Document ID: SEC-2014-0879-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2014-05-29T04:00Z

[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Notices]
[Pages 30905-30906]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12422]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72226; File No. SR-NASDAQ-2014-054]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt the Nasdaq Opening Cross Contingency

May 22, 2014.
    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 13, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    NASDAQ proposes a rule change to adopt an alternative market 
opening process, the Opening Cross Contingency, used only when the 
normal opening process fails to calculate an opening price.

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 and 
discussed any comments it received on the proposed rule change. The 
text of those 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 parts of such 
statements.

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

1. Purpose
    NASDAQ is proposing to adopt an alternative market opening process, 
to be used only in instances where the primary opening process has 
failed to calculate an opening price. The proposed process will help 
ensure that the NASDAQ market opens in an orderly manner.
Current Opening Process
    The Nasdaq Opening Cross \3\ (the ``Opening Cross'') is NASDAQ's 
process for matching orders at the launch of the regular trading hours, 
and is open to all securities listed on the NASDAQ, NYSE, NYSE Amex and 
NYSE Arca Exchanges (collectively, ``System Securities''). Beginning at 
4:00 a.m. Eastern Time (all times noted hereafter are Eastern Time), 
NASDAQ accepts orders executable during the Opening Cross. At 9:28 
a.m., NASDAQ begins to disseminate information about order Imbalances 
\4\ in the opening book along with indicative opening prices every five 
seconds until the initiation of the Opening Cross.\5\ NASDAQ initiates 
an Opening Cross in all System Securities for which there are orders 
that will execute against contra-side orders at 9:30 a.m., at which 
time the opening book and the NASDAQ continuous book are brought 
together to create single NASDAQ opening prices for System Securities. 
The securities' Nasdaq Opening Cross price is the Nasdaq Official 
Opening Price (``NOOP'') for these securities.\6\ The NOOP is 
distributed to the consolidated tape immediately after completion of 
the Opening Cross and conclusion of the Opening Cross signals the 
System to open a System Security for regular market hours trading.
---------------------------------------------------------------------------

    \3\ See Rule 4752.
    \4\ An Imbalance is defined as the number of shares of buy or 
sell MOO, LOO, Early Market Hours, Open Eligible Interest or OIO 
order shares at a particular price at any given time. See Rule 
4752(a)(1).
    \5\ Rule 4752(d)(1).
    \6\ Rule 4752(d)(4).
---------------------------------------------------------------------------

    In certain cases, a System Security will not have any contra-side 
interest for execution in the Opening Cross, or any orders whatsoever, 
when the Opening Cross process is initiated. When this occurs, NASDAQ 
executes a ``null cross'' instead, whereby no securities are matched 
yet the System receives the necessary precondition to regular hours 
trading that a ``cross'' in the security has occurred. After completion 
of the null cross, regular hours trading begins by integrating Market 
Hours Orders \7\ into the book in time priority and executing in 
accordance with market hours rules.\8\ In such cases, the NOOP is 
determined by the first last-sale eligible trade \9\ reported at or 
after 9:30 a.m., when regular trading hours begin.
---------------------------------------------------------------------------

    \7\ A Market Hours Order is any order that may be entered into 
the system and designated with a time-in-force of MIOC, MDAY, MGTC. 
Market Hours Orders shall be designated as ``Early Market Hours 
Orders'' if entered into the system prior to 9:28 a.m. and shall be 
treated as market-on-open and limit-on-open orders, as appropriate, 
for the purposes of the Nasdaq Opening Cross. Orders entered into 
the system at 9:28 a.m. or after shall be designated as ``Late 
Market Hours Orders'' and shall be treated as imbalance-only orders 
for the purposes of the cross. Beginning at 9:28 a.m., requests to 
cancel or modify Market Hours Orders shall be suspended until after 
completion of the Opening Cross at which time such requests shall be 
processed, to the extent that such orders remain available within 
the System. See Rule 4752(a)(7).
    \8\ Rule 4752(c).
    \9\ The first last-sale eligible trade is the first trade 
transaction that occurs during the regular market session (9:30 a.m. 
to 4:00 p.m.). If an Opening Cross occurs, the NOOP is determined by 
the bulk print. If there is no Opening Cross, the NOOP is determined 
by the first regular way print.
---------------------------------------------------------------------------

Proposed Opening Cross Contingency
    NASDAQ is retaining its current opening process, but is proposing 
to adopt an alternative opening process to be used only in cases in 
which the Opening Cross fails to calculate an opening price.\10\ The 
proposed Opening Cross Contingency will provide NASDAQ with a rules-
based process to address Opening Cross failures. Specifically, upon 
being informed that an Opening Cross has failed to calculate an opening 
price in one or more System Securities, a senior official will initiate 
an Opening Cross Contingency for each of the affected System 
Securities.\11\ Like the opening process followed when there are no 
orders to cross in a System Security, the Opening Cross Contingency 
will initiate a null cross in each affected System Security to allow 
the System to release such securities for

[[Page 30906]]

regular market hours trading. Unlike the null cross in the normal 
opening process in which Market Hours Orders are integrated into the 
book in time priority, orders entered for execution where an Opening 
Cross that fails to calculate an opening price and where the Opening 
Cross Contingency is initiated are cancelled out of the book instead of 
executing against regular Market Hours Orders. NASDAQ notes that this 
is a consequence of the orders eligible for execution in the Opening 
Cross being locked in the failed cross. Each System Security in which 
an Opening Cross Contingency is applied will open at the first last 
sale eligible trade when regular market hours begin, which is the NOOP 
for such securities.
---------------------------------------------------------------------------

    \10\ There are two general types of failure of the Opening 
Cross, hardware-based and software-based. Hardware-based failures 
are the result of problems with the physical infrastructure 
supporting the Opening Cross process. This includes, but is not 
limited to, switch failures, cabling failures, server failures, and 
power failures. Hardware-based failures are mitigated via network 
and server infrastructure redundancy designed into the system. 
Software-based failures are the result of bugs. These include, but 
are not limited to, coding errors and configuration errors. 
Software-based failures are mitigated via application redundancy, 
core system code diversity, the proposed Opening Cross Contingency, 
and configuration management policies and procedures.
    \11\ System Securities that have successful Opening Crosses will 
open normally under that process at the NOOP based on the Opening 
Cross price.
---------------------------------------------------------------------------

2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\12\ in general, and with 
Section 6(b)(5) of the Act,\13\ in particular, because it 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; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The Exchange believes that the proposed changes to Rule 4752 
will promote transparency in the process for handling failures of the 
Opening Cross in calculating an opening price for System securities. 
Moreover, the proposed changes will also help assure consistent results 
in handling such Opening Cross failures, thus furthering fair and 
orderly markets, the protection of investors and the public interest.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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.\14\ The Exchange 
believes that the proposal is irrelevant to competition because it is 
not driven by, and will have no impact on, competition.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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 if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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. 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-2014-054 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-2014-054. 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 offices 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-
054, and should be submitted on or before June 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12422 Filed 5-28-14; 8:45 am]
BILLING CODE 8011-01-P