Document ID: SEC-2019-1186-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-08-19T04:00Z

[Federal Register Volume 84, Number 160 (Monday, August 19, 2019)]
[Notices]
[Pages 42964-42967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17680]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86642; File No. SR-NASDAQ-2019-064]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of 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

August 13, 2019.
    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 July 31, 2019, 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 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 text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, 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 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 Nasdaq Closing Cross is a price discovery facility that crosses 
orders at a single price and establishes the Nasdaq Official Closing 
Price for a security. The Closing Cross was designed to create a robust 
close that allows for efficient price discovery through a transparent 
automated auction process. Nasdaq is proposing to (i) preclude on-close 
orders from being cancelled or modified after 3:50 p.m. ET and (ii) 
permit Limit-on-Close orders entered after 3:55 p.m. ET to be accepted 
and priced at or between the First or Second Reference Prices (as 
defined below). Nasdaq believes that the proposed changes will enhance 
price discovery, stability and transparency in the Closing Cross 
process.
    Nasdaq has proposed related enhancements to the Closing Cross 
process that will be implemented in conjunction with the proposed 
changes.\3\ On February 27, 2019, Nasdaq filed a proposed rule change 
to establish the Early Order Imbalance Indicator (``EOII'') that the 
Exchange will begin disseminating at 3:50 p.m. or ten minutes prior to 
the market close. The EOII will contain a subset of the information 
comprising the Net Order Imbalance Indicator (``NOII''), which will be 
disseminated at 3:55 p.m. or five minutes prior to the market close.
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    \3\ See Securities Exchange Act Release No. 34-85292 (Mar. 12, 
2019), 84 FR 9848 (Mar. 18, 2019) (SR-NASDAQ-2019-010).
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    The NOII is a message disseminated by electronic means containing 
information about market-on-close (``MOC''),\4\ limit-on-close 
(``LOC''),\5\ imbalance only (``IO'') \6\ orders, and Close Eligible 
Interest \7\ and the price at which those orders would execute at the 
time of dissemination.\8\ MOC, LOC and

[[Page 42965]]

