Document ID: SEC-2022-1659-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2022-12-27T05:00Z

[Federal Register Volume 87, Number 247 (Tuesday, December 27, 2022)]
[Notices]
[Pages 79385-79388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28079]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96542; File No. SR-NASDAQ-2022-076]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 4, Rule 4754 Regarding Close Eligible Interest

December 20, 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 December 12, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I 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.
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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 proposes to amend Equity 4, Rule 4754. 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.

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

[[Page 79386]]

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
    The purpose of the proposed rule change is to amend Equity 4, Rule 
4754 \3\ as it relates to Close Eligible Interest.\4\ Specifically, the 
Exchange proposes to amend (a)(1) of Rule 4754 to specify that: (1) the 
System will delay processing any full cancellation request \5\ for 
Close Eligible Interest made during the Nasdaq Closing Cross until such 
time as the Nasdaq Closing Cross concludes, except for securities in a 
halt or pause; and (2) during a halt or pause, the System will process 
any cancellation request for Close Eligible Interest made for such 
halted or paused security during the Nasdaq Closing Cross.
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    \3\ Hereinafter, references to the Rule 4000 Series shall mean 
the Rule Series set forth in Equity 4 of the Exchange's Rulebook.
    \4\ ``Close Eligible Interest'' means any quotation or any order 
that may be entered into the system and designated with a time-in-
force of SDAY, SGTC, MDAY, MGTC, SHEX, or GTMC. See Rule 4754(a)(1).
    \5\ Partial cancellation requests for Close Eligible Interest 
would continue to be processed during the Nasdaq Closing Cross.
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    The Nasdaq Closing Cross is a transparent auction process that 
determines a single price for the close. Members can submit Limit on 
Close (``LOC'') Orders,\6\ Market on Close (``MOC'') Orders,\7\ and 
Imbalance Only (``IO'') Orders \8\ that are available to participate in 
the Nasdaq Closing Cross along with Close Eligible Interest. LOC 
Orders, MOC Orders, and IO Orders cannot be cancelled or modified at or 
after 3:58 p.m. ET (or at or after two minutes prior to the early 
closing time on a day when Nasdaq closes early).\9\ In contrast, 
currently, Close Eligible Interest on the continuous book is eligible 
for cancellation during the Nasdaq Closing Cross.
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    \6\ A ``Limit On Close Order'' or ``LOC Order'' is an Order Type 
entered with a price that may be executed only in the Nasdaq Closing 
Cross or the LULD Closing Cross, and only if the price determined by 
the Nasdaq Closing Cross or the LULD Closing Cross is equal to or 
better than the price at which the LOC Order was entered. See Rule 
4702(b)(12).
    \7\ A ``Market On Close Order'' or ``MOC Order'' is an Order 
Type entered without a price that may be executed only during the 
Nasdaq Closing Cross. See Rule 4702(b)(11).
    \8\ An ``Imbalance Only Order'' or ``IO Order'' is an Order 
entered with a price that may be executed only in the Nasdaq Closing 
Cross and only against MOC Orders or LOC Orders. See Rule 
4702(b)(13).
    \9\ See Rule 4702(b)(11)-(13).
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    At 4:00 p.m. ET (or at the early closing time on a day when Nasdaq 
closes early), the Exchange executes the Nasdaq Closing Cross at a 
price determined in accordance with Rule 4754(b)(2). The cross in each 
security is performed sequentially in a random order each day and in 
total takes approximately 700 milliseconds on average. Therefore, the 
time between the commencement and conclusion of the Nasdaq Closing 
Cross for a particular security can range from less than one 
millisecond up to 700 milliseconds or greater. During this gap, 
currently, cancellations of Close Eligible Interest on the continuous 
book can continue to take place, which can affect the closing price of 
a security.
    In addition to impacting the closing price of the security, 
allowing cancellations of Close Eligible Interest during the Nasdaq 
Closing Cross has another negative impact in that it causes divergence 
between the closing price and the Order Imbalance Indicator. The Order 
Imbalance Indicator disseminates information about MOC Orders, LOC 
Orders, IO Orders, and Close Eligible Interest and the price at which 
those orders would execute at the time of dissemination. The Exchange 
disseminates an Order Imbalance Indicator every second until market 
close beginning at 3:55 p.m. ET (or five minutes prior to the early 
closing time on a day when Nasdaq closes early). The Order Imbalance 
Indicator is intended to facilitate participation in the close. 
Therefore, full cancellations of Close Eligible Interest during the 
Nasdaq Closing Cross that cause divergences between the Order Imbalance 
Indicator and the closing price are undesirable.\10\
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    \10\ Although partial cancellations of Close Eligible Interest 
during the Nasdaq Closing Cross could also impact the closing price 
of the security and cause a divergence between the closing price and 
the Order Imbalance Indicator, in practice, partial cancellations of 
Close Eligible Interest during the Nasdaq Closing Cross occur less 
frequently and have less impact on the closing price than full 
cancellations.
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    The proposed rule change to delay processing of any full 
cancellation request for Close Eligible Interest made during the Nasdaq 
Closing Cross until the Nasdaq Closing Cross concludes (except for 
securities in a halt or pause) would better align with the practice to 
not allow cancellations of other orders available to participate in the 
Nasdaq Closing Cross (i.e., LOC Orders, MOC Orders, and IO Orders) 
during the Nasdaq Closing Cross. In addition, this change would provide 
for a more stable closing price that is more in line with the Order 
Imbalance Indicator and participants' expectations. The proposed rule 
change would also clarify that, during a halt or pause, the System 
would process any cancellation request for Close Eligible Interest made 
for such halted or paused security during the Nasdaq Closing Cross, 
consistent with current practice.
Implementation Date
    The Exchange will issue an Equities Trader Alert to provide 
notification of the change and relevant date of implementation prior to 
introducing the new functionality.\11\
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    \11\ The proposed functionality herein was recently produced and 
taken out of production, pending filing with the Commission.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ in particular, in that it is designed 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal will promote just and 
equitable principles of trade because it will create a more 
standardized process that does not allow for full cancellation of Close 
Eligible Interest during the Nasdaq Closing Cross. As explained above, 
the Exchange currently allows for cancellation of Close Eligible 
Interest during the Nasdaq Closing Cross yet does not allow for full or 
partial cancellation of other orders during the Nasdaq Closing Cross. 
The Exchange believes that the proposed change to no longer allow for 
full cancellation of Close Eligible Interest during the Nasdaq Closing 
Cross (unless the securities are in a halt or pause) will benefit 
investors by providing a more consistent experience for members and 
investors, and reducing any potential confusion regarding Nasdaq's 
closing processes.
    Furthermore, the current process of allowing for cancellations of 
Close Eligible Interest during the Nasdaq Closing Cross can impact the 
closing price of the security and cause divergence from the Order 
Imbalance Indicator. The Exchange believes that delaying full 
cancellations until the end of the Nasdaq Closing Cross (unless the 
securities are in a halt or pause) would facilitate fair and orderly 
pricing at the Nasdaq Closing Cross, consistent with participants' 
expectations, thereby removing impediments to and

