standards, rather than 
broader market issues stemming from Extraordinary Market Activity or 
loss of consolidated market data from a SIP.
    In addition to the changes noted above, the Exchange is deleting 
provisions that are no longer needed and reorganizing the rule to 
improve its clarity. The Exchange is also making a handful of non-
substantive changes to rule text to improve its clarity. The Exchange 
will implement all of the changes proposed herein in conjunction with 
other SROs implementing the necessary rule changes. The Exchange will 
publish an Equity Trader alert at least 30 business days prior to 
implementing the proposed changes.
Definitions
    The Exchange proposes adding a definitions section as Rule 4120(a) 
to consolidate the various definitions that will be used in the Rule, 
some of which are taken from the Amended Nasdaq UTP Plan. Nasdaq is 
adopting the following terms from the Amended Nasdaq UTP Plan: 
``Extraordinary Market Activity,'' ``Material SIP Latency,'' 
``Operating Committee,'' ``Operational Halt,'' ``Primary Listing 
Market,'' ``Processor,'' ``Regulatory Halt,'' ``Regular Trading 
Hours,'' \13\ ``SIP Halt,'' ``SIP Halt Resume Time,'' and ``SIP 
Outage.'' The definitions of ``Derivatives Securities Product,'' 
``IPO,'' ``Pre-Market Session'' and ``Required Value'' have been moved 
into the definitions section from elsewhere in the current rule without 
change. The definition of ``Post-Market Session'' has been moved from 
elsewhere in the rule with a minor change deleting the alternative 
closing time of 4:15 p.m. as all securities traded on Nasdaq commence 
their closing cross process at 4:00 p.m.\14\
---------------------------------------------------------------------------

    \13\ The Exchange notes that pursuant to existing Rule 
4120(b)(4), the Regular Market Session occurs until 4:00 p.m. or 
4:15 p.m., and the Post-Market Session begins at 4:00 p.m. or 4:15 
p.m.
    \14\ As noted above, the Exchange is adopting several new terms 
that have the same meaning as those terms are defined in the Amended 
Nasdaq UTP Plan. Each of the national market system plans governing 
the single plan processors has identical definitions of these terms, 
thus there will be uniformity in the meaning of the terms among such 
plans as well as among the rules of the SROs.
---------------------------------------------------------------------------

    First, the Exchange proposes to add the definition of ``Primary 
Listing Market'' \15\ to Rule 4120, which will have the same meaning as 
in the Amended Nasdaq UTP Plan, Section X.A).8. As is currently the 
case under Rule 4120 and under the Nasdaq UTP Plan, all Regulatory Halt 
decisions are made by the market on which the security has its primary 
listing. This reflects the regulatory responsibility that the Primary 
Listing Market has for fair and orderly trading in the securities that 
list on its market and its direct access to its listed companies, which 
are required to advise it of certain events and maintain lines of 
communication with the Primary Listing Market. The proposed definition 
makes clear that if a security is listed on more than one market (a 
dually-listed security), the Primary Listing Market means the exchange 
on which the security has been listed the longest. This provision 
matches language used in the definition of ``Primary Listing Exchange'' 
in the

[[Page 14074]]

Limit-Up Limit-Down Plan and will avoid conflict in the event of 
dually-listed securities.
---------------------------------------------------------------------------

    \15\ See proposed Rule 4120(a)(9).
---------------------------------------------------------------------------

    Second, the Exchange proposes to replace the definition of 
``Extraordinary Market Activity'' with a broader definition of the term 
taken from Section X.A.1. of the Amended Nasdaq UTP Plan.\16\ The 
current rule establishes a three-part test for Extraordinary Market 
Activity:
---------------------------------------------------------------------------

    \16\ See proposed Rule 4120(a)(2).

    (1) Extraordinary Market Activity must be occurring in the 
security--the sole example of such activity included in the rule is 
``the execution of a series of transactions for a significant dollar 
value at prices substantially unrelated to the current market for 
the security, as measured by the national best bid and offer,'' and
    (2) The Exchange must determine that such Extraordinary Market 
Activity is likely to have a material effect on the market for the 
security, and
    (3) The Exchange believes that either: (i) Such activity is 
caused by the misuse or malfunction of an electronic quotation, 
communication, reporting or execution system operated by, or linked 
to, the Exchange; (ii) after consultation with another national 
securities exchange trading the security on an unlisted trading 
privileges basis, that such activity is caused by the misuse or 
malfunction of an electronic quotation, communication, reporting or 
execution system operated by, or linked to, such other national 
securities exchange; or (iii) after consultation with FINRA 
regarding a FINRA facility trading the security, such activity is 
caused by the misuse or malfunction of such FINRA facility or an 
electronic quotation, communication, reporting, or execution system 
linked to such FINRA facility.

    Although the single scenario in element (1) of the test is not 
exclusive, the Exchange believes that market participants would benefit 
from the inclusion of other scenarios that might constitute 
``Extraordinary Market Activity.'' For example, experience indicates 
that significant market events do not always result in price 
dislocation. In some cases, trading may remain orderly. Moreover, price 
discovery--at least when measured by the absence of large price 
changes--may appear to be orderly, but in fact there may be confusion 
or information missing (e.g., quote or transaction information) that is 
important to participants. The absence of accurate information could 
make it difficult for market participants to properly confirm the 
positions they own, the impact of the event, or the correct prices for 
securities.
    The proposed definition of Extraordinary Market Activity is the 
same definition in Section X.A. 1. of the Amended Nasdaq UTP Plan.\17\ 
The new definition updates and consolidates the terminology and 
broadens applicability of the term in comparison to the current 
definition, by making it clear that Extraordinary Market Activity may 
occur solely on the Exchange or multiple markets, referred to as 
``Trading Centers'' in the proposed rule change. A ``Trading Center,'' 
which is defined in Rule 600(b)(95) of Regulation NMS, refers to a 
``national securities exchange or national securities association that 
operates an SRO trading facility, an alternative trading system, an 
exchange market maker, an OTC market maker, or any other broker or 
dealer that executes orders internally by trading as principal or 
crossing orders as agent.'' The Amended Nasdaq UTP Plan definition of 
Extraordinary Market Activity also explicitly refers to disruptions or 
malfunctions at a SIP or a member of a Trading Center, whereas the 
current rule, as discussed above, does not. To qualify as Extraordinary 
Market Activity, the event must have a ``severe and continuing negative 
impact'' on a market-wide basis on quoting, order, or trading activity 
or the availability of market information necessary to maintain a fair 
and orderly market.
---------------------------------------------------------------------------

    \17\ ``Extraordinary Market Activity'' means a disruption or 
malfunction of any electronic quotation, communication, reporting, 
or execution system operated by, or linked to, the Processor or a 
Trading Center or a member of such Trading Center that has a severe 
and continuing negative impact, on a market-wide basis, on quoting, 
order, or trading activity or on the availability of market 
information necessary to maintain a fair and orderly market. For 
purposes of this definition, a severe and continuing negative impact 
on quoting, order, or trading activity includes (i) a series of 
quotes, orders, or transactions at prices substantially unrelated to 
the current market for the security or securities; (ii) duplicative 
or erroneous quoting, order, trade reporting, or other related 
message traffic between one or more Trading Centers or their 
members; or (iii) the unavailability of quoting, order, or 
transaction information for a sustained period.
---------------------------------------------------------------------------

    The new definition of Extraordinary Market Activity also explains 
what constitutes a ``severe and continuing negative impact.'' In 
addition to the scenario in the current rule involving significant 
price movement, the proposed change adds two new scenarios to provide 
additional transparency to member firms:
     Duplicative or erroneous quoting, order trade reporting, 
or other related message traffic between one or more Trading Centers or 
their members; and
     The unavailability of quoting, order or transaction 
information, or regulatory messages, for a sustained period.
    These problems may cause market participants to change their 
trading behavior or withdraw from the market entirely. When serious 
enough, this can affect the fair and orderly operation of the market. 
In determining whether to initiate a trading halt, Nasdaq would, as set 
forth in the Amended Nasdaq UTP Plan and in proposed Rule 
4120(b)(2)(D), consider the totality of information available 
concerning the severity of the issue, its likely duration, potential 
impact on members and other market participants, and will make a good-
faith determination that the criteria for declaring a Regulatory Halt 
has been satisfied and that a Regulatory Halt is appropriate. 
Therefore, the Exchange, acting as the Primary Listing Market, in 
consultation with the affected trading centers, other SIP Plan 
participants, or the Processor, as applicable, where feasible, will 
retain discretion to evaluate the magnitude of each situation to 
determine whether the event meets the definition of Extraordinary 
Market Activity.
    As with the current rule, the three scenarios included by reference 
in the new definition would not be exhaustive. This enables the Primary 
Listing Market to act in the best interests of the market when 
confronted with unexpected events. However, the Exchange believes that 
the three scenarios included in the rule cover many of the most likely 
events that may occur. As is currently the case, the Exchange 
anticipates providing public notice of Extraordinary Market Activity as 
soon as it is practicable, with updates as necessary, to assist firms 
in monitoring the status of issues. These notices, coupled with the 
proposed rule, will assist participants by alerting them to the 
situations most likely to result in trading halts.
    The third set of new proposed definitions would be specific to 
events involving the SIP. While Nasdaq recognizes that many events 
involving the SIP would also meet the definition of ``Extraordinary 
Market Activity,'' the Exchange believes that the critical role of the 
SIPs in market infrastructure factors in favor of additional guidance 
on how such events will be handled. The definitions of ``SIP Outage,'' 
``Material SIP Latency,'' ``SIP Halt Resume Time,'' and ``SIP Halt'' 
are intended to provide additional guidance and specific processes to 
address this subset of potential market issues. In addition, the 
Exchange is proposing to define terms related to SIP governance needed 
in order to understand these definitions:
     ``SIP'' \18\ is defined as the Processor for Tape C 
securities, which is Nasdaq.
---------------------------------------------------------------------------

    \18\ See proposed Rule 4120(a)(14).

