Document ID: SEC-2013-1421-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2013-08-09T04:00Z

[Federal Register Volume 78, Number 154 (Friday, August 9, 2013)]
[Notices]
[Pages 48746-48748]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-19260]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70113; File No. SR-NASDAQ-2013-096]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ's Rule Governing Modification of Orders in the Event of 
an Issuer Corporate Action Related to a Dividend, Payment or 
Distribution

August 5, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on July 22, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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

    NASDAQ proposes to modify NASDAQ's rule governing modification of 
orders in the event of an issuer corporate action related to a 
dividend, payment or distribution. NASDAQ proposes to implement the 
proposed rule change on a date that is on, or shortly after, the 
expiration of the pre-operative delay provided for in Rule 19b-
4(f)(6)(iii).\4\ The text of the proposed rule change is available on 
the Exchange's Web site at http://nasdaq.cchwallstreet.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.
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    \4\ 17 CFR 242.19b-4(f)(6)(iii).
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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 Rule 4761 addresses the treatment of quotes/orders in 
securities that are the subject of issuer corporate actions related to 
a dividend, payment or distribution. The rule applies to any trading 
interest that is carried on the Nasdaq Market Center book overnight.\5\

[[Page 48747]]

Prior to a recent proposed rule change,\6\ the rule contemplated a 
range of possible adjustments that, depending on the nature of the 
corporate action, might result in the cancellation of the order or an 
adjustment to its price and/or size to reflect the expected impact of 
the corporate action, effective on the ex-date of the corporate action. 
NASDAQ amended the rule, however, to provide that in the event of any 
corporate action related to a dividend, payment or distribution, NASDAQ 
will cancel open quotes/orders on the ex-date of the action. The 
cancellation occurs immediately prior to the opening of trading at 4 
a.m. on the ex-date of the corporate action, and the member receives a 
cancellation notice, so that it can, if it desired, reenter the order 
at the commencement of trading on the ex-date.
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    \5\ NASDAQ notes that the use of such good-till-cancelled 
trading interest is not prevalent, and that the majority of quotes/
orders expire by their terms at the end of regular market hours.
    \6\ Securities Exchange Act Release No. 69454 (April 25, 2013), 
78 FR 25506 (May 1, 2013) (SR-NASDAQ-2013-068).
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    NASDAQ is now proposing to implement limited, optional 
functionality to allow open orders to be adjusted, rather than 
cancelled. The change is responsive to member input indicating that 
such functionality may assist with order management with respect to 
cash dividends and forward splits, the most common type of corporate 
action.\7\ Under the proposal, a member may designate that all orders 
with a time-in-force of good-till-cancelled that are entered through 
one or more order entry ports specified by the member will be processed 
in the manner specified below.\8\
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    \7\ For other corporate actions, open orders will be cancelled, 
regardless of the port through which they were entered.
    \8\ The member may opt for this processing on a port-by-port 
basis, but not an order-by-order basis. Thus, the new provisions 
providing for order adjustment will apply to all good-till-cancelled 
orders entered through a port that has been specified by the member 
for such processing.
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    (1) Cash Dividend. If an issuer is paying a cash dividend, the 
price of an order to buy will be reduced by the amount of the sum of 
all dividends payable, rounded up to the nearest whole cent; provided, 
however, that there will be no adjustment if the sum of all dividends 
is less than $0.01. For example, if the sum of all dividends is $0.381, 
the price of the order will be reduced by $0.39. An order to sell will 
be retained but will receive no price adjustment.
    (2) Forward Stock Split. If an issuer is implementing a forward 
stock split (i.e., a stock split in which shares outstanding are 
exchanged for a larger number of shares), the order will be cancelled 
if its size is less than one round lot. If the order's size is greater 
than one round lot, (i) the size of the order will be multiplied by the 
ratio of post-split shares to pre-split shares, with the result rounded 
downward to the nearest whole share, and (ii) the price of the order 
will be multiplied by the ratio of pre-split shares to post-split 
shares, with the result rounded down to the nearest whole penny in the 
case of orders to buy and rounded up to the nearest whole penny in the 
case of orders to sell. For example, if a member has entered a good-
till-cancelled order to buy 375 shares at $10.95 and the issuer 
implemented a split under which each share would be exchanged for 2.25 
shares, the size of the order would be adjusted to 843 shares (375 x 
2.25/1 = 843.75, rounded down to 843) and the price of the order would 
be adjusted to $4.86 ($10.95 x 1/2.25 = $4.8667, rounded down to 
$4.86). An order to sell at the same price and size would be adjusted 
to 843 shares with a price of $4.87.
    (3) Combination of Cash Dividend and Forward Stock Split. If an 
issuer is implementing a cash dividend and a forward stock split on the 
