Document ID: SEC-2015-0036-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2015-01-07T05:00Z

[Federal Register Volume 80, Number 4 (Wednesday, January 7, 2015)]
[Notices]
[Pages 916-918]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30971]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73972; File No. SR-NASDAQ-2014-126]

Self-Regulatory Organizations; The NASDAQ Stock Market, LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Nasdaq's Rule Governing Modification of Orders in the Event of 
an Issuer Corporate Action Related to a Dividend, Payment or 
Distribution

December 31, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 18, 2014, 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, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    Nasdaq Rule 4761 addresses the treatment of quotes/orders in 
securities that are the subject of issuer corporate actions related to 
a dividend, payment or distribution. The rule applies to any trading 
interest that is carried on the Nasdaq Market Center book overnight. As 
a general matter, Nasdaq cancels open quotes/orders in the event of any 
corporate action related to a dividend, payment or distribution, on the 
ex-date of the action. The cancellation occurs immediately prior to the 
opening of trading at 4 a.m. on the ex-date of the corporate action, 
and the member receives a cancellation notice, so that it can, if it 
desires, reenter the order at the commencement of trading on the ex-
date.
    Prior to 2013, Nasdaq Rule 4761 provided for a complex variety of 
adjustments of quotes and orders carried on the Nasdaq book overnight; 
depending on the nature of the

[[Page 917]]

