Document ID: SEC-2010-0758-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-05-24T04:00Z

[Federal Register: May 24, 2010 (Volume 75, Number 99)]
[Notices]               
[Page 28839-28841]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24my10-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62129; File No. SR-NASDAQ-2010-061]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of a Proposed Rule Change To Establish a Trading Pause 
for Individual Stocks Contained in the Standard & Poor's 500 Index That 
Experience a Price Change of 10% or More During a Five-Minute Period

May 19, 2010.
    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 May 18, 2010, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by Nasdaq. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed rule change 
to establish a trading pause for individual stocks contained in the 
Standard & Poor's 500 Index (``S&P 500'') that experience a price 
change of 10% or more during a five-minute period.
    The text of the proposed rule change is below. Proposed new 
language is in italics and proposed deletions are in [brackets].\3\
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    \3\ Changes are marked to the rule text that appears in the 
electronic manual of NASDAQ found at http://
nasdaqomx.cchwallstreet.com.
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* * * * *

4120. Trading Halts

    (a) Authority to Initiate Trading Halts or Pauses
    In circumstances in which Nasdaq deems it necessary to protect 
investors and the public interest, Nasdaq, pursuant to the 
procedures set forth in paragraph (c):
    (1)-(10) No Change.
    (11) shall, between 9:45 a.m. and 3:35 p.m., immediately pause 
trading for 5 minutes in any Nasdaq-listed security when the price 
of such security moves 10 percent or more within a 5-minute period. 
At the end of the trading pause, Nasdaq will re-open the security 
using the Halt Cross process set forth in Nasdaq Rule 4753. In the 
event of a significant imbalance at the end of a trading pause, 
Nasdaq may delay the re-opening of a security.
    Nasdaq will issue a notification if it cannot resume trading for 
a reason other than a significant imbalance.
    Price moves under this paragraph will be calculated by changes 
in each consolidated last-sale price disseminated by a network 
processor over a five minute rolling period measured continuously. 
Only regular way in-sequence transactions qualify for use in 
calculations of price moves. Nasdaq can exclude a transaction price 
from use if it concludes that the transaction price resulted from an 
erroneous trade.
    If a trading pause is triggered under this paragraph, Nasdaq 
shall immediately notify the single plan processor responsible for 
consolidation of information for the security pursuant to Rule 603 
of Regulation NMS under the Securities Exchange Act of 1934. If a 
primary listing market issues an individual stock trading pause, 
Nasdaq will pause trading in that security until trading has resumed 
on the primary listing market or notice has been received from the 
primary listing market that trading may resume. If the primary 
listing market does not reopen within 10 minutes of notification of 
a trading pause, Nasdaq may resume trading the security.
    The provisions of this paragraph shall only apply to securities 
in the Standard & Poor's 500 Index.
    The provisions of this paragraph shall be in effect during a 
pilot set to end on December 10, 2010.
    (b) No Change.
    (c) Procedure for Initiating a Trading Halt
    (1)-(6) No Change.
    (7)
    (A) A trading halt or pause initiated under Rule 4120(a)(1), 
(4), (5), (6), (9), [or] (10), (11) or Rule 4120(b) shall be 
terminated when Nasdaq releases the security for trading. Prior to 
terminating the halt, there will be a 5-minute Display Only Period 
during which market participants may enter quotations and orders in 
that security in Nasdaq systems. At the conclusion of the 5-minute 
Display Only Period, the security shall be released for trading 
unless Nasdaq extends the Display Only Period for an additional 1-
minute period pursuant to subparagraph (C) below. At the conclusion 
of the Display Only Period, trading shall immediately resume 
pursuant to Rule 4753.
    (B) No Change.
    (C) If at the end of a Display Only Period, Nasdaq detects an 
[liquidity] order imbalance in the security, Nasdaq will extend the 
Display Only Period as permitted under subparagraphs (A) and (B) 
above. [Liquidity] Order [I]imbalances shall be established when (i) 
the Current Reference Prices, as defined in Rule 4753(a)(2)(A), 
disseminated 15 seconds and immediately prior to the end of the 
Display Only Period differ by more than the greater of 5 percent or 
50 cents, or (ii) all buy or sell market orders will not be executed 
in the cross.
* * * * *

4753. Nasdaq Halt and Imbalance Crosses

    (a) No Change.
    (b) Processing of Nasdaq Halt Cross. For Nasdaq-listed 
securities that are the subject of a trading halt or pause initiated 
pursuant

[[Page 28840]]

to Rule 4120(a)(1), (4), (5), (6) [or], (7)or 11, the Nasdaq Halt 
Cross shall occur at the time specified by Nasdaq pursuant to Rule 
4120, and Market hours trading shall commence when the Nasdaq Halt 
Cross concludes.
    (1)-(5) No Change.
    (c)-(d) No Change.
* * * * *

