Document ID: SEC-2019-1458-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-10-08T04:00Z

[Federal Register Volume 84, Number 195 (Tuesday, October 8, 2019)]
[Notices]
[Pages 53783-53786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21883]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87198; File No. SR-NASDAQ-2019-064]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend Certain Cutoff Times for On-Close Orders Entered for 
Participation in the Nasdaq Closing Cross and Adopt a Second Reference 
Price for Limit-On-Close Orders

October 2, 2019.

I. Introduction

    On July 31, 2019, The Nasdaq Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend certain cutoff times for on-close orders 
entered for participation in the Nasdaq Closing Cross and adopt a 
Second Reference Price for limit-on-close orders. The proposed rule 
change was published for comment in the Federal Register on August 19, 
2019.\3\ On September 6, 2019, the Exchange filed Amendment No. 1 to 
the proposed rule change, which amended and superseded the proposed 
rule change as originally filed.\4\ The Commission received no comment 
letters on the proposed rule change. The Commission is publishing this 
notice to solicit comments on Amendment No. 1 from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86642 (August 13, 
2019), 84 FR 42964.
    \4\ In Amendment No. 1, the Exchange revised the proposal to: 
(1) Specify the time during which market-on-close orders can be 
cancelled or modified; (2) remove proposed changes to the Nasdaq 
Pricing Schedule in Equity 7, Section 118; (3) include additional 
description, examples, and justification related to the proposed 
rule change; and (4) make technical, clarifying, and conforming 
changes. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2019-064/srnasdaq2019064-6088461-191827.pdf.
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II. Description of the Proposal

    The Nasdaq Closing Cross is the Exchange's process for determining 
the price at which orders would be executed at the close and for 
executing those orders.\5\ Currently, the Exchange

[[Page 53784]]