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

[[Page 14075]]

     ``SIP Plan'' \19\ is defined as the Nasdaq UTP Plan.
---------------------------------------------------------------------------

    \19\ See proposed Rule 4120(a)(18).
---------------------------------------------------------------------------

     ``Operating Committee'' \20\ is defined as having the same 
meaning as in the Nasdaq UTP Plan, namely the committee charged with 
administering the Nasdaq UTP Plan.
---------------------------------------------------------------------------

    \20\ See proposed Rule 4120(a)(5).
---------------------------------------------------------------------------

     ``Processor'' \21\ has the same meaning as set forth in 
the Nasdaq UTP Plan, namely the entity selected by the Participants to 
perform the processing functions set forth in the Plan.
---------------------------------------------------------------------------

    \21\ See proposed Rule 4120(a)(10).
---------------------------------------------------------------------------

    The Exchange is proposing to adopt a category of Regulatory Halt, 
called a ``SIP Halt,'' \22\ which will have the same meaning as that 
term is defined in Section X.A.11. of the Nasdaq UTP Plan, namely ``a 
Regulatory Halt to trading in one or more securities that a Primary 
Listing Market declares in the event of a SIP Outage or Material SIP 
Latency.'' This new category of Regulatory Halt will address situations 
where the Primary Listing Market declares a Regulatory Halt in one or 
more securities as a result of a SIP Outage or Material SIP Latency 
(each is discussed below). While a SIP Halt may be declared in a single 
stock, Nasdaq anticipates that most events will impact multiple 
securities or even all securities with their primary listing on a 
particular market. Because of the complexities inherent in these types 
of halts, the Exchange is proposing special procedures for the halting 
and resuming of trading as a result of a SIP Halt. These are discussed 
in more detail later.
---------------------------------------------------------------------------

    \22\ See proposed Rule 4120(a)(15).
---------------------------------------------------------------------------

    The Exchange is proposing to define a ``SIP Outage'' \23\ as having 
the same meaning as in Section X.A.13 of the Amended Nasdaq UTP Plan. 
Specifically, the Exchange is proposing to define SIP Outage to mean a 
situation in which the Processor has ceased, or anticipates being 
unable, to provide updated and/or accurate quotation or last sale price 
information in one or more securities for a material period that 
exceeds the time thresholds for an orderly failover to backup 
facilities established by mutual agreement among the Processor, the 
Primary Listing Market for the affected securities, and the Operating 
Committee unless the Primary Listing Market, in consultation with the 
Processor and the Operating Committee, determines that resumption of 
accurate data is expected in the near future.
---------------------------------------------------------------------------

    \23\ See proposed Rule 4120(a)(17).
---------------------------------------------------------------------------

    Recent experience with events involving a loss of consolidated data 
from the SIP has shown that in many cases, the least disruptive outcome 
in the event of a brief interruption in data is to not halt trading in 
the affected securities if the market is fair and orderly. For example, 
in August 2013, Nasdaq halted trading in Nasdaq-listed securities due 
to an interruption in UTP SIP data due to uncertainty about the impact 
the loss of data would have on market participants. Although the UTP 
SIP successfully restarted the system within its primary data center 
and was operational within 17 minutes, the market remained halted for 3 
hours at the request of market participants so that they could manage 
their books, clear stale orders and reconnect to the system. By 
contrast, the New York Stock Exchange (``NYSE''), benefitting from this 
prior experience, did not halt trading during a loss of CTA/CQS data in 
October 2014 and failed over to back-up facilities within 30 minutes of 
the loss of SIP data. Because NYSE did not halt trading, firms did not 
need to reconnect and clear order books. As a result, the duration of 
the NYSE event--measured from loss of SIP data to end of the issue--was 
shorter and caused less disruption to the market even though the scope 
of the underlying problem that caused the loss of data from both SIPs 
was comparable.
    At the direction of the Operating Committees, each processor has 
invested significant money and effort into improving the resiliency of 
the SIPs. This will increase the likelihood that SIPs will failover 
rapidly and commence disseminating valid data. Of course, there could 
still be situations where the failover does not work as expected, or 
the problem is not cured despite the redundancy available in the backup 
center. It is in these situations that the Exchange and the other SROs 
believe that the need for a SIP Halt is most likely to arise.
    For this reason, the proposed definition focuses on the agreed time 
frames for an orderly failover. Emergency procedures applicable to the 
Processor provide that when a determination is made to failover to the 
secondary data center, the Processor shall endeavor to complete the 
failover within 10 minutes.\24\
---------------------------------------------------------------------------

    \24\ See https://www.utpplan.com/DOC/UTP_SIP_Emergency_Procedures.pdf.
---------------------------------------------------------------------------

    Accordingly, the Primary Listing Market would be expected to 
consider a SIP Halt in the event of the loss of SIP data once the loss 
in data extends or is anticipated to extend for a material period that 
exceeds the same agreed-upon 10 minute failover thresholds, unless the 
Primary Listing Market, in consultation with the Processor and the 
responsible Operating Committee, determines that resumption of accurate 
data is expected in the near future. The Exchange, in consultation with 
the other SROs, considered and rejected specifying a numerical time 
limit after which a SIP Halt would be required. Because of the 
significant impact a broad trading halt can have on market confidence, 
the Exchange believes Primary Listing Markets should retain discretion 
to consider the facts of the incident in evaluating a SIP Halt to avoid 
having to halt trading despite knowing that the SIP is about to resume 
data dissemination. Instead, the Primary Listing Market, in 
consultation with other SROs, SIPs and market participants where 
feasible, would continually re-evaluate whether a SIP Halt is 
appropriate and take action when, in its judgment, the thresholds in 
the definition have been passed. The Primary Listing Market retains 
discretion throughout the process to institute a Regulatory Halt in 
good faith--even within the 10 minute failover window--if trading 
appears disorderly, price discovery has been impacted, or it is 
otherwise in the interests of a fair and orderly market to halt 
trading.
    In addition to situations where a SIP is no longer disseminating 
data, circumstances may arise where quotation or last sale price 
information from the SIP is delayed or stale due to a significant 
increase in latency. Minor latency in the data will always exist given 
the nature of a consolidated feed, where data from multiple markets is 
validated, normalized, consolidated and then distributed. However, 
significant latency can impact trading decisions and market confidence 
if participants are unsure whether data accurately reflects the current 
state of the market.
    The Exchange is proposing to define ``Material SIP Latency'' \25\ 
as having the same meaning as in Section X.A.5 of the Amended Nasdaq 
UTP Plan. Specifically, the Exchange is proposing to define Material 
SIP Latency to mean a delay of quotation or last sale price information 
in one or more securities between the time data is received by the 
Processor and the time the Processor disseminates the data over the 
Processor's vendor lines, which delay the Primary Listing Market 
determines, in consultation with, and in accordance with, publicly 
disclosed guidelines established by the Operating Committee, to be (a) 
material and (b) unlikely to be resolved in the near future. In this 
regard, SIP Emergency procedures presently state that ``SIP material

[[Page 14076]]

latency refers to sustained latency of 100 milliseconds or greater for 
10 minutes caused by a technical issue at the Processor.'' \26\ The 
Emergency Procedures have various escalation points to advise the 
Primary Listing Market, the Operating Committee, and market 
participants. Under the proposal, the Primary Listing Market, in 
consultation with the Operating Committee, would be responsible for 
determining when this latency has become a Material SIP Latency.
---------------------------------------------------------------------------

    \25\ See proposed Rule 4120(a)(4).
    \26\ See https://www.utpplan.com/DOC/UTP_SIP_Emergency_Procedures.pdf.
---------------------------------------------------------------------------