IO orders are on-close order types that are executable only during the 
Closing Cross.
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    \4\ A ``Market on Close Order'' or ``MOC'' is an Order Type 
entered without a price that may be executed only during the Nasdaq 
Closing Cross. See Rule 4702(b)(11).
    \5\ Pursuant to Rule 4702(b)(12), a ``Limit on Close Order'' or 
``LOC'' is an Order Type entered with a price that may 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 4754(a)(9).
    \6\ An ``Imbalance Only Order'' or ``IO'' 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).
    \7\ ``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).
    \8\ See Rule 4754(a)(7).
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MOC Orders
    Currently, pursuant to Rule 4702(b)(11)(A), MOC orders may be 
entered, cancelled, and/or modified between 4 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 and/or modified only if the 
participant requests that Nasdaq correct a legitimate error in the 
order.\9\ MOC orders cannot be cancelled or modified at or after 3:58 
p.m. ET for any reason.
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    \9\ ``Legitimate error'' for a MOC, LOC or IO order includes, 
for example, an error in the Side, Size, Symbol, or Price, or 
duplication of an order, as set forth in the applicable rule for 
each Order Type.
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    In conjunction with the adoption of EOII, Nasdaq is proposing to 
revise Rule 4702(b)(11)(A) to permit MOC orders to be entered until 
3:55 p.m. ET and prohibit cancellation or modification of MOC orders 
after 3:50 p.m. ET except to correct a legitimate error in the order. 
Nasdaq believes that these changes will enhance stability in the 
Closing Cross process because they will reduce the possibility of large 
indicative price movements due to participants cancelling or modifying 
orders in reaction to the EOII. It will also enhance the price 
discovery and liquidity of a security by increasing the number of 
participants in the Nasdaq Closing Cross, which establishes the Nasdaq 
Official Closing Price for a security. In addition, participants may 
continue to enter MOC orders until 3:55 p.m. ET, which allows 
participants to consider information in the EOII in making informed 
decisions about whether and how to participate in the Closing Cross.
IO Orders
    Currently, pursuant to Rule 4702(b)(13)(A), an IO order may be 
entered between 4:00 a.m. ET until the time of execution of the Nasdaq 
Closing Cross, but may not 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 and/or modified if the 
participant requests that Nasdaq 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.
    In conjunction with the adoption of EOII, Nasdaq is proposing to 
revise Rule 4702(b)(13)(A) to prohibit cancellation or modification of 
IO orders after 3:50 p.m. ET except to correct a legitimate error in 
the order. IO orders provide liquidity and are intended to offset a buy 
or sell imbalance during the Closing Cross. Nasdaq believes that this 
change will enhance stability in the Closing Cross process because it 
will reduce the possibility of participants modifying an IO position in 
reaction to the EOII. In addition, participants may continue to enter 
IO orders until 3:55 p.m. ET, which allows participants to consider 
information in the EOII in making informed decisions about whether and 
how to participate in the Closing Cross.
LOC Orders
    Currently, pursuant to Rule 4702(b)(12)(A), LOC orders may be 
entered, cancelled, and/or modified between 4 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, LOC orders may be entered provided that there is a First 
Reference Price \10\ and may be cancelled, but not modified, only if 
the participant requests that Nasdaq correct a legitimate error in the 
order. A LOC order entered between 3:55 p.m. ET and immediately prior 
to 3:58 p.m. ET is accepted at its limit price, unless its limit price 
is higher (lower) than the First Reference Price for an LOC order to 
buy (sell), in which case the LOC order is handled consistent with the 
Participant's instruction that the LOC order is to be: (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. The default configuration for participants that do 
not specify otherwise is to have such LOC orders re-priced rather than 
rejected.
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    \10\ ``First Reference Price'' is presently 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 the following: (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 
subparagraph (i), the Current Reference Price shall mean the price 
that minimizes any Imbalance; (iii) if more than one price exists 
under subparagraph (ii), the Current Reference Price shall mean the 
entered price at which shares will remain unexecuted in the cross; 
or (iv) if more than one price exists under subparagraph (iii), the 
Current Reference Price shall mean 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).
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    In conjunction with the adoption of EOII, Nasdaq is proposing to 
revise Rule 4702(b)(12)(A) to expand the order entry of a LOC order 
submitted after 3:55 p.m. ET (``Late LOC'') to be accepted and priced 
at either the First Reference Price or the Second Reference Price. In 
connection with this change, Nasdaq is proposing to revise 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 10 
minutes prior to the early closing time on a day when Nasdaq closes 
early. Nasdaq is also proposing 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 when Nasdaq closes early.
    Under the proposed rule change, a LOC order may be entered, 
cancelled and/or modified between 4 a.m. ET and immediately prior to 
3:50 p.m. ET. Between 3:50 p.m. ET and 3:55 p.m. ET, a LOC order may be 
entered but can only be cancelled and/or modified if the participant 
requests that Nasdaq correct a legitimate error in the order. Between 
3:55 p.m. ET and immediately prior to 3:58 p.m. ET, a Late LOC order 
may be entered, provided that there is a First Reference Price or a 
Second Reference Price. Late LOC orders can also only be cancelled and/
or modified if the participant requests that Nasdaq correct a 
legitimate error in the order. LOC orders cannot be cancelled or 
modified at or after 3:58 p.m.
    A Late LOC order to buy will be accepted at its limit price, unless 
its limit price is higher than the higher 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: (1) Rejected; or (2) re-priced to the higher of the 
First Reference Price and the Second Reference Price. Similarly, a Late 
LOC order to sell will be accepted at its limit price, unless its limit 
price is lower than the 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 LOC 
order is to be: (1) Rejected; or (2) re-priced to the lower of the 
First Reference Price and the Second Reference Price.\11\ For example, 
if the

[[Page 42966]]