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

    In its filing with the Commission, 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 proposes to adopt rules to provide for a trading pause for 
individual securities for which the Exchange is the primary listing 
market if the price of such security moves 10% or more from a sale in a 
preceding five-minute period. The Exchange is proposing this rule 
addition in consultation with other markets and staff of the Securities 
and Exchange Commission to provide for uniform market-wide trading 
pause standards for individual securities in the S&P 500[supreg] Index 
that experience a rapid price movement, as set forth below.
    The Exchange is proposing that this rule be implemented on a pilot 
basis, set to end on December 10, 2010. During this pilot period, the 
rule would be in effect only with respect to securities included in the 
S&P 500[supreg] Index. During that pilot period, the Exchange will 
continue to assess whether additional securities need to be added and 
whether the parameters of the rule would need to be modified to 
accommodate trading characteristics of different securities.
    As proposed, the rule would enable the Exchange to pause trading in 
an individual security listed on the Exchange if the price moves by 10% 
as compared to prices of that security in the preceding five-minute 
period during a trading day. To enable the market to absorb the opening 
price of a security and to participate in the close, as proposed, the 
proposed rule would be in effect from 9:45 a.m. to 3:35 p.m., Eastern 
Time.
    Proposed Rule 4120(a)(11) sets forth the re-opening procedures 
following a trading pause. As proposed, NASDAQ would be responsible for 
re-opening trading at the end of the trading pause using existing 
procedures for the NASDAQ Halt Cross set forth in Rule 4753.
    Unlike a re-opening following a regulatory halt, the re-opening of 
a security following a trading pause shall be at the end of the trading 
pause. However, in the event of a significant imbalance, the Exchange 
may delay the re-opening of the security past the five-minute trading 
pause period. The Exchange will notify other markets if it cannot 
reopen because of issues unrelated to an imbalance, thereby enabling 
other markets to resume trading even if the primary market has not re-
opened. The Exchange notes that if it re-opens the security after other 
markets have resumed trading, such reopening is subject to Rule 
611(b)(3) of Regulation NMS as an exception to the Order Protection 
Rule.
    The 10% or more move in price will be calculated by changes in each 
consolidated last-sale price disseminated by a network processor over a 
five minute rolling period measured continuously. In the first five 
minutes of the calculation period, prices for comparison will not be 
based on five minutes of trading in that security. For example, a trade 
at 9:45:05 will be compared only to trades between 9:45:00 and 9:45:05. 
The last potential trade to trigger a pause will be at 3:35 p.m., so 
that such trading pause will end at 3:40 p.m.
    As proposed, only regular way, in-sequence transactions qualify as 
[sic] use in price movement calculations. To attempt to ensure that 
erroneous executions do not trigger a trading pause, the Exchange also 
proposes that it can exclude a transaction price from use in 
calculating price movements if it concludes that the transaction price 
resulted from an erroneous execution.
    The proposed rule further provides that if a trading pause is 
triggered, the Exchange will immediately notify the single plan 
processor responsible for consolidation of information for the 
security.
    The Exchange further proposes to include in the rule that if the 
listing market for a security pauses under its respective rules, the 
Exchange will also pause trading in that security until the listing 
market has either resumed trading or the Exchange has received notice 
from the primary listing market that trading may resume. Moreover, if 
the primary listing market does not reopen trading in the security 
within 10 minutes of notification of a trading pause, the Exchange may 
resume trading of the security.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Securities Exchange Act of 1934 (the ``Act''),\4\ which requires 
the rules of an exchange to promote just and equitable principles of 
trade, 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. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \5\ of the Act 
in that it seeks to ensure fair competition among brokers and dealers 
and among exchange markets. The Exchange believes that the proposed 
rule meets these requirements in that it promotes transparency and 
uniformity across markets concerning decisions to pause trading in a 
security when there are significant price movements.
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    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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.

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

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.\6\
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    \6\ The Commission notes that the Exchange has requested 
accelerated approval of the filing.

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[[Page 28841]]

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Nasdaq-2010-061 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Nasdaq-2010-061. This 
file number should be included on the subject line if e-mail 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 a.m. and 3 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of Nasdaq. 
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 publicly 
available. All submissions should refer to File Number SR-Nasdaq-2010-
061 and should be submitted on or before June 3, 2010.\7\
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    \7\ The Commission believes that a 10-day comment period is 
reasonable, given the urgency of the matter. It will provide 
adequate time for comment.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Florence E. Harmon,
Deputy Secretary.
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    \8\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-12422 Filed 5-21-10; 8:45 am]
BILLING CODE 8010-01-P