    Because guidelines are designed as an early warning system to 
mobilize decision makers, many latency events that exceed the 
thresholds in the guidelines would not constitute Material SIP Latency 
resulting in a SIP Halt. Instead, the Primary Listing Market, in 
consultation with the Operating Committee, would be expected to 
evaluate the severity of the latency and its continued duration and 
consider whether the issue is likely to be resolved in the near future. 
As in the case of a SIP Outage, the Exchange, in consultation with 
other SROs, considered adopting fixed latency metrics in the rule, but 
for several reasons, it determined that this would be 
counterproductive. First, it could create situations where a SIP Halt 
is imposed even where resolution is imminent. Second, greater 
flexibility will enable the Exchange and other Primary Listing Markets 
to learn from experience about how various levels of latency affect 
trading. Fixed thresholds in the rule might also become outdated over 
time if latency levels drop due to system enhancements. Regardless of 
the thresholds, the Primary Listing Market always retains the authority 
to institute a Regulatory Halt if it determines, in good faith, a halt 
to be in the interests of a fair and orderly market.
    The Exchange proposes to add a definition of ``Regulatory Halt'' 
\27\ as having the same meaning as in Section X.A.10 of the Amended 
Nasdaq UTP Plan. Specifically, the Exchange has proposed to define 
Regulatory Halt to mean a halt declared by the Primary Listing Market 
in trading in one or more securities on all Trading Centers for 
regulatory purposes, including for the dissemination of material news, 
news pending, suspensions, or where otherwise necessary to maintain a 
fair and orderly market.\28\ A Regulatory Halt includes a trading pause 
triggered by Limit Up-Limit Down, a halt based on Extraordinary Market 
Activity, a trading halt triggered by a Market-Wide Circuit Breaker, 
and a SIP Halt. The new term Regulatory Halt consolidates the various 
reasons for such a halt that are enumerated in the proposed Rule 
4120(b). In addition to the specific reasons, the rule would 
memorialize the Primary Listing Market's ability to implement a 
Regulatory Halt where otherwise necessary to preserve a fair and 
orderly market.\29\ The definition also makes clear that market-wide 
circuit breakers, codified in Rule 4121, constitute a Regulatory Halt. 
These circuit breakers provide for coordinated cross-market trading 
halts designed to stop trading temporarily or, under extreme 
circumstances, close the markets before the normal close of the trading 
session.
---------------------------------------------------------------------------

    \27\ See proposed Rule 4120(a)(11).
    \28\ The Exchange's authority to declare a Regulatory Halt to 
maintain a fair and orderly market is explicitly included in the 
definition of Regulatory Halt. The Exchange will institute a 
Regulatory Halt if it makes a determination that it is necessary to 
maintain a fair and orderly market. The Exchange believes that the 
addition of this basis to declare a Regulatory Halt will protect 
investors by giving the Exchange explicit authority to act in 
unforeseen situations not covered by other provisions of Rule 4120.
    \29\ As provided for in the Nasdaq UTP Plan, the Proposed Rule 
would permit the Exchange to declare a Regulatory Halt for a 
security for which it is the Primary Listing Market, in the event of 
national, regional, or localized disruption that necessitates a 
Regulatory Halt to maintain a fair and orderly market.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to add a definition of ``Operational 
Halt,'' \30\ which is defined as having the same meaning as in Section 
X.A.7 of the Amended Nasdaq UTP Plan. Specifically, the Exchange is 
proposing to define Operational Halt to mean a halt in trading in one 
or more securities only on the market declaring the halt. An 
Operational Halt is effective only on Nasdaq; other markets are not 
required to halt trading in the impacted securities. In practice, the 
Exchange has always had the capacity to implement operational halts in 
specified circumstances.\31\ The proposed change would provide greater 
clarity on when an Operational Halt may be implemented and the process 
for halting and resuming trading in the event of an Operational Halt. 
An Operational Halt is not a Regulatory Halt.\32\
---------------------------------------------------------------------------

    \30\ See proposed Rule 4120(a)(6).
    \31\ See By-Laws of the Nasdaq Stock Market LLC, Section 5 
(``Authority to Take Action Under Emergency or Extraordinary Market 
Conditions''), available at https://listingcenter.nasdaq.com/assets/rulebook/nasdaq/rules/NASDAQ_Corporate_Organization_Nasdaq_LLC.pdf.
    \32\ The Exchange notes that it proposes to amend the existing 
definition of the term ``Post-Market Session'' to clarify that it is 
a trading session that begins after ``Regular Trading Hours''--a 
term that, in turn, is defined in the Nasdaq UTP Plan--and that such 
session begins at ``approximately'' 4:00 p.m. The addition of the 
term ``approximately'' reflects the fact that the Nasdaq Closing 
Cross, which precedes the Post-Market Session at 4:00 p.m., is not 
instantaneous. See proposed Rule 4120(a)(7).
---------------------------------------------------------------------------

Regulatory Halt Types
    The Exchange proposes to consolidate the various types of 
situations that form the basis for declaring a Regulatory Halt in Rule 
4120(b). The proposed rule change would divide the situations that form 
the basis of the Exchange's authority to declare a Regulatory Halt in a 
security for which the Exchange is the Primary Listing Market into 
three categories: (1) As provided by the SIP Plans; (2) discretionary 
Regulatory Halts; and (3) mandatory Regulatory Halts.
    The first category concerns situations enumerated in the SIP Plan, 
specifically related to a SIP Outage, Material SIP Latency, or 
Extraordinary Market Activity.
    The second category provides the Exchange with discretion to 
declare a Regulatory Halt in situations described by the proposed rule, 
such as when the Exchange requests certain information from an issuer 
and for a security subject to an IPO. The Exchange believes that 
discretion in determining whether to impose a Regulatory Halt is 
appropriate because of the many facts and circumstances that must be 
considered by the Primary Listing Market in determining whether to halt 
trading. A rule establishing exact standards for a mandatory halt would 
risk forcing the Exchange to halt trading in circumstances where other 
facts may weigh against a halt, thereby forcing the Exchange to act in 
a way that is not in the best interests of the market. Alternatively, 
fixed standards could also prevent the Exchange from halting in 
circumstances where a Regulatory Halt would be appropriate. Instead, 
the proposed change would outline the types of scenarios where the 
Primary Listing Market may initiate a Regulatory Halt after consulting 
with the entities specified in the Amended Nasdaq UTP Plan, where 
feasible. However, there may be situations where such consultation may 
not be possible due to technical issues or time sensitivity. The 
proposed change would preserve the Exchange's ability to act in the 
best interests of the market in these circumstances, consistent with 
the Amended Nasdaq UTP Plan.
    As under the current rule, the proposed change continues to allow 
the Exchange to institute a Regulatory Halt in circumstances where the 
Exchange requests additional information from an issuer (current Rule 
4120(a)(5) and

[[Page 14077]]

proposed Rule 4120(b)(1)(B)(i)),\33\ to allow for the dissemination of 
material news (current Rule 4120(a)(1) and new Rule 4120(b)(1)(B)(ii)); 
to facilitate the initiation of trading of an IPO (current Rule 
4120(a)(7) and proposed Rule 4120(b)(1)(B)(iii)) and to protect a fair 
and orderly market in the trading of index warrants (current Rule 
4120(a)(8) and proposed Rule 4120(b)(1)(B)(iv)). Proposed Rule 
4120(b)(1)(B)(v), codified without material change from current Rule 
4120(a)(9), gives the Exchange discretion to halt a series of Portfolio 
Depository Receipts, Index Fund Shares (as defined in Rule 5705), 
Index-Linked Exchangeable Notes, Equity Gold Shares, Trust 
Certificates, Commodity-Based Trust Shares, Currency Trust Shares, 
Commodity Index Trust Shares, Commodity Futures Trust Shares, 
Partnership Units, and Managed Trust Securities (as defined in Rule 
5711(a)-(h) and (j), respectively), or NextShares (as defined in Rule 
5745) listed on Nasdaq if the Intraday Indicative Value (as defined in 
Rule 5705), for Portfolio Depository Receipts or Index Fund Shares, for 
derivative securities as defined in Rule 5711(a), (b), and (d)-(h), 
Rule 5711(j) for Managed Trust Securities, or Rule 5745 for NextShares) 
or the index value applicable to that series is not being disseminated 
as required, during the day in which the interruption to the 
dissemination of the Intraday Indicative Value or the index value 
occurs. It requires the Exchange to halt trading in these instruments 
no later than the beginning of trading on the day following the 
interruption to the dissemination of the Intraday Indicative Value or 
the index value if the interruption persists past the trading day on 
which it occurs. The Exchange would also retain discretionary authority 
to halt trading in a series of Portfolio Depository Receipts, Index 
Fund Shares, Exchange Traded Fund Shares (as defined in Rule 5704), 
Managed Fund Shares, Index-Linked Exchangeable Notes, Equity Gold 
Shares, Trust Certificates, Commodity-Based Trust Shares, Currency 
Trust Shares, Commodity Index Trust Shares, Commodity Futures Trust 
Shares, Partnership Units, Trust Units (as defined in Rule 5711(i)), 
Managed Trust Securities, Currency Warrants (as defined in Rule 
5711(k)), NextShares, or Proxy Portfolio Shares (as defined in Rule 
5750) based on a consideration of the following factors: (A) Trading in 
underlying securities comprising the index or portfolio applicable to 
that series has been halted in the primary market(s), (B) the extent to 
which trading has ceased in securities underlying the index or 
portfolio, or (C) the presence of other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market.
---------------------------------------------------------------------------