First Reference Price for a security is $10 and the Second Reference 
Price is $10.25, and a participant submits a Late LOC order to buy the 
security with a limit of $11, the order would either be rejected or 
repriced to $10.25 in accordance with the participant's instructions.
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    \11\ In each case, 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. The default configuration for 
participants that do not specify otherwise will be to have Late LOC 
orders re-priced rather than rejected.
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    Nasdaq believes that allowing Late LOC orders to be priced at the 
more aggressive of the two reference prices will provide flexibility to 
market participants by allowing participants to consider information in 
both the EOII and NOII in making informed decisions about whether and 
how to participate in the Closing Cross. It will also increase 
participation for a wider variety of liquidity providers who otherwise 
would have had a Late LOC order rejected or repriced if its limit was 
outside of the First Reference Price. Nasdaq believes that increased 
participation may enhance price discovery and stability of the Closing 
Cross because it will allow more price forming orders to offset 
imbalances and to participate in the Closing Cross.
Additional Conforming Changes
    In connection with the proposed rule changes, Nasdaq is proposing 
to revise Sections 118(a)(1),\12\ 118(a)(2),\13\ and 118(a)(3) \14\ of 
Equity 7 Pricing Schedule to reflect the revised cutoff times for 
modifications to LOC orders. Nasdaq is also proposing to revise 
``Eligible Interest'' to ``Close Eligible Interest'' in Rules 
4754(a)(7)(E)(ii) and 4754(b)(2)(A) to correct an inadvertent error.
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    \12\ Section 118(a)(1) of the Equity 7 Pricing Schedule 
currently provides that the fee for execution and routing of orders 
in Nasdaq-listed securities is $0.0027 per share executed for a 
member with shares of liquidity provided in the Opening and Closing 
Crosses, excluding Market-on-Close, Limit-on-Close (other than an 
Limit-on-Close Order entered between 3:50 p.m. ET and immediately 
prior to 3:55 p.m. ET), Market-on-Open, Limit-on-Open, Good-til-
Cancelled, and Immediate-or-Cancel orders, through one or more of 
its Nasdaq Market Center MPIDs that represent more than 0.01% of 
Consolidated Volume during the month.
    \13\ Section 118(a)(2) of the Equity 7 Pricing Schedule 
currently provides that the fee for execution and routing of 
securities listed on NYSE is $0.0027 per share executed for a member 
with shares of liquidity provided in the Opening and Closing 
Crosses, excluding Market-on-Close, Limit-on-Close (other than an 
Limit-on-Close Order entered between 3:50 p.m. ET and immediately 
prior to 3:55 p.m. ET), Market-on-Open, Limit-on-Open, Good-til-
Cancelled, and Immediate-or-Cancel orders, through one or more of 
its Nasdaq Market Center MPIDs that represent more than 0.01% of 
Consolidated Volume during the month.
    \14\ Section 118(a)(3) of the Equity 7 Pricing Schedule 
currently provides that the fee for execution and routing of orders 
in securities listed on exchanges other than Nasdaq and NYSE (``Tape 
B Securities'') is $0.0027 per share executed for a member with 
shares of liquidity provided in the Opening and Closing Crosses, 
excluding Market-on-Close, Limit-on-Close (other than an Limit-on-
Close Order entered between 3:50 p.m. ET and immediately prior to 
3:55 p.m. ET), Market-on-Open, Limit-on-Open, Good-til-Cancelled, 
and Immediate-or-Cancel orders, through one or more of its Nasdaq 
Market Center MPIDs that represent more than 0.01% of Consolidated 
Volume during the month.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\16\ 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 because the proposed changes will improve the stability and 
price discovery process of the Closing Cross. Prohibiting cancellation 
or modification of MOC, LOC or IO orders after 3:50 p.m. ET will 
enhance stability in the Closing Cross process because it will reduce 
the possibility of large indicative price movements due to participants 
cancelling or modifying orders in reaction to the EOII, while 
participants maintain the ability to cancel or modify orders to correct 
a legitimate error in the order. In addition, permitting Late LOC 
orders to be repriced at the more aggressive of the First Reference 
Price or Second Reference Price may enhance price discovery and 
stability of the Closing Cross because it will allow more price forming 
orders to offset imbalances and to participate in the Closing Cross.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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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. Rather, the Exchange believes 
that the proposed rule changes are designed to render the Nasdaq 
Closing Cross more transparent and more flexible to participants. The 
proposed changes will affect all participants using MOC, LOC and IO 
orders equally.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-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

[[Page 42967]]

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 September 9, 2019.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17680 Filed 8-16-19; 8:45 am]
 BILLING CODE 8011-01-P