Document ID: SEC-2013-0824-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2013-05-01T04:00Z

[Federal Register Volume 78, Number 84 (Wednesday, May 1, 2013)]
[Notices]
[Pages 25506-25508]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10277]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69454; File No. SR-NASDAQ-2013-068]

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, and To Make Related Clarifications to Rule Text

April 25, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on April 17, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. 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, and to make related clarifications 
to rule text. The Exchange has designated the proposed changes as 
immediately effective, and proposes to implement the changes on or 
shortly after the 30th day after the date of the filing. The text of 
the proposed rule change is available on the Exchange's Web site at 
http://www.nasdaq.cchwallstreet.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

[[Page 25507]]

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. 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
    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 (a ``corporate action''). The rule 
applies to any trading interest that is carried on the Nasdaq Market 
Center book overnight.\4\ The rule contemplates 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 
believes that the rule, as currently written, is excessively complex, 
since the rule contemplates that quotes/orders receive different 
adjustments depending on the nature and magnitude of the corporate 
action, whether the trading interest is a quote or order, and whether 
the trading interest is on the buy or sell side.\5\ Moreover, the 
current rule contemplates active management of quotes/orders by NASDAQ, 
thereby causing it to assume responsibilities that may be borne more 
appropriately by its members. Accordingly, NASDAQ proposes to amend the 
rule to provide that in the event of any corporate action, NASDAQ will 
cancel open quote/orders on the ex-date of the action, thereby imposing 
on the member that entered the order the responsibility for determining 
whether it wishes to reenter the order and if so, at what price and 
size.\6\ The cancellation would occur immediately prior to the opening 
of trading at 4 a.m. on the ex-date of the corporate action, and the 
member would receive a cancellation notice, so that it could, if it 
desired, reenter the order at the commencement of trading on the ex-
date.
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    \4\ 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.
    \5\ NASDAQ also notes that it has determined that several non-
material discrepancies exist between the current rule text and the 
manner in which certain open quotes/orders are currently processed 
by the Nasdaq Market Center system. This filing and the system 
changes to implement it will eliminate these discrepancies.
    \6\ In making this change, NASDAQ is reversing a change made in 
2006, in which NASDAQ replaced a rule to purge open orders with the 
current rule. Securities Exchange Act Release No. 54613 (October 17, 
2006), 71 FR 62325 (October 17, 2006) (SR-NASDAQ-2006-043). At the 
time, NASDAQ stated that many members had not programmed their 
systems to adjust orders themselves and therefore preferred to have 
NASDAQ perform the function. NASDAQ believes that the intervening 
evolution in the sophistication of trading systems, as well as the 
importance of active risk management by broker/dealers, justifies 
the reversion to the prior rule. NASDAQ further notes that the prior 
rule provided that NASDAQ would not purge orders in the event of a 
corporate distribution of less than $0.01. NASDAQ is not now 
proposing to retain this carve-out because NASDAQ believes that it 
would increase the complexity of order processing without any 
identifiable benefit.
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    In addition, NASDAQ is proposing to make conforming changes to Rule 
4756, which currently references the fact that open orders may be 
adjusted under Rule 4761 without such orders losing time priority. 
Since under the proposed rule change, all such orders will be 
cancelled, the cross-reference to Rule 4761 needs to be removed. 
Finally, NASDAQ is proposing to address several issues with the 
language of Rule 4756(b) to make it clear that quotes do not 
necessarily remain open overnight. First, the rule is being amended to 
delete an obsolete reference to NASDAQ's Automatic Quote Refresh 
functionality, which was discontinued on February 25, 2013.\7\ Second, 
NASDAQ is modifying a description of open quotes, the original intent 
of which is unclear and that accordingly may result in confusion. The 
sentence in question appears to reflect the idea that an open quote 
(i.e., a quote designated to remain open at the end of the trading day) 
would be processed in the same manner as a System Hours GTC Order. 
While accurate, this statement does not reflect the fact that a quote 
may also accurately be described as an Attributable Order entered by a 
NASDAQ Market Maker or NASDAQ ECN (i.e., trading interest that is 
identified as having been entered by a particular market participant). 
Moreover, although an Attributable Order may be entered with a time-in-
force of good-`till-cancelled and thereby remain open overnight, such 
orders are exceedingly rare, such that almost all quotes/orders of 
NASDAQ Market Makers expire at the end of regular market hours. 
Accordingly, NASDAQ believes that the focus of the current sentence on 
orders remaining open might imply that all quotes remain open 
overnight, when as a factual matter this is almost never the case 
because the good-`till-cancelled time-in-force is almost never used by 
market participants. NASDAQ proposes to amend the sentence to provide 
that ``Quotes will be processed as Attributable Orders, with such time-
in-force designation as the Nasdaq Market Maker or Nasdaq ECN may 
assign.'' Finally, NASDAQ proposes to correct a typographical error in 
the rule.\8\
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    \7\ Securities Exchange Act Release No. 68528 (December 21, 
2012), 77 FR 77165 (December 31, 2012) (SR-NASDAQ-2012-140).
    \8\ NASDAQ notes that NASDAQ OMX BX, Inc. (``BX'') is filing a 
similar proposed rule change to adopt a rule comparable to proposed 
NASDAQ Rule 4761 and to make amendments to BX Rule 4756 similar to 
those proposed with respect to NASDAQ Rule 4756. SR-BX-2013-031 
(April 17, 2013).
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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,\9\ in general, and with Section 
6(b)(5) of the Act \10\ 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 will simplify NASDAQ's rule governing 
adjustment of open quotes/orders in the event of corporate actions by 
making it clear that all such quotes/orders will be cancelled, thereby 
ensuring that market participants have appropriate notice of the 
possibility that they may either deem it advisable not to reenter such 
quotes/orders, or to reenter them with such adjustments to price and/or 
size as the market participant deems advisable to reflect the corporate 
action. Thus, the change will facilitate transactions in securities and 
perfect the mechanism of a free and open market by providing additional 
assurance that market participants carefully manage the trading 
interest that they enter into NASDAQ. In addition, the proposed changes 
to Rule 4756 are designed to make conforming changes and to improve the 
clarity of that rule.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).

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[[Page 25508]]

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, 
NASDAQ believes that the rule change does not affect the availability 
or pricing of goods or services offered by the Exchange, and therefore 
does not impact competition between the Exchange and others. Rather, 
the change is designed to simplify and clarify existing rules in a 
manner that 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

    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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
\12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-068 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-2013-068. 
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-2013-068 and should be submitted on or before May 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-10277 Filed 4-30-13; 8:45 am]
BILLING CODE 8011-01-P