Document ID: SEC-2013-0211-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2013-02-04T05:00Z

[Federal Register Volume 78, Number 23 (Monday, February 4, 2013)]
[Notices]
[Pages 7831-7833]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02303]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68762; File No. SR-NASDAQ-2013-012]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend NASDAQ Rule 4756 and Rule 4763 Regarding Modification of 
Previously Entered Orders

January 29, 2013.
    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 January 18, 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 amend NASDAQ Rule 4756 (Entry and Display of 
Quotes and Orders) and Rule 4763 (Short Sale Price Test Pursuant to 
Rule 201 of Regulation SHO) to stipulate how Participants in the NASDAQ 
Market Center System may modify previously entered orders and to 
describe how modified orders are processed. NASDAQ proposes to 
implement the proposed rule change 30 days after the date of the filing 
or shortly thereafter.
    The text of the proposed rule change is below. Proposed new 
language is italicized; deletions are bracketed.

4756. Entry and Display of Quotes and Orders

    (a) Entry of Orders--Participants can enter orders into the System, 
subject to the following requirements and conditions:
    (1)-(2) No change.
    (3) Orders can be entered into the System (or previously entered 
orders cancelled or modified) from 7:00 a.m. until 8:00 p.m. Eastern 
Time. Participants may modify a previously entered order without 
cancelling it or affecting the priority of the order on the book solely 
for the purpose of modifying the marking of a sell order as long, 
short, or short exempt; provided, however, that if an order is 
redesignated as short, a Short Sale Period is in effect under Rule 
4763, and the order is not priced at a Permitted Price or higher under 
Rule 4763(e), the order will be cancelled. In addition, a partial 
cancellation of an order to reduce its share size will not affect the 
priority of the order on the book. Except as provided in Rule 4761, all 
other modifications of orders will result in the replacement of the 
original order with a new order with a new time stamp.
    (b)-(c) No change.
* * * * *

4763. Short Sale Price Test Pursuant to Rule 201 of Regulation SHO

    (a)-(d) No change.
    (e) Re-pricing of Orders during Short Sale Period. Except as 
provided below, [D]during the Short Sale Period, short sale orders that 
are limited to the national best bid or lower and short sale market 
orders will be re-priced by the System one minimum allowable price 
increment above the current national best bid (``Permitted Price''). To 
reflect declines in the national best bid, the Exchange will continue 
to re-price a short sale order at the lowest Permitted Price down to 
the order's original limit price, or if a market order, until the order 
is filled. Non-displayed orders between the NASDAQ bid and offer at the 
time of receipt will also be re-priced upward to a Permitted Price to 
correspond with a rise in the national best bid.
    (1)-(2) No change.
    (3) During the Short Sale Period, if an order was entered as a long 
sale order or a short sale exempt order but is subsequently marked 
pursuant to NASDAQ Rule 4756(a)(3) as a short sale order, the System 
will cancel the order unless it is priced at a Permitted Price or 
higher.
    (f)-(g) No change.
* * * * *

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

[[Page 7832]]