same date, the adjustments described above will both be applied, in the 
order described in the notice of the corporate actions received by 
NASDAQ.\9\
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    \9\ For securities listed on NASDAQ, NASDAQ receives notice of 
corporate actions from the issuer and determines the applicable ex-
date. See Rule 11140. For securities listed on other exchanges, 
NASDAQ receives notice from the listing exchange.
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    All of the foregoing changes will be affected immediately prior to 
the opening of the System at 4:00 a.m. on the ex-date of the applicable 
corporate action. Open orders that are retained will be re-entered by 
the System (as adjusted above) immediately prior to the opening of the 
System, such that they will retain time priority over new orders 
entered at or after 4:00 a.m.\10\
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    \10\ To the extent that multiple good-till-cancelled orders in a 
particular security are adjusted and re-entered, such orders may not 
retain the same time priority vis-[agrave]-vis one another that they 
had on the preceding day. Rather, because such orders will be 
entered simultaneously through multiple order entry ports, their 
relative priority will be a function of the duration of system 
processing associated with each individual order.
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    NASDAQ is also amending the language that describes corporate 
actions to which Rule 4761 applies to clarify and expand the scope of 
the rule. Currently, the rule refers to ``issuer corporate actions 
related to a dividend, payment or distribution''. NASDAQ proposes to 
add to the rule language that would make it clear that the term 
``dividend'' encompasses dividends payable in stock, securities, or 
both, and that the term distribution has been interpreted to include 
forward or reverse stock splits.\11\ In addition, NASDAQ is adding 
language to the rule to include symbol changes and changes in the 
primary listing venue of a stock, which have not previously been 
covered by Rule 4761, within the scope of corporate actions resulting 
in the cancellation of good-till-cancelled orders. NASDAQ believes that 
this change will assist market participants in managing their orders, 
because the receipt of a cancellation message will alert the member to 
the need to evaluate whether to reenter the cancelled order with a new 
symbol or in a different trading venue.\12\
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    \11\ See Securities Exchange Act Release No. 54613 (October 17, 
2006), 71 FR 62325 (October 24, 2006) (SR-NASDAQ-2006-043) (adopting 
the phrase ``dividend, payment or distribution'' and including stock 
splits as an example of corporate actions covered by the rule).
    \12\ Notably, in some instances, such as a corporate spinoff, 
the old symbol may be immediately reused for a different security. 
Therefore, maintaining an order with that symbol on the book could 
result in the market participant maintaining an order in a stock in 
which it did not wish to maintain a trading interest. Also, to the 
extent that a market participant wishes to trade a security in its 
listing venue, the cancellation of its open order in the event of a 
change in listing venue will provide it with the opportunity to do 
so.
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2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\13\ in general, and with 
Section 6(b)(5) of the Act \14\ in particular, in that the proposal 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. Specifically, 
NASDAQ believes that the change, which is responsive to member input, 
will facilitate transactions in securities and perfect the mechanism of 
a free and open market by providing members with additional optional 
functionality that may assist them with order management with respect 
to cash dividends and forward splits, the most common type of corporate 
actions. The change will also facilitate transactions in securities and 
perfect the mechanism of a free and open market by assisting

[[Page 48748]]

market participants in managing their orders in the event of symbol 
changes and changes in listing venue, by cancelling open orders and 
thereby alerting members to the need to evaluate whether to reenter the 
cancelled order.
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    \13\ 15 U.S.C. 78f. of a change in listing venue will provide it 
with the opportunity to do so. 1 15 U.S.C. 78f
    \14\ 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. Specifically, by 
offering market participants additional options with regard to 
management of open orders, the change has the potential to enhance 
NASDAQ's competitiveness with respect to other trading venues, thereby 
promoting greater competition. Moreover, the change does not burden 
competition in that it does not restrict the ability of members to 
enter and update trading interest in NASDAQ.

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

    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) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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 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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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-096 on the subject line.

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 Number SR-NASDAQ-2013-096. 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 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; 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-2013-096 and should 
be submitted on or before August 30, 2013.

    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).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-19260 Filed 8-8-13; 8:45 am]
BILLING CODE 8011-01-P