Document ID: SEC-2010-1296-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-08-23T04:00Z

[Federal Register: August 23, 2010 (Volume 75, Number 162)]
[Notices]               
[Page 51859-51861]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23au10-131]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62735; File No. SR-NASDAQ-2010-101]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Delete Rule 4770 in Its Entirety and To Eliminate a Related Reference 
From the Rules

August 17, 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 August 10, 2010, The NASDAQ Stock Market LLC (``NASDAQ'') 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 the 
Substance of the Proposed Rule Change

    NASDAQ is proposing to delete Rule 4770 in its entirety from the 
NASDAQ rulebook and to also eliminate a reference to Rule 4770 from 
Rule 4751(f)(13). The text of the proposed rule change is below. 
Proposed new language is italicized and proposed deletions are in 
[brackets].
* * * * *

4751. Definitions

    The following definitions apply to the Rule 4600 and 4750 Series 
for the trading of securities listed on Nasdaq or a national 
securities exchange other than Nasdaq.
    (a)--(e) No change.
    (f) The term ``Order Type'' shall mean the unique processing 
prescribed for designated orders that are eligible for entry into 
the System, and shall include:
    (1)--(12) No change.
    (13) ``Collared Orders'' are all Unpriced Orders except: (1) 
Market On Open Orders as defined in Rule 4752; (2) Market On Close 
Orders as defined in Rule 4754; or (3) Unpriced Orders included by 
the System in any Nasdaq Halt Cross or Nasdaq Imbalance Cross, each 
as defined in Rule 4753[; or (4) Unpriced Orders that are Reference 
Price Cross Orders as defined in Rule 4770]. Any portion of a 
Collared Order that would execute (either on NASDAQ or when routed 
to another market center) at a price more than $0.25 or 5 percent 
worse than the NBBO at the time when the order reaches the System, 
whichever is greater, will be cancelled.
    (g)--(i) No change.
* * * * *

4770. Reserved[Nasdaq Crossing Network

    (a) Definitions. For the purposes of this rule the term:
    (1) ``Nasdaq Reference Price Cross'' shall mean the process for 
executing orders at a predetermined reference price at a randomly 
selected point in time during a five-second trading window beginning 
at 10:45 a.m., 12:45 p.m. and 2:45 p.m. Eastern Time during the 
regular hours session and at 4:30 p.m. during the after hours 
session.
    (2) ``Nasdaq Reference Price Cross eligible securities'' shall 
mean Nasdaq-listed securities and securities listed on the New York 
Stock Exchange, the American Stock Exchange or a regional exchange.
    (3) (A) ``Reference Price Cross Order'' or ``RPC'' shall mean a 
market or limit order to buy or sell in Nasdaq Reference Price 
eligible securities that may be executed only during a Nasdaq 
Reference Price Cross. RPC orders shall not be displayed and must be 
designated with a time-in-force value to participate either:
    (i) in the next scheduled regular hours cross with unexecuted 
shares being immediately canceled back to the market participant 
after that cross (NXT);
    (ii) in all remaining crosses during the trading day with 
unexecuted shares being immediately canceled back to the market 
participant after the final regular hours cross (REG); or
    (iii) in all remaining crosses in the current day with 
unexecuted shares immediately canceled back to the market 
participant after the after hours cross (ALX).
    (B) Starting at 7:30 a.m. Eastern Time until the time of the 
last after hours session Reference Price Cross, participants may 
enter, cancel or correct RPC orders, but such orders shall not be 
available for execution until the next eligible Reference Price 
Cross. RPC orders must be entered in round lots with a minimum size 
of one round lot and may designate a minimum acceptable execution 
quantity. All RPC orders must be available for automatic execution.
    (b) Processing of Nasdaq Reference Price Cross.
    (1) Each Nasdaq Reference Price Cross shall occur during the 
regular hours session or the after hours session window commencing 
at such times as may be designated by Nasdaq upon prior notice to 
market participants.
    (2) Nasdaq Reference Price Crosses that occur during the regular 
hours session shall be executed at the midpoint of the national best 
bid and offer, trade reported without identifying the contra party, 
and disseminated via the consolidated tape.
    (3) Nasdaq Reference Price Crosses that occur during the after 
hours session shall execute at the Nasdaq Official Closing Price for 
Nasdaq-listed securities or at the official closing price of the 
primary market for securities listed on the New York Stock Exchange, 
the American Stock Exchange or a regional exchange, shall be trade 
reported without identifying the contra party, and disseminated via 
the consolidated tape.
    (4) RPC orders will be allocated on a pro-rata basis, such that 
shares will be allocated pro-rata in round lots to eligible orders 
based on the original size of the order. If additional shares remain 
after the initial pro-rata allocation, those shares will continue to 
be allocated pro-rata to eligible orders until a number of round 
lots remain that is less than the number of eligible orders. Any 
remaining shares will be allocated to the order which has designated 
the smallest minimum acceptable execution quantity. If more than one 
such order exists, any remaining shares will be allocated to the 
oldest eligible order. If the allocation to an eligible order would 
be less than the minimum acceptable execution quantity for that 
order, the order shall not be eligible for execution in that cross.
    (5) If the reference price described in subparagraph (3) above 
is outside the benchmarks established by Nasdaq by a threshold 
amount at the time an after hours cross is scheduled to occur, the 
Nasdaq Reference Price Cross shall not occur for that security. 
Nasdaq management shall set and modify such benchmarks and 
thresholds from time to time upon prior notice to market 
participants.