corporate action, these adjustments might result in the cancellation of 
a quote/order or an adjustment of its price and/or size to reflect the 
impact of the corporate action. In April 2013, Nasdaq filed an 
amendment to the rule to provide that Nasdaq would cancel all open 
quotes/orders in the event of any corporate action.\3\ The proposal 
reflected a conclusion that the rule was excessively complex and had 
given rise to certain non-material discrepancies between the rule as 
written and its application in Nasdaq's systems. Subsequently, in 
response to member demand for assistance with order management with 
respect to certain common types of corporate action, Nasdaq amended the 
rule again to offer limited, optional functionality to allow open 
orders to be adjusted, rather than cancelled.\4\ As written, the rule 
provides for the possibility of order adjustment in the case of cash 
dividends, forward stock splits, and combined cash dividends/forward 
stock splits.
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    \3\ Securities Exchange Act Release No. 69454 (April 25, 2013), 
78 FR 25506 (May 1, 2013) (SR-NASDAQ-2013-068).
    \4\ Securities Exchange Act Release No. 70113 (August 5, 2013), 
78 FR 48746 (August 9, 2013) (SR-NASDAQ-2013-096).
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    The proposal will expand the rule also to provide for adjustment in 
the case of stock dividends and combined cash dividends/stock 
dividends. The proposal reflects the conclusion, based on member 
feedback, that actions resulting in the distribution of additional 
stock should be treated similarly, regardless of whether they are 
denominated as forward stock splits or stock dividends. Nasdaq will 
make members aware of the effective date of the proposed change by the 
issuance of a widely disseminated Equity Trader Alert.
    Under the current rule, a member may designate that all orders with 
a time-in-force of good-till-cancelled \5\ that are entered through one 
or more order entry ports specified by the member will be processed in 
the manner specified below.\6\
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    \5\ Nasdaq notes that the use of good-till-cancelled orders is 
not prevalent, accounting for significantly less than 1% of all 
orders entered into Nasdaq. The vast majority of orders expire by 
their terms at the end of regular market hours.
    \6\ The member may opt for this processing on a port-by-port 
basis. Thus, the provisions providing for order adjustment are 
applied to all good-till-cancelled orders entered through a port 
that has been specified by the member for such processing. Because 
members may obtain multiple ports, however, members may opt to apply 
different processing to different orders based on the ports through 
which they are entered.
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    (1) Cash Dividend. If an issuer is paying a cash dividend, the 
price of an order to buy is reduced by the amount of the sum of all 
dividends payable, rounded up to the nearest whole cent; provided, 
however, that there will be no adjustment if the sum of all dividends 
is less than $0.01. For example, if the sum of all dividends is $0.381, 
the price of the order will be reduced by $0.39. An order to sell will 
be retained but will receive no price adjustment.
    (2) Forward Stock Split. If an issuer is implementing a forward 
stock split, the order is cancelled if its size is less than one round 
lot. If the order's size is greater than one round lot, (i) the size of 
the order is multiplied by the ratio of post-split shares to pre-split 
shares, with the result rounded downward to the nearest whole share, 
and (ii) the price of the order will be multiplied by the ratio of pre-
split shares to post-split shares, with the result rounded down to the 
nearest whole penny in the case of orders to buy and rounded up to the 
nearest whole penny in the case of orders to sell.
    Under the change proposed in this filing, stock dividends will be 
treated in the same manner as forward stock splits. Thus, any corporate 
action in which additional shares are issued to holders of outstanding 
shares will be treated in the manner described above.
    For example, if a member has entered a good-till-cancelled order to 
buy 375 shares at $10.95 per share and the issuer implemented a split 
or dividend under which an additional 1.25 shares would be issued for 
each share outstanding, the size of the order would be adjusted to 843 
shares (375 x 2.25/1 = 843.75, rounded down to 843) and the price of 
the order would be adjusted to $4.86 per share ($10.95 per share x 1/
2.25 = $4.8667 per share, rounded down to $4.86 per share). An order to 
sell at the same price and size would be adjusted to 843 shares with a 
price of $4.87 per share ($4.8667 per share, rounded up).\7\
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    \7\ Nasdaq is also amending the example in the rule text to make 
it clear that the prices provided therein are per share prices.
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    (3) Combination of Cash Dividend and Forward Stock Split or Stock 
Dividend. Under the current rule, if an issuer is implementing a cash 
dividend and a forward stock split on the same date, the adjustments 
described above will both be applied, in the order described in the 
notice of the corporate actions received by Nasdaq.\8\ Under the 
proposed rule change, this provision is being expanded to cover stock 
dividends as well as forward stock splits.
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    \8\ For securities listed on Nasdaq, Nasdaq receives notice of 
corporate actions from the issuer and determines the applicable ex-
date. See Rule 11140. For securities listed on other exchanges, 
Nasdaq receives notice from the listing exchange.
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    As is currently the case, changes to open orders will continue to 
be effected immediately prior to the opening of the System at 4:00 a.m. 
on the ex-date of the applicable corporate action. Open orders that are 
retained are re-entered by the System (as adjusted above) immediately 
prior to the opening of the System, such that they will retain time 
priority over new orders entered at or after 4:00 a.m.\9\ Under the 
proposed rule change, for corporate actions other than cash dividends, 
forward stock splits, and stock dividends (or any combination thereof), 
open orders are always cancelled, regardless of the port through which 
they were entered.
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    \9\ To the extent that multiple good-till-cancelled orders in a 
particular security are adjusted and re-entered, such orders may not 
retain the same time priority vis-[agrave]-vis one another that they 
had on the preceding day. Rather, because such orders are entered 
simultaneously through multiple order entry ports, their relative 
priority is a function of the duration of system processing 
associated with each individual order.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\10\ in general, and with 
Section 6(b)(5) of the Act \11\ in particular, in that the proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Specifically, 
Nasdaq believes that the change, which is responsive to member input, 
will facilitate transactions in securities and perfect the mechanism of 
a free and open market by providing members with additional optional 
functionality that may assist them with order management with respect 
to stock dividends in a manner similar to the current functionality 
with respect to cash dividends and forward splits. Because forward 
splits and stock dividends both involve the distribution of additional 
stock to current stockholders, providing them with similar treatment 
under the rule is logical and may help to prevent confusion on the part 
of members that expect both types of corporate events to receive 
consistent treatment.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).

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[[Page 918]]

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

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Specifically, by 
offering market participants additional options with regard to 
management of open orders, the change has the potential to enhance 
Nasdaq's competitiveness with respect to other trading venues, thereby 
promoting greater competition. Moreover, the change does not burden 
competition in that it does not restrict the ability of members to 
enter and update trading interest in Nasdaq.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2014-126 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NASDAQ-2014-126. 
This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE., Washington, DC 20549 on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2014-126, and should be submitted on or before January 28, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30971 Filed 1-6-15; 8:45 am]
BILLING CODE 8011-01-P