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 purpose of the proposed rule change is to stipulate how 
Participants in the NASDAQ Market Center System may modify previously 
entered orders and to describe how modified orders are processed. 
Currently, Rule 4756 permits previously entered orders to be cancelled, 
a fact that has been interpreted by NASDAQ to allow a Participant to 
cancel an order in full or in part. However, new language is being 
added to the rule to make it clear that a partial cancellation of an 
order (i.e., a reduction in the share size of the order) does not cause 
the order to lose priority on the NASDAQ Market Center book. NASDAQ 
believes that it is reasonable to allow the partial cancellation of an 
order without the order losing priority because the Participant that 
entered the order continues to express its willingness to trade at the 
price entered when the order first came onto the book. Moreover, if the 
order is displayed, other Participants quoting at the same price are 
aware of the priority of their orders relative to the partially 
cancelled order. While a partial cancellation may provide these other 
Participants with greater opportunities to provide a fill, NASDAQ does 
not believe that it would be reasonable for the Participants to jump 
ahead of an order with time priority merely because the size of the 
order has been reduced. Similarly, if the partially cancelled order is 
non-displayed, other Participants would have no awareness of its price, 
its original size, or its reduced size. Again, while other Participants 
at that price may have an increased opportunity to provide a fill when 
the order's size is reduced, they would not have an expectation that 
the priority of their orders would change vis-[agrave]-vis that of an 
order that arrived on the book at an earlier time. Finally, with 
respect to Participants seeking to access liquidity, the reduced size 
of the order would be disseminated (if a displayed order) or not 
disseminated (if a non-displayed order) via market data feeds, but 
these Participants would be indifferent as to the order's priority vis-
[agrave]-vis other orders with the same price.
    In addition, NASDAQ is modifying Rule 4756 to provide that a sell 
order may be modified in order to change its marking as long, short, or 
short exempt without affecting its priority on the book.\3\ 
Participants sometimes wish to modify the marking of a sell order on 
the book due to changes in the Participant's holdings of the security 
in question. At present, such a modification may only be achieved by 
the cancellation of the existing order and its replacement with a new 
order with a different time stamp. NASDAQ believes that it is 
reasonable to allow the modification of an order for this purpose 
without affecting its priority, since the order's marking has no 
bearing on the timing of its entry onto the book vis-[agrave]-vis other 
orders at the same price.\4\ In the event, however, that a long or 
short exempt order is redesignated as a short sale order and the 
security that is the subject of the order is in a Short Sale Period, as 
provided for in Rule 4763 and Rule 201 under Regulation SHO,\5\ the 
order will be evaluated to determine whether its price would be a 
Permitted Price within the meaning of Rule 4763(e). If not, the order 
will be cancelled rather than repriced.\6\ NASDAQ believes that 
cancelling the order under these circumstances is preferable to 
repricing it, because it alerts the Participant entering the order to 
the existence of the Short Sale Period and forces the Participant to 
evaluate its intentions with regard to the order.
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    \3\ The proposed rule does not affect Participants' obligations 
contained in Regulation SHO under the Act, and Participants must 
continue to comply with such obligations, including the order 
marking and locate requirements. See 17 CFR 242.200 et seq.
    \4\ A change to the marking of the order would be effected 
through the submission of a ``modify order'' message.
    \5\ 17 CFR 242.201.
    \6\ If an order originally marked as long or short is marked as 
short exempt, the order will not be cancelled or repriced. Rule 
4763(g).
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    Finally, NASDAQ is amending Rule 4756 to make it clear that, except 
as provided in Rule 4761,\7\ all other modifications of previously 
submitted orders, including increases in size \8\ and changes in price, 
will result in the cancellation of the original order and its 
replacement with a new order with a new time stamp. Although the 
addition of this rule language does not reflect a change in the way the 
NASDAQ system currently operates, NASDAQ believes that the clarity of 
the rule will be enhanced by including the new language. NASDAQ further 
believes that the functionality described by the rule language is 
important to ensuring that Participants cannot use an existing order 
unfairly to retain priority with respect to a materially different 
order.
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    \7\ Rule 4761 provides for automatic adjustment of open orders 
in response to issuer corporate actions related to a dividend, 
payment, or distribution.
    \8\ NASDAQ reminds Participants that if a seller increases the 
size of a pending sell order, the resulting modified order is 
considered a new order and must be marked by the broker-dealer to 
reflect the seller's net position at the time of order modification 
pursuant to Rule 200 of Regulation SHO.
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2. Statutory Basis
    NASDAQ believes that its proposal is consistent with Section 6(b) 
of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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. Specifically, NASDAQ believes that permitting Participants to 
change the marking of sell orders without affecting their priority on 
the NASDAQ book will eliminate an aspect of the NASDAQ Market Center 
system that had unnecessarily made it more difficult for posted sell 
orders to execute. Thus, the change will enhance the fairness and 
efficiency of the NASDAQ market without affecting the ability of 
Participants to comply with applicable regulatory requirements. In 
addition, the changes to the rule that describe the effect of a partial 
order cancellation promote the clarity of the rule with respect to the 
ability of a Participant to reduce the size of an existing order 
without affecting its priority. NASDAQ further believes that allowing 
an order to retain priority under these conditions is consistent with 
the operation of a free and open market and the protection of investors 
and the public interest, since the Participant that entered an order 
that is partially cancelled has nevertheless expressed a continued 
willingness to trade at a specified price, and therefore should retain 
priority over Participants that joined that price at a later time. 
Finally, NASDAQ believes that the proposed addition of language to 
clearly stipulate that all other order modifications will result in the 
cancellation and replacement of the original order with a new order 
with new time priority is consistent with the protection of investors 
and the public interest because the new language will make clear an 
existing feature of the market that NASDAQ believes is important to 
ensuring that Participants cannot use an existing order unfairly to

[[Page 7833]]

retain priority with respect to a materially different order.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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, 
NASDAQ believes that the change with respect to allowing Participants 
to modify the long, short, or short exempt marking of a sell order 
without affecting its priority will assist NASDAQ in competing with the 
BATS Exchange and the BATS Y-Exchange, which already allow their 
Participants to do so. NASDAQ further believes that the other changes 
will not have any effect on competition.

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 \11\ and Rule 19b-4(f)(6) 
thereunder.\12\ At any time within 60 days of the filing of such 
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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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.
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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-2013-012 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-2013-012. 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-2013-012 and should 
be submitted on or before February 25, 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. 2013-02303 Filed 2-1-13; 8:45 am]
BILLING CODE 8011-01-P