disseminates the Order Imbalance Indicator (``NOII'') for the Nasdaq 
Closing Cross beginning at 3:55 p.m. ET or five minutes prior to the 
early closing time on a day when the Exchange closes early.\6\ The NOII 
is an electronically disseminated message containing information about 
market-on-close (``MOC''),\7\ limit-on-close (``LOC''),\8\ and 
imbalance only (``IO'') \9\ orders, as well as close eligible interest 
\10\ and the price at which those orders would execute at the time of 
the NOII dissemination.\11\ The Exchange recently also adopted rules 
for the early order imbalance indicator (``EOII''), which the Exchange 
will begin disseminating at 3:50 p.m. ET or ten minutes prior to the 
early closing time on a day when the Exchange closes early \12\ and 
will contain a subset of the information comprising the NOII.\13\ The 
Exchange intends to implement the EOII in conjunction with the changes 
in the current proposal.\14\
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    \5\ See Rule 4754(a)(6).
    \6\ See Rule 4754(b)(1)(B).
    \7\ A MOC order is an order entered without a price that can be 
executed only during the Nasdaq Closing Cross. See Rule 4702(b)(11).
    \8\ A LOC order is an order entered with a price that can be 
executed only in the Nasdaq Closing Cross, and only if the price 
determined by the Nasdaq Closing Cross is equal to or better than 
the price at which the LOC order was entered. See Rule 4702(b)(12).
    \9\ An IO order is an order entered with a price that can be 
executed only in the Nasdaq Closing Cross and only against MOC 
orders or LOC orders. See Rule 4702(b)(13).
    \10\ Close eligible interest is any quotation or any order that 
can 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).
    \11\ See Rule 4754(a)(7).
    \12\ See Rule 4754(b)(1)(A).
    \13\ See Securities Exchange Act Release No. 85292 (March 12, 
2019), 84 FR 9848 (March 18, 2019) (SR-NASDAQ-2019-010).
    \14\ See Amendment No. 1, supra note 4, at 4.
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    Currently, pursuant to Rule 4702(b)(11)(A), MOC orders can be 
entered, cancelled, or modified between 4:00 a.m. ET and immediately 
prior to 3:55 p.m. ET. Between 3:55 p.m. ET and immediately prior to 
3:58 p.m. ET, a MOC order can be cancelled or modified only if the 
participant requests that the Exchange correct a legitimate error in 
the order.\15\ MOC orders cannot be cancelled or modified at or after 
3:58 p.m. ET for any reason. The Exchange proposes to amend this rule 
to provide that MOC orders can be cancelled or modified between 4:00 
a.m. ET and immediately prior to 3:50 p.m. ET and that, between 3:50 
p.m. ET and immediately prior to 3:58 p.m. ET, a MOC order can be 
cancelled or modified only if the participant requests that the 
Exchange correct a legitimate error in the order.
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    \15\ A legitimate error for a MOC, LOC, or IO order includes an 
error in the side, size, symbol, or price, or the duplication of an 
order, as set forth in the applicable rule for each order type. See 
id. at 5 n.9. See also Rule 4702(b)(11)(A), (12)(A), and (13)(A).
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    Currently, pursuant to Rule 4702(b)(13)(A), an IO order can be 
entered between 4:00 a.m. ET until the time of execution of the Nasdaq 
Closing Cross, but cannot be cancelled or modified at or after 3:55 
p.m. ET. Between 3:55 p.m. ET and immediately prior to 3:58 p.m. ET, 
however, an IO order can be cancelled or modified if the participant 
requests that the Exchange correct a legitimate error in the order. IO 
orders cannot be cancelled or modified at or after 3:58 p.m. ET for any 
reason. The Exchange proposes to amend this rule to provide that IO 
orders cannot be cancelled or modified at or after 3:50 p.m. ET, except 
that, between 3:50 p.m. ET and immediately prior to 3:58 p.m. ET, an IO 
order can be cancelled or modified if the participant requests that the 
Exchange correct a legitimate error in the order.
    Currently, pursuant to Rule 4702(b)(12)(A), LOC orders can be 
entered, cancelled, or modified between 4:00 a.m. ET and immediately 
prior to 3:55 p.m. ET. A LOC order can be entered between 3:55 p.m. ET 
and immediately prior to 3:58 p.m. ET (``Late LOC order'') provided 
that there is a First Reference Price.\16\ Between 3:55 p.m. ET and 
immediately prior to 3:58 p.m. ET, LOC orders can be cancelled (but not 
modified) only if the participant requests that the Exchange correct a 
legitimate error in the order. Currently, a Late LOC order will be 
accepted at its limit price, unless its limit price is higher (lower) 
than the First Reference Price for a Late LOC order to buy (sell), in 
which case the Late LOC order will be handled consistent with the 
participant's instruction that the Late LOC order is to be either: (1) 
Rejected; or (2) re-priced to the First Reference Price, provided that 
if the First Reference Price is not at a permissible minimum increment, 
the First Reference Price will be rounded (i) to the nearest permitted 
minimum increment (with midpoint prices being rounded up) if there is 
no imbalance, (ii) up if there is a buy imbalance, or (iii) down if 
there is a sell imbalance.\17\
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    \16\ ``First Reference Price'' is currently defined as ``the 
Current Reference Price in the first Order Imbalance Indicator 
disseminated at or after 3:55 p.m. ET.'' See Rule 4754(a)(9). 
``Current Reference Price'' means: (i) The single price that is at 
or within the current Nasdaq market center best bid and offer at 
which the maximum number of shares of MOC, LOC, and IO orders can be 
paired; (ii) if more than one price exists under (i), the price that 
minimizes any imbalance; (iii) if more than one price exists under 
(ii), the entered price at which shares will remain unexecuted in 
the cross; and (iv) if more than one price exists under (iii), the 
price that minimizes the distance from the bid-ask midpoint of the 
inside quotation prevailing at the time of the order imbalance 
indicator dissemination. See Rule 4754(a)(7)(A).
    \17\ The default configuration for participants that do not 
specify otherwise is to have Late LOC orders re-priced rather than 
rejected. See Rule 4702(b)(12)(A).
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    The Exchange proposes to amend Rule 4702(b)(12)(A) to provide that 
LOC orders can be cancelled or modified between 4:00 a.m. ET and 
immediately prior to 3:50 p.m. ET. Between 3:50 p.m. ET and immediately 
prior to 3:55 p.m. ET, a LOC order can be entered but can only be 
cancelled or modified if the participant requests that the Exchange 
correct a legitimate error in the order. Between 3:55 p.m. ET and 
immediately prior to 3:58 p.m. ET, a LOC order can only be cancelled or 
modified if the participant requests that the Exchange correct a 
legitimate error in the order.
    The Exchange also proposes to amend Rule 4702(b)(12)(A) to permit a 
Late LOC order to be entered if there is either a First Reference Price 
or a Second Reference Price. In connection with this proposed change, 
the Exchange proposes to amend the definition of First Reference Price 
in Rule 4754(a)(9) to refer to the Current Reference Price in the EOII 
disseminated at 3:50 p.m. ET, or ten minutes prior to the early closing 
time on a day the Exchange closes early. The Exchange also proposes to 
add a new definition of Second Reference Price in Rule 4754(a)(11) to 
refer to the Current Reference Price in the NOII disseminated at 3:55 
p.m. ET, or five minutes prior to the early closing time on a day the 
Exchange closes early.
    Moreover, the Exchange proposes to amend Rule 4702(b)(12)(A) to 
provide that a Late LOC order to buy (sell) will be accepted at its 
limit price, unless its limit price is higher (lower) than the higher 
(lower) of the First Reference Price and the Second Reference Price, in 
which case the Late LOC order will be handled consistent with the 
participant's instruction that the Late LOC order is to be either: (1) 
Rejected; or (2) re-priced to the higher (lower) of the First Reference 
Price and the Second Reference Price.\18\ If the First Reference Price 
for a security is zero, Late LOC orders to buy (sell) will be priced at 
the lower (higher) of the Second Reference Price and the order's limit 
price. If the

