Document ID: SEC-2016-0375-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2016-03-02T05:00Z

[Federal Register Volume 81, Number 41 (Wednesday, March 2, 2016)]
[Notices]
[Pages 10933-10935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04502]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77232; File No. SR-NASDAQ-2016-026]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 5745

February 25, 2016.
    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 February 17, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I 
and II below, which Items have been prepared by Nasdaq. 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

    Pursuant to the provisions of Section 19(b)(1) of the Act, and Rule 
19b-4 thereunder, Nasdaq is filing with the Commission a proposed rule 
change to amend Nasdaq Rule 5745 (Exchange-Traded Managed Fund 
(``NextShares'')) in connection with a type of open-end management 
investment company registered under the Investment Company Act of 1940, 
as amended (``1940 Act''). The shares of a NextShares are collectively 
referred to herein as ``Shares.''
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, 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 Exchange proposes to amend Nasdaq Rule 5745 in connection with 
the trading of NextShares \3\ on Nasdaq using a new trading protocol 
called ``NAV-Based Trading.'' In NAV-Based Trading, all bids, offers 
and execution prices would be expressed as a premium/discount (which 
may be zero) to a NextShares next-determined net asset value (``NAV'') 
(e.g., NAV - $0.01;

[[Page 10934]]

NAV + $0.01). A NextShares NAV would be determined each business day, 
normally no later than 6:45 p.m. Eastern Time. Trade executions using 
NAV-Based Trading would be binding at the time orders are matched on 
Nasdaq's facilities, with the transaction prices contingent upon the 
determination of the NextShares NAV at the end of the business day.
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    \3\ The Commission approved Nasdaq Rule 5745 in Securities 
Exchange Act Release No. 34-73562 (Nov. 7, 2014), 79 FR 68309 (Nov. 
14, 2014) (SR-NASDAQ-2014-020).
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    A NextShares next determined NAV would be represented by a proxy 
price (``Proxy Price'') base value (represented as 100) and will be 
adjusted by the premium/discount being offered/bid by the subject 
transaction. For example, if a client wanted to enter a bid of NAV 
minus $0.01 the proxy price would be 99.99 and if a client wanted to 
enter an offer of NAV plus $0.02 the proxy price would be 100.02.
    Specifically, the Exchange proposes to amend Nasdaq Rule 5745 
(Exchange-Traded Managed Fund (``NextShares'')) to add new subsection 
(h) to Nasdaq Rule 5745, which defines ``Proxy Price Protection''. 
Proxy Price Protection states that every NextShares order is subject to 
the Proxy Price Protection threshold of plus/minus $1.00 and that this 
threshold determines both the lower and upper threshold whereby orders 
will be cancelled at any point if it exceeds $101.00 or falls below 
$99.00, the established thresholds. The Proxy Price Protection 
threshold is applied to the proxy price amount of $100.00, which is the 
proxy price that reflects the NAV of a NextShares Fund.
    Every NextShares order, regardless of buying or selling 
instructions and order type, will be subject to the Proxy Price 
Protection threshold of plus/minus $1.00 and will be applied uniformly 
across all NextShares products. A NextShares order that is subject to 
the Proxy Price Protection threshold of plus/minus $1.00 will be 
cancelled at any point if it exceeds or falls below the established 
thresholds (i.e., if the NextShares order falls below $99.00 or exceeds 
$101.00). Additionally, the Proxy Price Protection threshold of plus/
minus $1.00 will be monitored to measure its effectiveness, but it may 
be adjusted by the Exchange in the future if it determines based upon 
feedback and investor experience that a different threshold would be 
more effective.
    Nasdaq based the Proxy Price Protection threshold of plus/minus 
$1.00 on how NextShares transactions occur in relation to the NAV. 
Since each trade executes in Proxy Price format, only the amount of 
premium/discount can be determined at the time of the transaction. This 
premium/discount from each transaction will then be applied to the end 
of day NAV to calculate a final transaction price. The Proxy Price 
Protection threshold of plus/minus of $1.00 is to ensure that the 
amount of the premium/discount does not represent a disproportionate 
amount of the total transaction when applied to the end of day NAV. The 
Proxy Price Protection threshold, however, will not be adjusted in the 
future to be less than $1.00 or exceed $3.00.
    In the example below, the plus/minus $1.00 threshold would 
translate into a 4% change in NAV for the Large Cap NextShares given 
the $25.00 end of day NAV. This 4% change in NAV is narrower, but most 
closely aligns with the 5% change in NAV set forth in Nasdaq Rule 11890 
for clearly erroneous transactions for products with an NAV greater 