    \33\ As proposed, Rule 4120(b)(1)(B)(i) provides that the 
Exchange's determination regarding a trading halt would be made 
consistent with Section X.C of the Amended Nasdaq UTP Plan.
---------------------------------------------------------------------------

    Proposed Rule 4120(b)(1)(B)(vi) gives the Exchange discretion to 
halt trading in an American Depository Receipt (``ADR'') or other 
Nasdaq-listed security when the foreign securities exchange or market 
listing the security underlying the ADR or the Nasdaq-listed security 
or the regulatory authority overseeing such foreign securities exchange 
or market institutes a halt for regulatory reasons. The Exchange is 
deleting text that presently exists in the Rule covering ADR and other 
Nasdaq-listed security halts, at Rule 4120(a)(4), which references 
national securities exchanges instituting a halt for ``regulatory 
reasons'' because under the proposed new rules, a Regulatory Halt will 
be issued by the Primary Listing Exchange. If the other national 
securities exchange is the primary listing exchange and declares a 
regulatory halt, the security will be subject to a halt by the 
Exchange. Thus, such a halt on the Exchange will be mandatory. The 
proposed amended rule will consider only actions taken by a foreign 
exchange that halts the Nasdaq-listed security, or security underlying 
an ADR, on its market for regulatory reasons (foreign exchanges do not 
fall within the definition of a ``primary listing market'' and 
therefore their regulatory halts do not fall within the Amended Nasdaq 
UTP Plan's definition of Regulatory Halts). The Exchange will then 
assess the regulatory reasons underlying the halt on the foreign market 
and possibly initiate a Regulatory Halt.
    Proposed Rule 4120(b)(1)(B)(vii) would permit the Exchange to 
declare a Regulatory Halt for a security for which it is the Primary 
Listing Market, in the event of national, regional, or localized 
disruption that necessitates a Regulatory Halt to maintain a fair and 
orderly market. This proposal incorporates an identical provision in 
the Nasdaq UTP Plan.
    The third category of Regulatory Halts concerns situations in which 
it is mandatory that the Exchange must declare a Regulatory Halt. 
Proposed Rule 4120(b)(1)(C)(i) codifies without substantive 
modification the existing provisions of Rule 4120(a)(10) in situations 
where the Exchange becomes aware that the net asset value of a 
Derivative Securities Product (or the Disclosed Portfolio in the case 
of Managed Fund Shares, the Composition File in the case of NextShares, 
or in the case of Proxy Portfolio Securities, a Proxy Basket, or the 
Fund Portfolio) is not being disseminated to all participants at the 
same time. The Exchange is required to halt trading in the Derivative 
Securities Product when this occurs. Similarly, proposed Rule 
4120(b)(1)(C)(ii) retains without substantive modification the existing 
rule with respect to the Limit Up-Limit Down Plan (current Rule 
4120(a)(12)).\34\ The Exchange proposes to make clear in Rule 
4120(b)(1)(C)(iii) that a trading halt pursuant to extraordinary market 
volatility (market-wide circuit breakers), as is described in Rule 
4121, constitutes a Regulatory Halt. Finally, the Exchange is 
incorporating Rule 4120(a)(13) into proposed Rule 4120(b)(1)(C)(iv). 
Rule 4120(a)(13) requires Nasdaq to halt trading in an Equity 
Investment Tracking Stock (as defined in Rule 5005) or Subscription 
Receipt (listed under Rule 5520) whenever Nasdaq halts or suspends 
trading in a security tracked by the Equity Investment Tracking Stock 
or the common stock into which the Subscription Receipt is 
exchangeable.
---------------------------------------------------------------------------

    \34\ Current Rule 4120(a)(12)(G) (``If the Exchange is unable to 
reopen trading due to a systems or technology issue, it shall notify 
the Processor immediately'') will be incorporated into proposed Rule 
4120(b)(4)(A)(i)e.6. (``If the Exchange is unable to reopen trading 
due to a systems or technology issue, it shall notify the SUP 
immediately'').
---------------------------------------------------------------------------

    The Exchange is proposing to move or delete certain elements in the 
current list of situations that form the basis for declaring a 
Regulatory Halt in Rule 4120(a). First, the Exchange is deleting the 
current definition of Extraordinary Market Activity in Rule 4120(a)(6), 
which it proposes to replace with the updated and more extensive 
definition previously discussed. Second, the Exchange is proposing to 
delete current Rule 4120(a)(11), which establishes a trading pause in 
the event of large price moves in securities not covered by the Limit 
Up-Limit Down Plan.\35\ As the Limit Up-Limit Down Plan is now fully 
implemented, this subsection is no longer necessary. In addition, the 
Exchange proposes moving existing Rule 4120(a)(2) and (a)(3) to 
proposed Rule 4120(b)(3) covering declaration of a Regulatory Halt by a 
Primary Listing Market other than Nasdaq. These provisions are 
discussed in more detail below.
---------------------------------------------------------------------------

    \35\ By its terms, Rule 4120(a)(11) does not apply to rights and 
warrants, which are the only Nasdaq-listed securities that are not 
covered by the Limit Up-Limit Down Plan.
---------------------------------------------------------------------------

Initiating a Regulatory Halt
    In coordination with the other SROs, the Exchange developed 
proposed Rule

[[Page 14078]]

4120(b)(2) to provide detailed and consistent rules on how a Primary 
Listing Market will initiate a Regulatory Halt. The process for 
initiating a Regulatory Halt is set forth in Section X.D of the Amended 
Nasdaq UTP Plan. First, the proposed rule makes clear that the start 
time of a Regulatory Halt is the time the Primary Listing Market 
declares the Halt, regardless of whether communications issues impact 
the dissemination of notice of the Halt. The Exchange's experience in 
prior events is that market participants need certainty on the official 
start time of the Halt. Under the proposed rule, the start time is 
fixed by the Primary Listing Market; it is not dependent on whether 
notice is disseminated immediately. This will avoid possible 
disagreement if the Halt time were tied to dissemination or receipt of 
notification, which may occur at different times. The Exchange 
recognizes that in situations where communication is interrupted, 
trades may continue to occur until news of the Halt reaches all Trading 
Centers. However, a fixed ``official'' Halt time will allow SROs to 
revisit trades after the fact and determine in a consistent manner 
whether specific trades should stand.
    Currently, many Trading Centers and other market participants rely 
on automated, machine-readable trade halt messages disseminated by the 
SIP to automatically halt their order matching and order dissemination 
systems. While the Exchange disseminates these messages in other 
formats and posts the messages on its website, Nasdaq's experience is 
that these alternative means of communication have not been relied on 
by many market participants. Proposed Rule 4120(b)(2)(B) would provide 
advance notice in the manner set forth in the Amended Nasdaq UTP Plan. 
The Amended Nasdaq UTP Plan requires the Primary Listing Market to 
notify all other participants and the SIP using such protocols and 
other emergency procedures as may be mutually agreed to between the 
Operating Committee and the Exchange. The Exchange also must take 
reasonable steps to provide notice to market participants if the SIP 
Processor is unable to disseminate notice of the Halt or the Primary 
Listing Market is not open for trading. In such case, the notice would 
include:
     Proprietary data feeds containing quote and last sale 
information that the Primary Listing Market also sends to the 
applicable SIP that is unable to disseminate the halt notices;
     Posting on a publicly available Exchange website; or
     System status messages that are disseminated to market 
participants who choose to sign up for the service.
    The Exchange believes that market participants will benefit from 
additional sources of halt notifications that include machine readable 
and easily accessible communications for human traders and Nasdaq 
recommends that participants be prepared in advance to monitor multiple 
sources. Although it may take longer for participants to react to 
messages received in less automated formats, the use of multiple forms 
of dissemination will increase the likelihood that participants receive 
important information. It will also assist participants who do not 
subscribe to the Exchange's proprietary feeds in getting regulatory 
notices. As noted above, in situations where communication is 
interrupted the Exchange and other SROs would retain the ability to 
break trades that occurred after the start of the Regulatory Halt in 
appropriate circumstances (pursuant to rules governing clearly 
erroneous trades, at Equity 11, Rule 11890), thereby lessening the 
potential impact on participants that were delayed in halting trading. 
Participants must monitor several sources of regulatory notices so that 
they are aware of the imposition of a Regulatory Halt in situations 
where communication is interrupted; however, the failure of a 
participant to do so will not prevent the Exchange from initiating a 
Regulatory Halt.
    Proposed Rule 4120(b)(2)(C) also makes clear that, consistent with 
the Amended Nasdaq UTP Plan, except in exigent circumstances, the 
Primary Listing Market will not declare a Regulatory Halt retroactive 
to a time earlier than the notice of such halt. Feedback from market 
participants has been that it is very disruptive to trading when the 
Primary Listing Market sets the start of a trading halt for a time 
earlier than the notice of the halt.\36\ Therefore, in almost all 
situations the trading halt will start at the time of the notice or at 
a point in time thereafter. However, the Exchange retains the authority 
to implement a retroactive halt to deal with unexpected and significant 
situations that represent exigent circumstances. While it is difficult 
in advance to provide an exhaustive list of when retroactive 
application of a trading halt would be in the public interest, one 
situation where a halt was applied retroactively was when the Primary 
Listing Market erroneously lifted a Regulatory Halt. In that case, the 
Primary Listing Market instituted a Regulatory Halt retroactively so 
that it coincided with the time the original halt was lifted in error.
---------------------------------------------------------------------------