[[Page 79387]]

perfecting the mechanism of a free and open market and a national 
market system. The Exchange's proposal to clarify that, during a halt 
or pause, the System will process any cancellation request for Close 
Eligible Interest made for such halted or paused security during the 
Nasdaq Closing Cross, will provide increased clarity and help limit any 
potential confusion in the future, protecting investors and the public 
interest.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is 
designed to create a more standardized process and improve the Nasdaq 
Closing Cross process by delaying the processing of any full 
cancellation request for Close Eligible Interest made for any 
securities not halted or paused during the Nasdaq Closing Cross until 
such time as the Nasdaq Closing Cross concludes. The change would apply 
to all full cancellation requests in Close Eligible Interest (except 
for securities in a halt or pause) and would benefit participants by 
providing for a more stable closing price that is more in line with the 
Order Imbalance Indicator, consistent with expectations. The proposed 
rule change would also clarify that, during a halt or pause, the System 
will process any cancellation request for Close Eligible Interest made 
for such halted or paused security during the Nasdaq Closing Cross, 
benefiting participants by providing increased clarity and helping to 
limit any potential confusion in the future.
    The Exchange does not believe that the proposed change to (a) delay 
the processing of any full cancellation request for Close Eligible 
Interest made during the Nasdaq Closing Cross until the Nasdaq Closing 
Cross ends (except for securities in a halt or pause) and (b) clarify 
that, during a halt or pause, the System will process any cancellation 
request for Close Eligible Interest made for such halted or paused 
security during the Nasdaq Closing Cross, will have any significant 
impact on competition. The Exchange operates in a highly competitive 
market in which market participants can easily direct their Orders to 
competing venues, including off-exchange venues. In such an 
environment, the Exchange must continually review and consider 
adjusting the services it offers and the requirements it imposes to 
remain competitive with other venues. Therefore, the Exchange believes 
that the proposed change in interpretation reflects this competitive 
environment.

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)(iii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 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, 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. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. Rule 
19b-4(f)(6)(iii), however, permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the operative delay so that the proposal may become 
operative immediately upon filing. The proposed rule will permit Nasdaq 
to delay processing full cancellation requests for Close Eligible 
Interest during the Nasdaq Closing Cross until conclusion of the Nasdaq 
Closing Cross (except for securities in a halt or pause). Nasdaq 
represents that the proposal will help prevent divergence from the 
Order Imbalance Indicator and facilitate fair and orderly pricing at 
the Nasdaq Closing Cross, consistent with participants' expectations. 
The Commission thus believes that waiver of the operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing. \16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 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 email to [email protected]. Please include 
File Number SR-NASDAQ-2022-076 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-2022-076. 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

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comment submissions. You should submit only information that you wish 
to make available publicly. All submissions should refer to File Number 
SR-NASDAQ-2022-076, and should be submitted on or before January 17, 
2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-28079 Filed 12-23-22; 8:45 am]
BILLING CODE 8011-01-P