[[Page 53785]]

Second Reference Price for a security is zero, Late LOC orders to buy 
(sell) will be priced at the lower (higher) of the First Reference 
Price and the order's limit price. If both the First Reference Price 
and Second Reference Price are zero, all Late LOC orders to buy or sell 
will be rejected.\19\
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    \18\ If either the First Reference Price or the Second Reference 
Price is not at a permissible minimum increment, the First Reference 
Price or the Second Reference Price, as applicable, will be rounded: 
(i) To the nearest permitted minimum increment (with midpoint prices 
being rounded up) if there is no imbalance; (ii) up if there is a 
buy imbalance; or (iii) down if there is a sell imbalance. See 
proposed Rule 4702(b)(12)(A). As is currently the case, the default 
configuration for participants that do not specify otherwise will be 
to have Late LOC orders re-priced rather than rejected. See id.
    \19\ See Amendment No. 1, supra note 4, for additional 
description and examples of the proposed rule change.
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    Finally, the Exchange proposes to replace the term ``Eligible 
Interest'' with the defined term ``Close Eligible Interest'' in the 
definition of ``Near Clearing Price'' in Rule 4754(a)(7)(E)(ii) to 
correct an inadvertent error.\20\
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    \20\ See id. at 10.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\21\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\22\ which requires, among other things, 
that the rules of a national securities exchange be 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 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.
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    \21\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Exchange proposes to expand the time 
periods during which MOC, LOC, and IO orders can be cancelled or 
modified only if the participant requests that the Exchange correct a 
legitimate error in the order (i.e., from between 3:55 p.m. ET and 
immediately prior to 3:58 p.m. ET, to between 3:50 p.m. ET and 
immediately prior to 3:58 p.m. ET). The Commission believes that the 
proposal could reduce the possibility of large price movements in the 
Nasdaq Closing Cross process that may result from modifications and 
cancellations of MOC, LOC, and IO orders starting at 3:50 p.m. ET in 
response to the EOII.\23\ The Commission also notes that the time 
periods for entering MOC, LOC, and IO orders remain unchanged, and 
participants may consider information in the EOII and NOII, as 
applicable, in entering these orders.
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    \23\ The proposal could also result in an increased number of 
MOC, LOC, and IO orders that participate in the Nasdaq Closing Cross 
because it restricts the cancellation and modification of these 
orders by providing for a longer period of time during which these 
orders can only be cancelled or modified if the participant requests 
that the Exchange correct a legitimate error in the order.
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    In addition, as discussed above, the Exchange proposes to permit 
the entry of Late LOC orders provided that there is either a First 
Reference Price or a Second Reference Price, and to permit a Late LOC 
order to be priced at the more aggressive of the First Reference Price, 
Second Reference Price, or its limit price. The Commission believes 
that the proposal may encourage additional participation in the Nasdaq 
Closing Cross by allowing participants to consider the information 
disseminated in both the EOII and NOII in making decisions with respect 
to the use of Late LOC orders. Moreover, the proposal may increase 
participation in the Nasdaq Closing Cross because, under the proposal, 
a Late LOC order with a limit price that is more aggressive than the 
Second Reference Price would not be rejected or re-priced if its limit 
price is less aggressive than the First Reference Price.\24\
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    \24\ Currently, a Late LOC order with a limit price that is more 
aggressive than the Second Reference Price (which is currently 
defined as the ``First Reference Price'') is either rejected or re-
priced to the Second Reference Price.
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    The Commission also believes the proposal to replace the term 
``Eligible Interest'' with the defined term ``Close Eligible Interest'' 
in the definition of ``Near Clearing Price'' in Rule 4754(a)(7)(E)(ii) 
is consistent with the Act because using a defined term would render 
the rule text more precise and accurate.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-2019-064 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-2019-064. 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-2019-064, and should be submitted 
on or before October 29, 2019.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. As discussed above, in Amendment No. 1, the 
Exchange revised the proposal to: (1) Specify the time during which MOC 
orders can be cancelled or modified; (2) remove proposed changes to the 
Nasdaq Pricing Schedule in Equity 7, Section 118; (3) include 
additional description, examples, and justification related to the 
proposed rule change; and (4) make technical, clarifying, and 
conforming changes. The Commission believes that Amendment No. 1 does 
not raise any novel regulatory issues or make any significant 
substantive changes to the

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original proposal, which was subject to a full notice and comment 
period during which no comments were received. The Commission also 
notes that Amendment No. 1 provides additional accuracy, clarity, and 
justification to the proposal. Accordingly, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\25\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \25\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-NASDAQ-2019-064), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \26\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21883 Filed 10-7-19; 8:45 am]
BILLING CODE 8011-01-P