    \36\ As noted previously, the start of a Regulatory Halt is 
measured as the point in time when the Primary Listing Market 
declares the halt, regardless of whether there is a delay in 
dissemination of the notice or in receipt of the notice by 
participants.
---------------------------------------------------------------------------

    Consistent with Section X.C.2 of the Amended Nasdaq UTP Plan, 
Proposed Rule 4120(b)(D) states that in making a determination to 
declare a Regulatory Halt in trading any security for which the 
Exchange is the Primary Listing Market, the Exchange will consider the 
totality of information available concerning the severity of the issue, 
its likely duration, and potential impact on Members and other market 
participants and will make a good-faith determination that the criteria 
for declaring the Regulatory Halt have been satisfied and that a 
Regulatory Halt is appropriate. The Exchange will consult, if feasible, 
with the affected Trading Center(s), other SIP Plan Participants, or 
the Processor, as applicable, regarding the scope of the issue and what 
steps are being taken to address the issue.
    Finally, consistent with Section X.C.2 of the Amended Nasdaq UTP 
Plan, Proposed Rule 4120(b)(E) states that once a Regulatory Halt has 
been declared, the Exchange will continue to evaluate the circumstances 
to determine when trading may resume in accordance with its Rules.
    Nasdaq notes that except as otherwise stated, the proposed 
procedures for initiating Regulatory Halts replace those set forth in 
current Rule 4120(c).
Regulatory Halt Initiated by Other Markets
    The Exchange believes that consolidating all subsections concerning 
a Regulatory Halt declared by other Primary Listing Markets in Rule 
4120(b)(3) would add clarity to the rule. As is the case under the 
current rule, the Exchange would honor a Regulatory Halt.
     Current Rule 4120(a)(2), which states that the Exchange 
may halt trading on Nasdaq in any security it trades on an unlisted 
trading privileges basis, if the Primary Listing Market declares a 
Regulatory Halt in the security to permit dissemination of material 
news, would become proposed Rule 4120(b)(3)(A)(i). Consistent with 
Section X.G of the Nasdaq UTP Plan, the proposed Rule will more broadly 
require Nasdaq to halt trading of a UTP security if the Primary Listing 
Market declares a Regulatory Halt in that security.
    Current Rule 4120(b), which governs trading halts in certain 
Derivative Securities Products traded on the Exchange pursuant to 
unlisted trading privileges, would become proposed

[[Page 14079]]

Rule 4120(b)(3)(A)(ii). Subsection (b)(3)(A)(ii) would replace the term 
``Regular Market Session'' with the term ``Regular Trading Hours'' to 
stay consistent with other portions of the proposed rule. The change is 
non-substantive and would still refer to the period between 9:30 a.m. 
and 4:00 p.m. Eastern Time on days when the Exchange is open for 
trading. No other changes have been made to this subsection.
Resumption of Trading After a Regulatory Halt
    The SROs have jointly developed processes to govern the resumption 
of trading in the event of a Regulatory Halt. While the actual process 
of re-launching trading will remain unique to each exchange (for 
example, trading in Nasdaq-listed securities resumes on the Exchange in 
most cases through a Halt Cross pursuant to Rule 4753), the proposed 
rule would harmonize certain common elements of the reopening process 
that would benefit from consistency across markets. These common 
elements include the primacy of the Primary Listing Market in 
resumption decisions, the requirement that the Primary Listing Market 
make its determination to resume trading in good faith,\37\ and certain 
parts of the complex process of reopening trading after a SIP Halt. 
With respect to a SIP Halt, common elements of the reopening process 
include the interaction among SROs (including the Primary Listing 
Market with the SIP), the requirement that the Primary Listing Market 
terminate a SIP Halt with a notification that specifies a SIP Halt 
Resume Time, the minimum quoting times before resumption of trading, 
the cutoff time after which trading would not resume during Regular 
Trading Hours, and the time when trading may resume if the Primary 
Listing Market does not open a security within the amount of time 
specified in its rules after the SIP Halt Resume Time.
---------------------------------------------------------------------------

    \37\ See Partial Amendment No. 1 of Trading Halt Amendments to 
the UTP Plan, dated March 31, 2021.
---------------------------------------------------------------------------

    Proposed Rule 4120(b)(4) provides the process to be followed when 
resuming trading upon the conclusion of a Regulatory Halt. The new 
rule, which incorporates Section X.E, and.(F of the Amended Nasdaq UTP 
Plan, is divided into the following three subsections concerning 
resumption of trading: (A) After a Regulatory Halt other than an IPO or 
SIP Halt; \38\ (B) after a SIP Halt; and (C) after an IPO Halt.\39\ The 
Exchange's proposed rule would make clear that Nasdaq, as the Primary 
Listing Market, is responsible for declaring a resumption of trading 
when it makes a good faith determination that trading may resume in a 
fair and orderly manner and in accordance with its rules. The Exchange 
expects that other SROs will propose the same concept. Similarly, the 
Exchange may resume trading in a non-Nasdaq-listed security \40\ 
subject to a Regulatory Halt after the Exchange receives notification 
from the Primary Listing Market that the Regulatory Halt has been 
terminated. The Exchange does not run Halt Crosses in securities listed 
on another exchange and, therefore, the resumption of trading in these 
securities will occur once notice from the Primary Listing Market is 
received. Proposed Rule 4120(b)(4)(A)(ii) sets forth the mechanics of 
how the resumption would occur for these non-Nasdaq-listed securities 
and is consistent with current practice.
---------------------------------------------------------------------------

    \38\ When resuming trading in a halted security other than for 
an IPO or SIP Halt, the proposal states that trading shall resume at 
the time specified by Nasdaq in a notice posted on a publicly 
available Nasdaq website. This is unchanged from current Rule 
4120(c)(5), except that the Proposed Rule no longer expressly 
provides that the Exchange will post notice of the resumption on a 
publicly available Nasdaq website or disseminate it through major 
wire services. Instead, consistent with the Amended Nasdaq UTP Plan, 
the Proposed Rule provides that the Exchange will notify all 
participants and the SIP that a Regulatory Halt has been lifted 
using such protocols and other emergency procedures as may be 
mutually agreed to between the Operating Committee and the Exchange.
    \39\ The Exchange proposes to change an obsolete reference in 
the provision of the Rules pertaining to resumptions after IPO 
Halts. The Exchange proposes to replace the phrase ``member 
organizations'' with the word ``Member'' to reflect the fact that 
the Rules refer to Exchange participants as Members.
    \40\ Companies that are dually-listed on Nasdaq and NYSE have 
one Primary Listing Market. See proposed amended IM-5220. Thus, if 
Nasdaq is not the Primary Listing Market for a dually-listed 
security, it will resume trading after receiving notice from NYSE 
that the Regulatory Halt has been terminated.
---------------------------------------------------------------------------

    The existing resumption process incorporating the Halt Cross is 
being moved without modification to proposed Rule 4120(b)(4)(A)(i)a.-c. 
This process will apply to any type of a Regulatory Halt except for 
halts related to the launch of IPOs and a SIP Halt (which does not 
exist under the current rule) or an LULD Halt. The existing process for 
launching IPOs has also been incorporated in the proposed rule without 
substantive modification as proposed Rule 4120(b)(4)(C).
    Proposed Rule 4120(b)(4)(A)(i)d. states that during any trading 
halt or pause for which a halt cross under Rule 4753 will not occur (as 
in the case of a Regulatory Halt for securities where Nasdaq is not the 
Primary Listing Market), orders entered during the Regulatory Halt or 
pause will not be accepted, unless subject to instructions that the 
order will be directed to another exchange as described in Rule 4758.
    The Exchange proposes to add Rule 4120(b)(4)(A)(i)e. that will 
address the re-opening process following a Limit Up-Limit Down pause. 
The Exchange is proposing to move the Limit Up-Limit Down trading pause 
termination process to Rule 4120(b)(4)(A)(i)e. unchanged from current 
Rule 4120(c)(10).
    For a SIP Halt, proposed Rule 4120(b)(4)(B) establishes the process 
by which Nasdaq, as the Primary Listing Market, determines to resume 
trading. The SROs' experience with such events is that communication 
among SROs, SIPs and market participants is the best way to ensure that 
the Primary Listing Market has access to available information and to 
coordinate the reopening of trading in an orderly manner. In addition, 
the SROs anticipate that market participants and other impacted 
entities will have access to information about the issue causing the 
SIP Halt, the duration of the halt and the resumption process through 
updated communications from the SIP, Operating Committee and Primary 
Listing Market. The Operating Committees have policies and procedures 
that, among other things, establish industry notice protocols for 
various SIP-related events.\41\
---------------------------------------------------------------------------

    \41\ See https://www.utpplan.com/DOC/UTP_SIP_Emergency_Procedures.pdf.
---------------------------------------------------------------------------