[[Page 51860]]

    (6) If the national best bid and offer is crossed at the time of 
a Reference Price Cross during the regular hours session, the cross 
shall be delayed for up to five minutes beyond the time the 
Reference Price Cross was scheduled to occur and shall execute at 
the midpoint of the national best bid and offer when the quote 
becomes uncrossed. In the event the quote remains crossed beyond 
five minutes after the time of the scheduled Reference Price Cross, 
the cross will not occur and unexecuted NXT orders shall be returned 
to market participants.
    (7) If the national best bid and offer is locked at the time of 
a Reference Price Cross during the regular hours session, the cross 
shall execute at the lock price.
    (8) If trading in a security is halted for regulatory or other 
reasons at the time a cross is scheduled to occur, the cross will 
not occur and all unexecuted NXT orders shall be returned to market 
participants.]
* * * * *
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaq.com, on the Commission's Web site at 
http://www.sec.gov, at the Exchange, and at the Commission's Public 
Reference Room. A copy of this filing is available on the Exchange's 
Web site at http://www.nasdaq.com, at the Exchange's principal office 
and at the Commission's Public Reference Room.

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

    In its filing with the Commission, NASDAQ included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below, and is set forth in Sections A, B, and C below.

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

1. Purpose
    NASDAQ is proposing to eliminate Rule 4770 in its entirety. Rule 
4770 sets forth the rules applicable to the Nasdaq Crossing Network. 
The Commission approved the Nasdaq Crossing Network on July 5, 2006.\3\ 
The Nasdaq Crossing Network provides an execution option to market 
participants trading in NASDAQ and other exchange-listed securities 
that facilitates the execution of trades quickly and anonymously. The 
Nasdaq Crossing Network executes the Nasdaq Reference Price Cross, an 
automated and random matching mechanism, at certain pre-determined 
points during the day. All eligible orders for the Nasdaq Reference 
Price Crosses are executed in accordance with a predetermined algorithm 
at the NBBO midpoint on a pro-rata basis and at the NOCP or Primary 
Market Close, as applicable, for post-close cross executions. The 
likelihood that a participant will be able to execute all or some of 
its orders in the Nasdaq Reference Price Cross is directly related to 
the number of participants acting as counterparties in the cross at any 
one time. NASDAQ notes that there is light participation in the Nasdaq 
Reference Price Cross, and is therefore proposing to cease offering the 
cross and to remove Rule 4770 from NASDAQ's rules. NASDAQ is also 
eliminating reference to Rule 4770 from Rule 4751(f)(13).
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    \3\ Securities Exchange Act Release No. 54248 (July 31, 2006), 
71 FR 44738 (August 7, 2006) (SR-NASDAQ-2006-019). Prior to the 
effective date of NASDAQ's operation as an exchange for NASDAQ-
listed securities, the rule governing the Nasdaq Crossing Network 
had been approved as an NASD rule (NASD Rule 4716). Securities 
Exchange Act Release No. 54101 (July 5, 2006), 71 FR 39382 (July 12, 
2006) (SR-NASD-2005-140).
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2. Statutory Basis
    NASDAQ believes the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\4\ in general and with Section 
6(b)(5) of the Act,\5\ in particular, which requires that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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. The 
proposed rule change is consistent with these requirements in that 
NASDAQ has determined that it will eliminate an automated crossing 
mechanism based on low usage and lack of customer demand, which negate 
its usefulness in facilitating transactions in securities.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(5).
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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.

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

    Written comments were neither solicited nor received.

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

    The proposed rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Act and paragraph (f)(6) of Rule 19b-4 
thereunder, in that the proposed rule change: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days after the date of the 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest; 
provided the self-regulatory organization has given the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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.
    NASDAQ believes that the proposed rule change will eliminate a 
little-used crossing process from NASDAQ's rules, which, because of the 
low number of participants, does not benefit the price-discovery 
process and overall market confidence in any material manner. NASDAQ 
will remove Rule 4770 from its rules effective September 13, 2010.
    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 No. SR-NASDAQ-2010-101 on the subject line.

[[Page 51861]]

Paper Comments

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

All submissions should refer to File No. SR-NASDAQ-2010-101. 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 available publicly. All 
submissions should refer to File No. SR-NASDAQ-2010-101 and should be 
submitted on or before September 13, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20818 Filed 8-20-10; 8:45 am]
BILLING CODE 8010-01-P