than $25.00 up to and including $50.00,\4\ which is the expected NAV 
range for many NextShares.\5\
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    \4\ See Nasdaq Rule 11890(a)(2)(C)(1).
    \5\ The Exchange notes that the proposed Proxy Price Protection 
threshold of plus/minus $1.00 is also expected to be narrower than 
the applicable limit up--limit down plan bands. With the 
introduction of a new trading process (trading in Proxy Price), the 
Exchange seeks to offer protections that are more narrow than limit 
up--limit down bands given that the trading process represents a 
premium or discount to the end of day NAV price.
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    To illustrate whether a subject transaction meets the plus/minus 
$1.00 Proxy Price Protection threshold, consider the following example 
for a Large Cap NextShares \6\ with a $25.00 end of day NAV:
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    \6\ Large Cap NextShares is used only for illustrative purposes 
and this example applies across all NextShares (i.e., this example 
applies exactly the same to any type of NextShares such as a Small 
Cap NextShares or a Government Obligations NextShares) and does not 
apply on a security by security basis.
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     The plus/minus $1.00 Proxy Price Protection threshold is 
applied to the proxy price amount of $100.00, which is the proxy price 
that reflects the NAV of a NextShares Fund
     The lower threshold will be $99.00
     The upper threshold will be $101.00
     Buy or Sell orders lower than $99.00 or greater than 
$101.00 will not be accepted
    When applied to the end of day NAV \7\ of $25.00, the example 
continues as follows:
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    \7\ Nasdaq will apply the premium or discount from the 
transaction done in Proxy Price to the end of day NAV resulting in a 
final transaction price inclusive of the premium or discount.
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     The minimum execution price will be $24.00
     The maximum execution price will be $26.00
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act \8\ in general and Section 6(b)(5) of the Act \9\ in 
particular in that 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that proposed new subsection (h) to Nasdaq 
Rule 5745 is designed to promote just and equitable principles of trade 
and to protect investors in the trading of NextShares by clarifying 
that NextShares orders that fall outside the Proxy Price Protection 
threshold of plus/minus $1.00 will be cancelled, as well as by 
explicitly stating that this threshold is applied to the proxy price 
amount of $100.00, which is the proxy price that reflects the NAV of a 
NextShares Fund. The Exchange believes that that the proposed rule 
change to implement a Proxy Price Protection threshold is similar to 
existing mechanisms on other markets \10\ and would reduce the risk of 
and potentially prevent the execution of orders that are potentially 
erroneous from occurring on the Exchange. The proposed rule change will 
reduce confusion and add clarity around this issue and thereby promote 
just and equitable principles of trade and protect investors.
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    \10\ See Securities Exchange Act Release No. 74063 (Jan. 15, 
2015), 80 FR 3269 (Jan. 22, 2015) (SR-NYSE-2015-01) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Add a 
Price Protection Mechanism to Prevent the Automatic Execution of 
Incoming Market Orders and Marketable Limit Orders Outside a 
Specified Parameter and Eliminate Liquidity Replenishment Points and 
the Gap Quote Policy).
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    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.\11\
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    \11\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. In fact, the 
Exchange believes that the proposed rule changes would assist in the 
introduction of NextShares, and thereby will promote competition 
through innovation in the exchange-traded product marketplace.

[[Page 10935]]

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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will allow 
the Exchange to implement a Proxy Price Protection threshold similar to 
existing mechanisms on other markets and would reduce the risk of and 
potentially prevent the erroneous execution of orders on the Exchange. 
Accordingly, the Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest and hereby waives the 30-day operative delay and designates 
the proposed rule change to be operative upon filing.\14\
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    \14\ 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. 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-2016-026 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-026. 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 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-2016-026, and should 
be submitted on or before March 23, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04502 Filed 3-1-16; 8:45 am]
BILLING CODE 8011-01-P