    Under the proposal, for the resumption of trading after a SIP Halt 
initiated by the Exchange, the Exchange, as the Primary Listing Market, 
will make a good-faith determination of the SIP Halt Resume Time, after 
considering the totality of information as to whether resuming trading 
would promote a fair and orderly market. Nasdaq would solicit input 
from the Processor, the Operating Committee, or the operator of the 
system in question (as well as any Trading Center(s) to which such 
system is linked), regarding operational readiness to resume trading. 
The Primary Listing Market retains discretion to delay the SIP Halt 
Resume Time if it has reason to believe that trading will not resume in 
a fair or orderly manner.
    When resuming trading after a SIP Halt as the Primary Listing 
Market, Nasdaq will use the same Halt Cross as other Regulatory Halt 
types, except for a Regulatory Halt related to the launch of an IPO or 
an LULD Halt. Whereas the Halt Cross for other Regulatory Halt types 
(except for a Regulatory Halt related to the launch of an IPO or an

[[Page 14080]]

LULD Halt, in which Nasdaq will extend the Display Only Period if an 
order imbalance exists at its conclusion) have a fixed five-minute 
Display Only Period during which the Exchange is open for quoting but 
not trading, the complexities in resuming trading after a SIP Halt 
require additional flexibility to assist market participants in events 
that may involve hundreds or even thousands of securities. As a result, 
proposed Rule 4120(b)(4)(B)(i)b. and c. sets a minimum five-minute 
Display Only Period that can be extended at the discretion of Nasdaq to 
ensure a fair and orderly reopening of trading. It is anticipated that 
Nasdaq will consider input from other SROs, the SIP and market 
participants in reaching this conclusion. The SROs considered setting a 
fixed-length Display Only Period, including a longer such period of ten 
or fifteen minutes, but it determined that a flexible time period would 
better serve the markets in that it could be five minutes, or longer if 
deemed appropriate to facilitate a fair and orderly reopening. Nasdaq 
would, of course, be expected to communicate the duration of the 
Display Only Period to market participants (i.e., in the resumption 
notice) sufficiently in advance of resumption to allow them to prepare 
their systems for trading.
    Proposed Rule 4120(b)(4)(B)(i)a. gives Nasdaq, as the Primary 
Listing Market, discretion to delay the SIP Halt Resume Time if it 
believes that trading will not resume in a fair and orderly manner. 
Moreover, proposed Rule 4120(b)(4)(B)(i)b allows Nasdaq to stagger the 
SIP Halt Resume Times for multiple securities in order to reopen in a 
fair and orderly manner. For example, this discretion could be used to 
open trading in a small number of symbols to ensure that systems are 
operating normally before resuming trading in the remaining symbols.
    In addition, the proposed rule would establish the last SIP Halt 
Resume Time as 20 minutes before the end of Regular Trading Hours 
(e.g., 3:40 p.m. ET)--which is the latest time by which Nasdaq believes 
that it could conduct an orderly Halt Cross process before the end of 
Regular Trading Hours and without impacting the Closing Cross. If 
trading has not resumed by that time, Nasdaq would establish its 
closing price in halted securities using its contingency closing 
process. The Exchange's contingent closing process is memorialized in 
Rule 4754(b)(7).
    Proposed Rule 4120(b)(4)(B)(i)c. provides that, for a SIP Halt 
initiated by Nasdaq, the reopening process shall be the same as for a 
non-IPO Regulatory Halt pursuant to proposed Rule 4120(b)(4)(A)(i)a.-
c., except that the Display Only Period will be a minimum of five 
minutes, but may be extended at the discretion of Nasdaq pursuant to 
proposed Rule 4120(b)(4)(B)(i)a.&b. Proposed Rule 4120(b)(4)(B)(ii) 
provides that, for a SIP Halt initiated by another exchange that is the 
Primary Listing Market, during Regular Trading Hours, Nasdaq may resume 
trading after trading has resumed on the Primary Listing Market or 
notice has been received from the Primary Listing Market that trading 
may resume. Proposed Rule 4120(b)(4)(B)(ii) provides that, for a SIP 
Halt initiated by a market other than Nasdaq, during Regular Trading 
Hours, if the Primary Listing Market does not open a security within 
the amount of time listed by the rules of the Primary Listing Market, 
Nasdaq may resume trading in that security. Under Proposed Rule 
4120(b)(4)(B)(ii), Outside of Regular Trading Hours, Nasdaq may resume 
trading immediately after the SIP Halt Resume Time.\42\
---------------------------------------------------------------------------

    \42\ See Partial Amendment No. 2 of Trading Halt Amendments to 
the UTP Plan, dated April 7, 2021.
---------------------------------------------------------------------------

    Nasdaq notes that except as otherwise stated, the proposed 
procedures for terminating Regulatory Halts replace those set forth in 
current Rule 4120(c).
Operational Halt
    The Exchange proposes in Rule 4120(c) to address Operational Halts, 
which are non-regulatory in nature and apply only to the exchange that 
calls the halt. The ability to call an Operational Halt has existed for 
a long time, although in the Exchange's experience, such halts have 
rarely been initiated. As part of Nasdaq's assessment with the other 
SROs of the halting and resumption of trading, the Exchange believes 
that the markets would benefit from greater clarity regarding when an 
Operational Halt may be appropriate. In part, the proposed change is 
designed to cover situations similar to those that might constitute a 
Regulatory Halt, but where the impact is limited to a single market. 
For example, just as a market disruption might trigger a Regulatory 
Halt for Extraordinary Market Activity if it affects multiple markets, 
so a disruption at the Exchange, such as a technical issue affecting 
trading in one or more securities, could impact trading on the Exchange 
so significantly that an Operational Halt is appropriate in one or more 
securities. In such an instance, it would be in the public interest to 
institute an Operational Halt to minimize the impact of a disruption 
that, if trading were allowed to continue, might negatively affect a 
greater number of market participants. An Operational Halt does not 
implicate other trading centers.
    As is currently the case in existing Rule 4120(a)(3)(B), proposed 
Rule 4120(c)(1)(C) gives discretion to the Exchange to impose an 
Operational Halt in a security listed on Nasdaq when a Primary Listing 
Market imposes an Operational Halt in a security that is a derivative 
or component of the Nasdaq-listed security. As discussed in relation to 
Derivative Securities Products, Nasdaq does not automatically halt 
trading--through either a Regulatory Halt or an Operational Halt--when 
component or derivative securities are halted. However, proposed Rule 
4120(c)(1)(C), like the current rule, gives the Exchange authority to 
halt a security listed on Nasdaq if the impact of the component or 
derivative security on price discovery or the fair and orderly market 
in the Nasdaq-listed security is significant enough to warrant a 
trading halt. Factors would include whether trading in the security 
listed on Nasdaq is fair and orderly, the nature of the issue that 
triggered the Operational Halt(s) on the Primary Listing Market(s) in 
the component or derivative securities and whether the security that is 
subject to the Operational Halt continues to trade on other Trading 
Centers.
    Proposed Rule 4120(c) also would authorize the Exchange to 
implement an Operational Halt for any security trading on Nasdaq, 
including a security listed elsewhere:
     If it is experiencing Extraordinary Market Activity on 
Nasdaq; or
     when otherwise necessary to maintain a fair and orderly 
market or in the public interest.
    The Exchange is proposing to delete Rule 4120(a)(3)(A) that 
authorizes the Exchange to institute an ``operational trading halt'' in 
a security listed on another exchange when that exchange imposes a 
trading halt because of an order imbalance or influx. The Exchange 
believes this language could restrict its ability to follow an 
Operational Halt imposed by another market to a limited set of fact 
patterns. The Exchange believes that the broader language provided by 
the definition of Extraordinary Market Activity and the ability to 
initiate an Operational Halt when necessary to maintain a fair and 
orderly market will better serve the interests of investors by allowing 
the Exchange to act where appropriate.
    Proposed Rule 4120(c)(2) provides the process for initiating an 
Operational Halt. Under the proposed rule, the Exchange must notify the 
SIP if it has concerns about its ability to collect and transmit 
Quotation Information or

[[Page 14081]]

