Document ID: SEC-2013-0706-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2013-04-11T04:00Z

[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21655-21657]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08469]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69322; File No. SR-NASDAQ-2013-061]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rule 4120

April 5, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 1, 2013, 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

    NASDAQ proposes to adopt NASDAQ Rule 4120(c)(7)(D) concerning the 
extension of the Display Only Period conducted prior to the IPO Halt 
Cross under NASDAQ Rule 4753. The Exchange has designated the proposed 
changes herein as immediately effective.
    The text of the proposed rule change is below. Proposed new 
language is underlined; proposed deletions are in brackets.
4120. Trading Halts
    (a)-(b) No change.
    (c) Procedure for Initiating a Trading Halt
    (1)-(6) No change.
    (7)
    (A) A trading halt or pause initiated under Rule 4120(a)(1), (4), 
(5), (6), (9), (10), (11) or Rule 4120(b) shall be terminated when 
Nasdaq releases the security for trading. Prior to terminating the 
halt, there will be a 5-minute Display Only Period during which market 
participants may enter quotations and orders in that security in Nasdaq 
systems. At the conclusion of the 5-minute Display Only Period, the 
security shall be released for trading unless Nasdaq extends the 
Display Only Period for an additional 1-minute period pursuant to 
subparagraph (C) below. At the conclusion of the Display Only Period, 
trading shall immediately resume pursuant to Rule 4753.
    (B) A trading halt initiated under Rule 4120(a)(7) shall be 
terminated when Nasdaq releases the security for trading. Prior to 
terminating the halt, there will be a 15-minute Display Only Period 
during which market participants may enter quotes and orders in that 
security in Nasdaq systems. In addition, beginning at 7 a.m., market 
participants may enter Market Hours Day Orders in a security that is 
the subject of an Initial Public Offering on Nasdaq and designate such 
orders to be held until the beginning of the Display Only Period, at 
which time they will be entered into the system. At the conclusion of 
the 15-minute Display Only Period, the security shall be released for 
trading unless Nasdaq extends the Display Only Period for up to six 
additional 5-minute Display Only Periods pursuant to subparagraph (C) 
or (D) below. At the conclusion of the Display Only Period(s), there 
shall be an additional delay of between zero and 15 seconds (randomly 
selected) and then trading shall resume pursuant to Rule 4753.
    (C) If at the end of a Display Only Period, Nasdaq detects an order 
imbalance in the security, Nasdaq will extend the Display Only Period 
as permitted under subparagraphs (A) and (B) above. Order imbalances 
shall be established when (i) the Current Reference Prices, as defined 
in Rule 4753(a)(2)(A), disseminated 15 seconds and immediately prior to 
the end of the Display Only Period differ by more than the greater of 5 
percent or 50 cents, or (ii) all buy or sell market orders will not be 
executed in the cross.
    (D) At any time within the last five minutes prior to the end of a 
Display

[[Page 21656]]

Only Period, Nasdaq may extend the Display Only Period as permitted 
under subparagraph (B) above at the request of an underwriter of an 
IPO.
* * * * *

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
    The Exchange proposes to adopt Rule 4120(c)(7)(D) to describe an 
additional basis for extending the Display Only Period as permitted by 
Rule 4120(c)(7)(B), and is making a conforming change to Rule 
4120(c)(7)(B). Rule 4120(c)(7)(B) governs the orderly launch of trading 
of a company's securities approved for listing on NASDAQ in an initial 
public offering (``IPO''). Rule 4120(c)(7)(B), provides a fifteen-
minute ``Display Only Period'' prior to terminating the halt imposed on 
an IPO security before it opens for trading for the first time on 
NASDAQ pursuant to the IPO Halt Cross of Rule 4753. Under Rule 
4120(c)(7)(B), at the conclusion of the fifteen-minute Display Only 
Period NASDAQ may extend the period for up to six additional five-
minute Display Only Periods, pursuant to the basis described under Rule 
4120(c)(7)(C). Rule 4120(c)(7)(C) allows an extension when NASDAQ 
detects an order imbalance in the security.
    In May 2007, nearly a year after the launch of the IPO Halt Cross, 
NASDAQ determined to change its internal procedures to consider 
requests by underwriting firms involved in an IPO to extend the Display 
Only Period by five minutes, up to a maximum of six five-minute 
extensions. NASDAQ made the change based on its experience with 
operating the IPO process and in an effort to ensure the orderly 
operation of the IPO process. NASDAQ found that underwriters possess 
valuable information about the pending IPO given their unique position 
in the market, including the state of IPO orders resting on the 
underwriter's book, and believed that it is in the best interest of the 
markets to extend the 15-minute Display Only Period upon the request of 
a market maker. Accordingly, pursuant NASDAQ's internal procedures it 
relies on the underwriter's reasonable judgment as to whether a five-
minute extension of the Display Only Period will improve the price 
discovery process of the IPO Halt Cross, and thereby help to ensure a 
fair and orderly launch of trading in the IPO security.
    NASDAQ is amending its rules to memorialize the underwriter-
requested extension process under Rule 4120(c)(7)(D). NASDAQ developed 
criteria for determining whether to grant an underwriter-requested 
extension of the Display Only Period, and applies such criteria 
consistently in every IPO wherein an underwriter makes an extension 
request. NASDAQ may change such criteria from time to time in the 
interest of improving the IPO process for market participants.
    NASDAQ notes that other markets also recognize the importance of 
allowing underwriters to extend the IPO auctions of their markets. For 
example, BATS Exchange, Inc. permits an extension to its IPO Auction 
Quote-Only period upon the request of an underwriter, with no limit on 
the number or length of extensions. Affording underwriters the ability 
to request an extension is consistent with NASDAQ's goal of promoting a 
fair and orderly market and NASDAQ believes that it is appropriate to 
include its long-standing procedure in its rules. Doing so will provide 
market participants with a better understanding the operation of the 
Display Only Period of the IPO process. Accordingly, NASDAQ is 
proposing to adopt new Rule 4120(c)(7)(D) to reflect that it may 
consider the request of an underwriter of an IPO to extend the Display 
Only Period by five minutes, up to a maximum six five-minute 
extensions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\3\ in general, and with 
Section 6(b)(5) of the Act,\4\ in particular, in that it is designed 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 
transaction 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 proposed rule change promotes this goal by 
establishing in NASDAQ's rules an IPO process that protects investors 
and the public interest by ensuring an orderly opening of trading in 
IPOs on NASDAQ. NASDAQ believes that underwriters of IPOs have unique 
insight into the investor interest in the IPO, and therefore are 
uniquely positioned to evaluate the book and make extension decisions 
to ensure an orderly IPO launch. NASDAQ notes that the criteria it 
applies in considering an underwriter-requested extension are applied 
consistently to every IPO, and therefore do not permit NASDAQ to 
discriminate in any manner.
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    \3\ 15 U.S.C. 78f.
    \4\ 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
Exchange believes that the proposal is irrelevant to competition 
because it is not driven by, nor impactful to, competition.

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 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)(ii) of the Act \5\ and Rule 19b-4(f)(6) thereunder.\6\
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    \5\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \6\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) \7\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to

[[Page 21657]]

Rule 19b-4(f)(6)(iii) \8\ the Commission may designate a shorter time 
if such action is consistent with the protection of investors and the 
public interest. The Exchange has asked the Commission to waive the 30-
day operative delay so that the proposal may become operative 
immediately upon filing. NASDAQ believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the proposed rule change provides an additional 
means by which NASDAQ may extend the Display Only Period, which is in 
the interest of providing a fair and orderly launch of trading in an 
IPO security. The Exchange also notes that other markets allow 
underwriter-requested extensions of their pre-IPO quote periods. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it may aid in the fair and orderly launch of trading in an IPO 
security. For this reason, the Commission designates the proposed rule 
change to be operative upon filing.\9\
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    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ 17 CFR 240.19b-4(f)(6)(iii).
    \9\ For purposes only of waiving the 30-day operative delay, the 
Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 proposal 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-2013-061 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-2013-061. 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-2013-061 and should 
be submitted on or before May 2, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08469 Filed 4-10-13; 8:45 am]
BILLING CODE 8011-01-P