Transaction Reports, or if it has declared an Operation Halt or 
suspension of trading in one or more Eligible Security, pursuant to the 
procedures adopted by the Operating Committee.
    Proposed Rule 4120(c)(3) will clarify how the Exchange resumes 
trading after an Operational Halt. Proposed Rule 4120(c)(3) provides 
that the Exchange would resume trading when it determines that trading 
may resume in a fair and orderly manner consistent with the Exchange's 
rules. Proposed Rule 4120(c)(3) includes one change from the current 
rule. Under the current rule, the Halt Cross process is used to resume 
trading after all halts in Nasdaq-listed securities, whether the halt 
is a Regulatory Halt or an Operational Halt. The Exchange is proposing 
to modify the process for an Operational Halt to give the Exchange 
discretion to open trading without a Halt Cross if it determines such 
action to be in the best interests of the market. During the July 8, 
2015 suspension of trading by NYSE in all securities due to an 
operational issue, many market participants requested that NYSE resume 
trading without an auction to avoid any impact on Regulation NMS 
compliance and mispricing because trading continued on other markets. 
NYSE determined that its rules (NYSE Rule 7.35A) allow it to reopen 
without an auction process, and this decision was well received. 
Indeed, Nasdaq agrees that a Halt Cross in such a circumstance might 
prove to be disruptive or result in trade-throughs. Nasdaq's current 
rules would not permit it to reopen after an Operational Halt without a 
Halt Cross auction process. The Exchange proposes modifying its rules 
to provide it the same flexibility.
    For Nasdaq-listed securities where a Halt Cross is conducted, the 
Exchange will use the same Halt Cross process for resumption outlined 
in Rule 4120(b)(4)(A)(i)a.-c. as it does for most Regulatory Halt 
types. The proposed rule notes that Nasdaq may determine to open 
trading without a Halt Cross if it determines such action to be in the 
best interests of the market. Where the Exchange decides not to hold a 
Halt Cross for a security subject to a halt or pause, the Exchange 
proposes to amend Rule 4753 to clarify that market hours trading will 
resume when Nasdaq releases the security. Moreover, where trading halt 
or pause for which a halt cross will not occur (as in the case of an 
Operational Halt for securities where Nasdaq is not the Primary Listing 
Market), orders entered during the Operational Halt will not be 
accepted, unless subject to instructions that the order will be 
directed to another exchange as described in Rule 4758.\43\ When the 
Nasdaq is not the Primary Listing Market, when halting trading based on 
an Operational Halt, initiated by the Primary Listing Market, Nasdaq 
shall resume trading once it has determined the trading may be resumed 
in a fair and orderly manner.
---------------------------------------------------------------------------

    \43\ The Exchange notes that it does not plan to carry over a 
portion of the existing Rule text that permits Nasdaq, in the event 
that it halts trading pursuant to an operational trading halt 
imposed by another exchange, to commence quotations and trading at 
any time following initiation of operational trading halts, without 
regard to regular procedures for resuming trading. This language 
will be replaced.
---------------------------------------------------------------------------

Conforming Changes to Other Rules
    The Exchange is proposing to modify a number of other rules that 
cross reference Rule 4120 in light of the reorganization of these 
rules. Updated cross references are proposed for the following rules:
     Rule 4702(a) (Order Types) will be modified to update 
cross references to the Rule that governs Limit-Up-Limit-Down 
procedures. Rule 4702(b)(16)(A) will be modified to update the cross-
reference to the provision within Rule 4120 that is used to set the 
price of a Company Direct Listing Order.
     Rule 4753(a)(3) (Nasdaq Halt Cross) will be updated to 
make conforming changes to cross-references to IPO Halt procedures, a 
Trading Pause initiated pursuant to the Limit Up-Limit Down procedure, 
and the definition of the terms ``Auction Reference Prices'' and 
``Auction Collars.''
     Rule 4753(b) (Nasdaq Halt Cross) will be modified to 
update the references to subsections of Rule 4120 to reflect the 
reorganization of Rule 4120. The Exchange also updates a cross-
reference to Rule 4120 discussed when describing the role of a 
``financial advisor.'' \44\
---------------------------------------------------------------------------

    \44\ As discussed earlier, the Exchange also proposes to amend 
Rule 4753(b) to state that for Nasdaq-listed securities that are the 
subject of a trading halt or pause initiated pursuant to Rule 4120, 
the Nasdaq Halt Cross shall occur at the time specified under Rule 
4120, unless Nasdaq determines not to hold a Halt Cross, pursuant to 
proposed Rule 4120(c)(3)(A). The proposed amendments also clarify 
that market hours trading will commence when the Nasdaq Halt Cross 
concludes, or in the case of a security for which Nasdaq determines 
not to hold a Halt Cross, when Nasdaq releases the security.
---------------------------------------------------------------------------

     Rule 4753(c) (Nasdaq Halt Cross) will be modified to 
update a cross reference to Rule 4120.
     Rule 4754(b)(6) (Nasdaq Closing Cross related to the Limit 
Up-Limit Down Plan) will be modified to reflect the new subsections of 
Rule 4120 that govern LULD Halts.
     IM-5315-2, IM-5405-1, and IM-5505-1 will be modified to 
reflect updated cross-references to provisions of Rule 4120 that the 
Exchange is proposing to relocate.
    In addition, the Exchange is proposing to amend several rules that 
rely on the definition of ``Regular Market Session'' in current Rule 
4120(b)(4)(D). Regular Market Session is defined as ``the trading 
session from 9:30 a.m. until 4:00 p.m. or 4:15 p.m.'' The Exchange is 
proposing to replace the references to Regular Market Session in Rule 
5710 (Securities Linked to the Performance of Indexes and Commodities 
(Including Currencies)) and 5711 with references to Regular Trading 
Hours as proposed in Rule 4120(a)(12). The term ``Regular Trading 
Hours'' would be consistent with the existing application of the 
definition of ``Regular Market Session'' and obviate the need for 
multiple definitions for the regular trading day. As previously 
discussed, no securities traded on Nasdaq currently close at 4:15 p.m. 
and, therefore, the alternative closing time in the current Regular 
Market Session definition is not needed.
    The Exchange also is proposing to modify IM-5220, which covers 
dually-listed securities, to reflect the changes proposed to Rule 4120. 
The proposed rule makes clear that the Primary Listing Market is the 
market on which the security has been listed longest. This clear 
statement has eliminated the need for the more specific citations to 
various subsections of Rule 4120 currently contained in IM-5220 because 
proposed Rule 4120 distinguishes between those securities for which 
Nasdaq is the Primary Listing Market and those securities for which 
Nasdaq is not. The Exchange is also eliminating language from the rule 
that references the Intermarket Trading System, which no longer exists. 
These changes are not substantive.
    Finally, the Exchange proposes to amend certain references in Rule 
5711, which governs the trading of certain derivative securities. The 
references to Regular Market Session would be changed to Regular 
Trading Hours throughout Rule 5711. This is consistent with changes 
made in other rules referring to Regular Market Session. The reference 
in subsection (i)(v)(B)(2) to the trading pauses contained in Rule 
4120(a)(11) has been replaced with a citation to the Limit Up-Limit 
Down Plan, which now applies to these instruments (rather than Rule 
4120(a)(11), which as discussed above, is obsolete). The reference in 
Rule 5711(j)(vi)(B)(5) to halting a series of Managed Trust Securities 
traded on the Exchange pursuant to unlisted trading privileges will be 
updated to reference

[[Page 14082]]

the applicable section of the proposal, Rule 4120(b)(3)(A)(ii). The 
Exchange also proposes to update or insert cross-citations to the LULD 
Halt procedures for other derivative securities in this Rule that refer 
to halt procedures (Currency Trust Shares (Rule 5711(e), Commentary 
.07, and Currency Warrants (Rule 5711(k)(vi)).
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.\45\ Specifically, the 
proposal is consistent with Section 6(b)(5) of the Act \46\ 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, and, in general, protect investors and 
the public interest.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78f(b).
    \46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As described above, the Exchange and other SROs are seeking to 
adopt harmonized rules related to halting and resuming trading in U.S.-
listed equity securities. The Exchange believes that the proposed rules 
will provide greater transparency and clarity with respect to the 
situations in which trading will be halted and the process through 
which that halt will be implemented and terminated. Particularly, the 
proposed changes seek to achieve consistent results for participants 
across U.S. equities exchanges while maintaining a fair and orderly 
market, protecting investors and protecting the public interest. Based 
on the foregoing, the Exchange believes that the proposed rules are 
consistent with Section 6(b)(5) of the Act \47\ because they will 
foster cooperation and coordination with persons engaged in regulating 
and facilitating transactions in securities.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As discussed previously, the Exchange believes that the various 
provisions of the proposed rules that will apply to all SROs are 
focused on the type of cross-market event where a consistent approach 
will assist market participants and reduce confusion during a crisis. 
Because market participants often trade the same security across 
multiple venues and trade securities listed on different exchanges as 
part of a common strategy, the Exchange believes that the proposed 
rules will lessen the risk that market participants holding a basket of 
securities will have to deal with divergent outcomes depending on where 
the securities are listed or traded. Conversely, the proposed rules 
would still allow individual SROs to react differently to events that 
impact various securities or markets in different ways. This avoids the 
``brittle market'' risk where an isolated event at a single market 
forces all markets trading equities securities to halt or halts trading 
in all securities where the issue impacted only a subset of securities. 
By addressing both concerns, the Exchange believes that the proposed 
rules further the Act's goal of maintaining fair and orderly markets.
    The Exchange believes that the proposed rules' focus of 
responsibility on the Primary Listing Market for decisions related to a 
Regulatory Halt and the resumption of trading is consistent with the 
Act, which itself imposes obligations on exchanges with respect to 
issuers that are listed. As is currently the case, the Primary Listing 
Market would be responsible for the many regulatory functions related 
to its listings, including the determination of when to declare a 
Regulatory Halt. While these core responsibilities remain with the 
Primary Listing Market, trading in the security can occur on multiple 
exchanges that have unlisted trading privileges for the security or in 
the over-the-counter market, regulated by FINRA. These other venues are 
responsible for monitoring activity on their own markets, but also have 
agreed to honor a Regulatory Halt.
    The proposed changes relating to Regulatory Halts would ensure that 
all SROs handle the situations covered therein in a consistent manner 
that would prevent conflicting outcomes in cross-market events and 
ensure that all Trading Centers recognize a Regulatory Halt declared by 
the Primary Listing Market. The changes are consistent with and 
implement the Amended Nasdaq UTP Plan. While the proposed rules 
recognize one Primary Listing Market for each security, the rules do 
not prevent an issuer from switching its listing to another national 
securities exchange that would thereafter assume the responsibilities 
of Primary Listing Market for that security. Similarly, the proposed 
rules set forth a fair and objective standard to determine which 
exchange will be the Primary Listing Market in the case of dually-
listed securities: The exchange on which the security has been listed 
the longest.
    The Exchange believes that the other definitions in the proposed 
rules are also consistent with the Act. For example, existing rules of 
the Exchange allow it to take action to halt the market in the event of 
Extraordinary Market Activity. The proposed rules would expand the 
scope of what constitutes Extraordinary Market Activity, consistent 
with the amended definition of that term in the Amended Nasdaq UTP 
Plan, thereby furthering the Act's goal of promoting fair and orderly 
markets. The Exchange is also proposing to adopt definitions for ``SIP 
Outage,'' ``Material SIP Latency'' and ``SIP Halt,'' to explicitly 
address situations that may disrupt the markets, and these definitions 
are identical to the definitions in the Amended Nasdaq UTP Plan. The 
proposed rules provide guidance on when the Exchange should seek 
information from the Operating Committee, other SROs and market 
participants as well as means for dissemination of important 
information to the market, consistent with the Amended Nasdaq UTP Plan. 
The Exchange believes these provisions strike the right balance in 
outlining a process to address unforeseen events without preventing 
SROs from taking action needed to protect the market.
    The Exchange believes that the proposed rules, which make halts 
more consistent across exchange rules, is consistent with the Act in 
that it will foster cooperation and coordination with persons engaged 
in regulating the equities markets. In particular, the Exchange 
believes it is important for SROs to coordinate when there is a 
widespread and significant event, as multiple Trading Centers are 
impacted in such an event. Further, while the Exchange recognizes that 
the proposed rule will not guarantee a consistent result on every 
market in all situations, the Exchange does believe that it will assist 
in that outcome. While the proposed rules relating to Regulatory Halts 
focuses primarily on the kinds of cross-market events that would likely 
impact multiple markets, individual SROs will still retain flexibility 
to deal with unique products or smaller situations confined to a 
particular market. To that end, the Exchange has retained existing 
elements of Rule 4120 that focus on its unique products and the 
processes it has developed over time to interact with its issuers.
    Also consistent with the Act, and with the Amended Nasdaq UTP Plan, 
is the Exchange's proposal in Rule 4120(c) to address Operational 
Halts, which are non-regulatory in nature and apply only to the 
exchange that calls the halt. As noted earlier, the Exchange presently 
has the ability to call an Operational Halt, but does so rarely. The 
Exchange believes that the markets would benefit from greater clarity 
regarding when an Operational Halt may be appropriate. In

[[Page 14083]]

part, the proposed change is designed to cover situations similar to 
those that might constitute a Regulatory Halt, but where the impact is 
limited to a single market. For example, just as a market disruption 
might trigger a Regulatory Halt for Extraordinary Market Activity if it 
affects multiple markets, so could a disruption at the Exchange, such 
as a technical issue affecting trading in one or more securities, 
impact trading on the Exchange so significantly that an Operational 
Halt is appropriate in one or more securities. In such an instance, it 
would be in the public interest to institute an Operational Halt to 
minimize the impact of a disruption that, if trading were allowed to 
continue, might negatively affect a greater number of market 
participants. An Operational Halt does not implicate other trading 
centers.
    As is currently the case in existing Rule 4120(a)(3)(B), proposed 
Rule 4120(c)(1)(C) gives discretion to the Exchange to impose an 
Operational Halt in a security listed on Nasdaq when a Primary Listing 
Market imposes an Operational Halt in a security that is a derivative 
or component of the Nasdaq-listed security. As discussed in relation to 
Derivative Securities Products, Nasdaq does not automatically halt 
trading--through either a Regulatory Halt or an Operational Halt--when 
component or derivative securities are halted. However, proposed Rule 
4120(c)(1)(C), like the current rule, gives the Exchange authority to 
halt a security listed on Nasdaq if the impact of the component or 
derivative security on price discovery or the fair and orderly market 
in the Nasdaq-listed security is significant enough to warrant a 
trading halt. Factors would include whether trading in the security 
listed on Nasdaq is fair and orderly, the nature of the issue that 
triggered the Operational Halt(s) on the Primary Listing Market(s) in 
the component or derivative securities and whether the security that is 
subject to the Operational Halt continues to trade on other Trading 
Centers.
    Proposed Rule 4120(c) also would authorize the Exchange to 
implement an Operational Halt for any security trading on Nasdaq, 
including a security listed elsewhere: (i) If it determines that there 
is a significant order imbalance; (ii) if it is experiencing 
Extraordinary Market Activity; or (iii) when otherwise necessary to 
maintain a fair and orderly market or in the public interest.
    The Exchange believes that it is consistent with the Act to delete 
Rule 4120(a)(3)(A), which authorizes the Exchange to institute an 
``operational trading halt'' in a security listed on another exchange 
when that exchange imposes a trading halt because of an order imbalance 
or influx. The Exchange believes this language could restrict its 
ability to follow an Operational Halt imposed by another market to a 
limited set of fact patterns. The Exchange believes that the broader 
language provided by the definition of Extraordinary Market Activity 
and the ability to initiate an Operational Halt in the event of a 
significant order imbalance in proposed Rule 4120(c) will better serve 
the interests of investors by allowing the Exchange to act where 
appropriate.

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

    The Exchange believes the proposal is consistent with Section 
6(b)(8) of the Act \48\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act as explained below.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Importantly, the Exchange believes the proposal will not impose a 
burden on intermarket competition but will rather alleviate any burden 
on competition because it is the result of a collaborative effort by 
all SROs to harmonize and improve the process related to the halting 
and resumption of trading in U.S.-listed equity securities, consistent 
with the Amended Nasdaq UTP Plan. In this area, the Exchange believes 
that all SROs should have consistent rules to the extent possible in 
order to provide additional transparency and certainty to market 
participants and to avoid inconsistent outcomes that could cause 
confusion and erode market confidence. The proposed changes would 
ensure that all SROs handle the situations covered therein in a 
consistent manner and ensure that all Trading Centers handle a 
Regulatory Halt consistently. The Exchange understands that all other 
Primary Listing Markets intend to file proposals that are substantially 
similar to this proposal.
    The Exchange does not believe that its proposals concerning 
Operational Halts impose an undue burden on competition. Under the 
existing Rules, the Exchange already possesses discretionary authority 
to impose Operational Halts for various reasons, including because of 
an order imbalance or influx that causes another national securities 
exchange to impose a trading halt in a security, or because another 
national securities exchange imposes an operational halt in a security 
that is a derivative or component of a security listed on Nasdaq. As 
described earlier, the proposed Rule change clarifies and broadens the 
circumstances in which the Exchange may impose such Halts, and 
specifies procedures for both imposing and lifting them. The Exchange 
does not intend for these proposals to have any competitive impact 
whatsoever. Indeed, the Exchange expects that other exchanges will 
adopt similar rules and procedures to govern operational halts, to the 
extent that they have not done so already.
    The Exchange does not believe that the proposed rule change imposes 
a burden on intramarket competition because the provisions apply to all 
market participants equally. In addition, information regarding the 
halting and resumption of trading will be disseminated using several 
freely accessible sources to ensure broad availability of information 
in addition to the SIP data and proprietary data feeds offered by the 
Exchange and other SROs that are available to subscribers.
    In addition, the proposals include several provisions related to 
the declaration and timing of trading halts and the resumption of 
trading designed to avoid any advantage to those who can react more 
quickly than other participants. The proposed rule gives the Exchanges 
the ability to declare the timing of a Regulatory Halt immediately. The 
SROs retain the discretion to cancel trades that occur after the time 
of the Regulatory Halt. The proposals also allow for the staggered 
resumption of trading to assist firms in reentering the market after a 
SIP Halt affecting multiple securities, in order to reopen in a fair 
and orderly manner. In addition, the proposals encourage early and 
frequent communication among the SROs, SIPs and market participants to 
enable the dissemination of timely and accurate information concerning 
the market to market participants.

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which

[[Page 14084]]

the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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 [email protected]. Please include 
File Number SR-NASDAQ-2022-017 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2022-017. 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 website (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 website 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2022-017 and should be submitted 
on or before April 1, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
---------------------------------------------------------------------------

    \49\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05147 Filed 3-10-22; 8:45 am]
BILLING CODE 8011-01-P